A Buy-Sell contract is an agreement between a PRC located manufacturing company and an offshore(usually Hong Kong based company) to import a set of parts duty free and export assembled/manufactured goods out of China. The PRC manufacturing entity:
Buys an agreed upon quantity of parts and raw materials.
Consumes the imported goods along with local labor, burden and oftentimes other locally sourced parts.
Sells the agreed upon finished quantity back to the offshore company.
The Buy-Sell contract has the distinct advantage of avoiding the process of paying duty, then applying for duty drawback. In most Duty-Duty Drawback situations there is difficulty in obtaining the drawback credit. Usually, the duty drawback rate is slightly lower than the Duty rate-- representing a non-refundable administrative cost.
The Buy-Sell contract is not free of administrative and other controls. Creation of the customs book and significant paperwork and documentation are also required. But, it is far more cost effective than to go the duty-drawback route.
If your operations are strictly for export, then inventory control are less difficult. If you have both export and domestic consumption, then you will need to segregate the inventories and costs, utilizing a far more difficult process.
