Delivering IT in Mainland China Without a Local Entity: Hardware Routes, Partner Structure, and What Changed in 2026

In short: An overseas or Hong Kong IT prime contractor without a mainland Chinese entity cannot simply ship hardware to a local partner and let them work for free. Each piece of equipment needs a lawful customs route — ATA Carnet, temporary entry (supervision code 2600), repair goods (1300), other free-of-charge goods (3339), or a third-party importer of record — and the partner needs a contract that pays them, a custody agreement that says who owns the kit, and a monthly statement that reconciles both. One widely repeated claim is now out of date: since 1 January 2026, services provided free of charge are no longer a deemed VAT sale under China's VAT Law.

Why an Overseas Prime Contractor Hits a Wall in Mainland China

The commercial shape is familiar. A global company asks its IT provider — often headquartered in Hong Kong, Singapore, Europe or the United States — to support its offices across Asia under one contract. Most of the footprint is straightforward. Then the scope includes a site in Shanghai, Shenzhen or Suzhou, and the provider has no Chinese legal entity.

The usual workaround is a local partner: a mainland IT company, sometimes a single engineer's firm, that does the onsite work. And the usual way that arrangement goes wrong is not the engineering. It is the two things that have to cross the border with the work — the hardware and the money.

Hardware is the more visible problem. Laptops for a new joiner, a replacement switch, spare parts, a firewall for a new floor: someone has to get them into the mainland, and someone has to own them once they are there. Money is the quieter one. If the partner is paid informally, paid offshore, or not paid at all because "the hardware is the client's and the labour is a favour", their books stop matching what is physically in their custody.

This report walks through both. It is written for the prime contractor and for the enterprise that buys from it, because the exposure sits on both sides of that contract. Where the analysis is Brocent's own rather than a statement of law, it says so.

What Actually Goes Wrong for the In-Country Partner

The partner is the party holding the risk on the ground, so it is the right place to start. Four exposures recur.

Exposure 1: The hardware has no owner on paper

When equipment enters the mainland, customs records who imported it and under which supervision route. If a pallet of laptops arrives as an ordinary import consigned to the partner, then on paper the partner owns it. If it arrives in an engineer's luggage, or in a series of parcels declared as personal items, there may be no customs record of the business import at all.

Either way, the partner ends up holding equipment whose legal owner is unclear. That matters the first time something goes wrong: a laptop is lost, a server fails and needs to go back for repair, the client terminates and wants the kit returned, or a tax officer asks why a company with modest revenue is holding an inventory of high-value equipment it never bought.

Exposure 2: The VAT argument everyone repeats — and what actually changed in 2026

A great deal of Chinese-language guidance on this arrangement warns that a partner providing services free of charge is "deemed" to have made a taxable sale, and owes VAT on the market value of the labour. That argument rested on the 2016 VAT reform pilot measures (财税〔2016〕36号), which did treat services provided to others without consideration as a deemed sale.

It is no longer the law. The Value-Added Tax Law of the People's Republic of China took effect on 1 January 2026. Its Article 5 lists the deemed taxable transactions as three situations only: an entity or individual business using self-produced or commissioned goods for collective welfare or personal consumption; an entity or individual business transferring goods without consideration; and an entity or individual transferring intangible assets, real estate or financial products without consideration. Services provided without consideration are not on the list. Earlier pilot-era rules survive only where they are consistent with the new law.

Two consequences follow, and both matter:

• Free services are not, by themselves, a deemed VAT sale. An article or adviser still quoting the 2016 pilot rule to argue otherwise is working from a superseded position.
• Free goods still are. If the partner, rather than the prime contractor or the client, becomes the owner of hardware and then hands it over without charge, that transfer of goods falls squarely within Article 5. Which is one more reason the ownership question in Exposure 1 has to be settled in writing.

This correction is worth stating plainly, because the stale version of the claim is repeated widely enough that buyers sometimes structure around a risk that no longer exists while ignoring the ones that do.

