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Are Daigou Businesses Legal?

Are Daigou Businesses Legal?

Daigou businesses are a huge industry, shaping much of the international market when it comes to luxury goods, vitamins or baby formula. But are they legal?

5th August 2019

What’s a daigou?

Daigou is a Chinese term (pronounced as dye-go) describing someone who goes overseas to buy products in order to resell them back at home. Daigou businesses are part of a grey market trade, as the legalities of doing so are quite blurred. The Chinese government taxes quite highly on some goods, resulting in a high purchase price. Common daigou purchases include infant formula, luxury goods and vitamins. Therefore, it is cheaper for an individual to purchase these items overseas, and sell them back to Chinese clients. This price gives the buyer a profit, but is lower than the original Chinese price with tax to be appealing to clients.

Although it is a Chinese term, daigous also exist in other countries where import tax is high. Daigou businesses are huge, and accounted for one third of the total luxury goods bought by Chinese customers.  

Existing Australian law

There is no explicit law regarding daigous in Australia. In fact, Australia’s very own company, Blackmores, has skyrocketed as a result of the daigou industry. The company has ties with the daigou business in Australia, and has given praise to the large network of sales. There is also the Australian Chinese Daigou Association (ACDA) which hosts networking events with important daigou traders and Australian government officials. One of its aims is to provide opportunities for Australian businesses to network with daigous.

Additionally, the Australian government does not have the power over retail sales according to consumer law. However, some retail shops such as Coles and Woolworths, have started limiting the sale of baby formula e.g. one customer can only buy two units of baby formula at one time. 

Existing Chinese law

A new Chinese e-commerce law on daigou businesses took effect on the 1st of January, 2019. People and companies providing e-commerce services must register as legal entities in China and in the country of purchase. This will subject them to the import tariffs and taxes that daigous have been able to bypass. This law won’t make this industry illegal, but it will cut the essential tax-free aspect of the daigou business. 

However, this legislation won’t stop individuals from moving to more private means. Instead of going to daigou companies, customers can now privately use WeChat (a popular Chinese messaging app) for overseas purchases. 

Prior to this legislation, China has attempted to deter this grey market from expanding. They placed higher taxes on goods brought in by Chinese travellers. They also drastically lowered taxes on legally imported goods. One of the main daigou products, infant formula, has decreased in tax from 17% to 7% as of 2017.

Furthermore, they have been proactive in stopping individual sellers. An example is a Chinese daigou who opened an ecommerce site on Taobao (basically the Chinese Ebay) selling imported foods. He would go overseas and purchase goods, but not declare these products at the Chinese customs gate. This daigou committed tax evasion as a result of failure to declare, and was subsequently arrested.

So, is it legal?

In short, the daigou market is still pretty grey. While it’s not labelled explicitly as illegal conduct, it’s certainly discouraged by the Chinese government. Moreover, the Australian government hasn’t taken a stance on the daigou industry yet. What is certain is that if you’re legally registered with the country of purchase and China as an e-commerce provider, your daigou business is legal. Outside of this, most businesses will remain on the grey market. Only the future can tell whether this market will be completely legal one day. If you have any further questions, you can contact a business lawyer.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

Author
Natalie Ho

Natalie Ho is a legal tech intern at Lawpath, working as part of the Content Team. She is in her 2nd year at Macquarie University studying a double degree of Science and Law and is highly passionate about the accessibility of law.