Exposure 3: No purchase invoice, nothing to book

The exposure that remains is more mundane and harder to argue away. A Chinese company records what it owns and what it spends against invoices — fapiao — and its tax position is built on them.

If hardware arrives in the partner's office with no purchase invoice, the partner cannot book it as an asset, cannot depreciate it, and cannot explain it. If the partner performs months of work and issues no invoice for it, it has costs — engineer salaries, social insurance, travel — with no matching revenue. Neither picture is illegal on its face. Both look, from the outside, like the pattern a tax authority's risk systems are designed to notice: activity without income, or assets without a source.

Exposure 4: Transfer pricing where the parties are related, and the cost of getting it wrong

Where the prime contractor and the partner are related parties — common ownership, a shared controlling shareholder, or a dependence that meets the related-party tests — the Enterprise Income Tax Law adds a further layer. Article 41 allows the tax authority to adjust taxable income where a related-party business transaction does not follow the arm's-length principle and reduces the enterprise's taxable income. A partner that does substantial work for a related prime contractor at no charge, or at a price no independent firm would accept, is the textbook case.

Two numbers are often quoted around this, and both need care:

• "Cost plus 3–5%" is a common commercial convention for pricing a routine service subcontractor. It is not a statutory safe harbour. Whether a given margin is arm's length depends on the functions, assets and risks of the actual arrangement, and that is a question for the parties' own advisers.
• The late-payment surcharge (滞纳金) under Article 32 of the Law on the Administration of Tax Collection is 0.05% of the unpaid tax per day — roughly 18.25% a year if it runs for twelve months. It is a daily rate, and it accrues on top of the tax itself. The standard enterprise income tax rate of 25% is the rate, not the exposure; the exposure is the adjustment, the tax on it, and the surcharge that has accumulated by the time anyone looks.

None of these exposures makes the partner model unworkable. They make an informal partner model unworkable. The rest of this report is about the formal version.

The Real Customs Routes for IT Hardware

There is no single "IT equipment" route into the mainland. The right one depends on whether the equipment is coming back out, how long it stays, and whether it is being repaired, replaced or given. Below are the routes that actually fit IT delivery, each with what it is for and what it demands.

ATA Carnet

An ATA Carnet is an international customs document — a "passport for goods" — that lets equipment enter a country temporarily without paying duty, against a guarantee lodged in advance with the issuing chamber of commerce. China accepts carnets for exhibitions and fairs, commercial samples, professional equipment, and, since 2020, sporting goods.

• What it fits: professional equipment an engineer brings in to do a defined job and takes out again — diagnostic kit, a test rig, demonstration hardware.
• What it demands: the goods must leave again by the carnet's expiry date (a carnet is valid for up to a year; since January 2019 China has aligned the re-export deadline with that expiry rather than a fixed six months). For professional equipment, supporting documents such as the contract are expected, and hand-carried carnet goods must be registered with the China Chamber of International Commerce within three days of entry.
• What it does not fit: anything that is meant to stay. A laptop issued to a new employee is not professional equipment in transit — it is an import.

Temporary entry — supervision code 2600 (暂时进出境货物)

Without a carnet, temporary imports are declared under the customs supervision route for temporary entry and exit, governed by the General Administration of Customs' Measures on the Administration of Temporary Entry and Exit Goods (Order No. 233). The categories include instruments and tools used for installing, commissioning or testing equipment.

• What it fits: tools and instruments brought in for an installation or a test, then taken back out.
• What it demands: re-export within six months of entry. Extensions are possible on application, up to three times, each for no more than six months. A guarantee covering the duties and taxes is generally required, and the goods may only be used for the declared purpose.
• What it does not fit: permanent deployment. If the equipment is going to live in the client's office, the temporary route is the wrong route, however convenient it looks on day one.

Repair goods — supervision code 1300 (修理物品)

The repair route covers goods that cross the border to be repaired and then return. In the mainland-inbound direction, that means equipment brought in to be fixed and sent back out.

• What it fits: a failed appliance, controller or component that will be repaired in the mainland and returned to where it came from. In the outbound direction it covers sending mainland-installed equipment out for repair and bringing it back, where customs values the return on the repair fee and parts rather than the full item.
• What it demands: a guarantee at entry; parts imported for the repair may only be used for it, and leftovers go back out with the repaired goods. If the goods are not re-exported within the period customs sets, including any extension, customs treats them as an ordinary import and converts the guarantee into duties and taxes.
• A correction worth making: guidance circulating with this topic refers to a "repair code 1318". There is no supervision code 1318. The repair-goods code is 1300. A declaration built on a code that does not exist is not a technicality; it is a declaration that will be rejected.

Other free-of-charge goods — supervision code 3339 (其他进出口免费)

Code 3339 covers goods imported or exported free of charge that do not fall under a more specific route.

• What it fits: low-value items supplied without payment where no other route applies.
• What it demands: "free of charge" describes the commercial terms, not the tax treatment — customs still values the goods, and duty and import VAT generally apply as for any other import. The consignee of record is the importer and, in practice, the owner, which brings Exposure 1 straight back unless a custody agreement says otherwise.
• Related, and often confused with it: when a seller replaces goods that arrived damaged, short or non-conforming, the replacement can enter under the no-cost compensation route (3100 无代价抵偿). Within the contract's compensation period, and no later than three years after the original goods were released, a qualifying replacement is not taxed again on import. That fits a warranty swap of hardware the client originally imported; it does not fit new equipment.

Third-party importer of record (IOR)

An importer of record is a mainland-licensed company that acts as the consignee: it imports the equipment as an ordinary general-trade import, pays the duties and import VAT, and holds or passes on title under a written agreement.

• What it fits: equipment that is meant to stay — laptops, network gear, servers for a client site — when neither the client nor the prime contractor has a mainland entity able to import it.
• What it demands: a fee, the duty and import VAT on the equipment, and a clear written chain of title from the IOR to whoever is meant to own the kit. Product certification (for example China Compulsory Certification, where a product category requires it) is a separate question that the importer will ask about and that this report does not cover.
• Why it is often the honest answer: it is the one route in this list designed for permanent deployment without a local entity. It costs more on paper than shipping a box in an engineer's luggage. It costs much less than discovering, later, that the box was never imported at all.

Two routes that are not routes

• Personal post. Under General Administration of Customs Announcement No. 43 of 2010, items posted by individuals from Hong Kong, Macau or Taiwan are limited to RMB 800 per consignment (RMB 1,000 from other countries and regions). Figures of RMB 1,000 quoted for this audience are wrong, because the audience ships from Hong Kong. More importantly, the personal-post channel is for personal articles in reasonable quantities. Equipment for a client is goods, and a run of small parcels does not change that.
• Hand-carry. The laptop an engineer travels with for their own work is personal effects. A suitcase of laptops for a client is an import that has not been declared.

How the Routes Compare

Choosing a route by what happens to the equipment

• It will leave again within a defined job: ATA Carnet if you hold one and the use fits a carnet category; otherwise temporary entry under 2600, with the six-month clock and its limited extensions.
• It is being repaired and returned: repair goods under 1300 — never "1318".
• It replaces something the client already imported that failed or arrived defective: no-cost compensation under 3100, inside the contract's compensation period and the three-year limit.
• It is free, low-value and fits nothing else: 3339, taxed as normal, with ownership documented.
• It is meant to stay, and there is no mainland entity to import it: a third-party importer of record, with title passed in writing.
• It is in a parcel or a suitcase because that was easier: that is the exposure this report is about, not a route.

Brocent's own observation, across the cross-border engagements we deliver, is that most problems in this area are not the result of choosing the wrong route. They are the result of not choosing one at all — equipment arrives by whatever path was fastest that week, and the paperwork is reconstructed afterwards. The routes above are not complicated. Deciding, per item, which one applies before the item ships is the whole discipline.

The Contract and Settlement Structure That Holds It Together

Getting the hardware in lawfully solves half the problem. The other half is the relationship with the partner, and it needs four documents. None of them is exotic. Together they make the arrangement legible to anyone who later has to look at it — the client's auditor, the partner's tax officer, or the prime contractor's own finance team.

1. A subcontract agreement

The partner is engaged to provide defined services and is paid for them. The agreement sets the scope, the service levels, the price and the invoicing. The partner issues a fapiao for its services in the ordinary way, and its revenue matches the work its staff actually do. If the prime contractor and partner are related parties, the price is set with the arm's-length question in Exposure 4 in mind — not at zero, and not at a margin chosen because it sounds familiar.

2. A custody-and-title agreement

The equipment in the partner's hands belongs to someone else, and this agreement says so. It names the owner — usually the end client, sometimes the prime contractor — and records that the partner holds the equipment as custodian, not as owner: what it may do with the kit, who insures it, how it is returned, and what happens on termination. This is the document that answers Exposure 1 and keeps a free transfer of goods out of Article 5 of the VAT Law.

3. A monthly statement

Each month, the partner reports the services delivered, the hours, the parts consumed and every equipment movement in or out of its custody. The prime contractor reconciles it against its own records and its invoice to the client. A monthly rhythm matters because it turns a pile of one-off events into a record that can be checked line by line.

4. An off-balance-sheet register

Because the equipment is not the partner's, it does not belong on the partner's balance sheet — but it must not be invisible either. The partner keeps a memorandum register of client-owned equipment in its custody: item, serial number, owner, customs route and entry document, location, status. When someone asks why a small firm is holding a cage of servers, the register, the custody agreement and the customs record answer the question together.

These four documents also carry a quieter benefit for the client. If the partner engages individual engineers rather than employees, China's new rules on withholding VAT for natural persons — covered in our report on VAT withholding for IT contractors — mean that from 1 November 2026 the paying entity must withhold and file every month. A partner already producing a monthly statement is far better placed to show that filing than one that is not.

A Worked Example: One Month at a Shanghai Site

To make the structure concrete, take a composite scenario — not a real client — of the kind this report is written for. A Hong Kong–headquartered IT provider supports a professional-services firm with offices in Hong Kong, Singapore and Shanghai under one managed-services contract. Neither the provider nor the client has a mainland entity. A Shanghai IT company is engaged as the onsite partner.

In a single month, four things happen.

Three new joiners start in Shanghai. Their laptops are meant to stay. They are bought through a mainland importer of record, which imports them as ordinary goods, pays the duty and import VAT, and transfers title to the client under a written agreement. The laptops are delivered to the partner, which records them in its custody register against the IOR's documents, builds them, and hands them over. The cost of the laptops, the IOR's fee and the import taxes flow through the provider's invoice to the client — not through the partner's books.

A core switch fails. It is still under the manufacturer's warranty. The replacement arrives from the manufacturer as a no-cost replacement for a defective unit the client originally imported, which is the situation the 3100 route exists for. The failed unit's disposition follows the manufacturer's process. The partner's register shows one unit out and one in, each against its document.

A wireless survey needs specialist measurement kit for three days. The provider's engineer brings it in on an ATA Carnet as professional equipment, registers it with the chamber of commerce within three days, uses it, and takes it out again well before the carnet expires. It never enters the partner's custody, so it never appears in the partner's register.

The partner's two engineers deliver 180 hours of onsite support. The partner invoices the provider for those hours under the subcontract, at the agreed rate, with a fapiao. Its monthly statement lists the hours, the tickets, the three laptops received and handed over, and the switch exchanged. The provider reconciles the statement against its ticketing system and its invoice to the client, and files it.

Nothing in that month is exotic, and none of it requires the provider to set up a mainland company. What it requires is that every item has a route and an owner before it ships, and that the partner is paid for the work its staff actually do. Compare the informal version of the same month: laptops arrive in three suitcases, the switch is posted from Hong Kong as a "gift", the survey kit never leaves, and the partner is "paid" in goodwill. Every one of the four exposures described above is present by the end of it.

Before the First Shipment: Questions for the Prime Contractor

If you are the provider, these are the questions to settle before any equipment moves. If you are the client, they are the questions to ask your provider.

• For each item, which route? Carnet, temporary entry, repair, no-cost replacement, free-of-charge, or importer of record — decided per item, before it ships.
• Who is the consignee on the customs declaration? And does that match who is supposed to own the item afterwards?
• Who owns the equipment once it is on site, and where is that written down? If the answer is a sentence in an email, it is not written down.
• Is the partner paid, and does its invoice match the work? Free work is no longer a deemed VAT sale, but it is still unsupported cost in the partner's books.
• If the parties are related, how was the price set? "Cost plus a familiar percentage" is a starting point for a conversation with advisers, not an answer.
• Who keeps the register, and who checks it? A custody register that nobody reconciles is a list, not a control.
• If the partner uses individual engineers, who withholds their VAT from 1 November 2026? The answer should be a named entity that can show a monthly filing.

What Changed in 2026

• 1 January 2026 — the VAT Law took effect. Its deemed-sale list no longer includes services provided without consideration. Free transfers of goods, and of intangible assets, real estate and financial products, still count. Pilot-era documents survive only where consistent with the new law.
• 1 November 2026 — natural-person VAT withholding. Domestic entities paying individuals for qualifying services, including software, design and consulting, become withholding agents with a monthly filing obligation. This bears directly on partners who staff onsite work with freelance engineers.

Neither change alters the customs routes. Both change the paperwork that sits around them — and both reward an arrangement that was documented properly in the first place.

Frequently Asked Questions

Can an overseas IT provider deliver onsite support in mainland China without its own entity?

Yes, through a properly contracted local partner. The partner must be paid for its services under a written subcontract, equipment must enter under a lawful customs route, and a custody agreement must record who owns that equipment. What does not work is the informal version: unpaid labour, undeclared hardware and no paper trail.

Is a partner who works for free deemed to have made a VAT sale?

Not under the law in force since 1 January 2026. The VAT Law's deemed-sale list covers free transfers of goods, intangible assets, real estate and financial products, not free services. The real risks of unpaid work lie elsewhere: no invoice to support the partner's costs, and transfer-pricing adjustment where the parties are related.

Which customs code applies to equipment sent in for repair?

Repair goods are declared under supervision code 1300. There is no code 1318, despite its appearance in some circulating guidance.

Can we bring laptops for new staff in under temporary entry?

Not if they are meant to stay. Temporary entry under code 2600 requires re-export within six months, with at most three extensions of up to six months each. Equipment for permanent deployment should be imported properly, typically through a third-party importer of record when there is no mainland entity.

What is the postal limit when sending equipment from Hong Kong?

For items posted by individuals from Hong Kong, Macau or Taiwan, RMB 800 per consignment. But the personal-post channel is for personal articles. Business equipment for a client should not be sent that way at any value.

Is "cost plus 3–5%" a safe price for a related-party subcontractor?

It is a common convention for routine services, not a statutory safe harbour. Whether a margin is arm's length depends on the actual functions and risks, and should be confirmed with the parties' own tax advisers.

Who should own the equipment at the client site?

Usually the end client, sometimes the prime contractor — but never "nobody". Whichever it is, the custody-and-title agreement should name the owner, and the partner's off-balance-sheet register should show the item, its serial number and the customs document it entered under.

What This Report Does Not Claim

• No duty or deposit rates. These depend on the route, the declared value and the tariff classification of each item. Any figure quoted without those three facts is a guess.
• No allegation against any provider. The report describes delivery models, not companies.
• No safe harbour. The 3–5% markup is described as a convention, not a rule.
• No deemed VAT sale on free services. That position is superseded, as explained above.
• No product-certification guidance. Whether a given device needs China Compulsory Certification is outside this report's scope.
• Not legal or tax advice. This is Brocent's research and operational experience. Customs and tax positions for a specific arrangement should be confirmed with qualified advisers in the mainland.

If you are scoping support for a site in the mainland and want the delivery structure designed before the first box ships, see how we run IT support in China, our managed IT services and managed IT support plans, dedicated onsite engineers, and IT relocation projects — or talk to a consultant.