Reading time: 8 minutes

Alibaba is China’s largest online commerce business. The Alibaba business-to-business website connects exporters of goods — predominantly Chinese companies — with international businesses looking to source goods directly from the supplier. This article sets out how to buy goods from Alibaba and what you should be aware of before making your first order from the marketplace.

How to Find a Trusted Seller

You have two different kinds of sellers on Alibaba, being factories and trading companies:

  • a factory refers to the actual factory that will produce your goods. Many of these factories have their own sales teams who engage with buyers; and
  • trading company is a middle-person that sources the goods from a factory and then sells on the goods to buyers.

Your choice as to what type of seller you would like to engage should depend on:

  • your previous experience with importing goods from overseas;
  • the type of relationship you are hoping to have with the seller; and
  • how long you expect the relationship to last.

Directly dealing with the manufacturer is generally the most cost-effective choice. However, using a trading company may be more suitable if you are having trouble finding a factory that offers the specific goods you are looking for or if you are planning to buy more than one kind of good. In such cases, a trading company may assist you in sourcing the goods from different manufacturers. The downside of using a trading company is that you will have to pay some kind of premium for using their service.

When searching for products, the database will list a number of Alibaba suppliers for your desired product. Additionally, a lot of information about the sellers is available, so make sure to read through the information carefully. When trying to choose a reliable supplier to go with, pay particular attention to the:

  • price;
  • number of reviews and their score;
  • minimum order quantity;
  • time listed on Alibaba; and
  • time listed as a Gold Supplier (businesses which have been verified by a third party agency).

Even though it costs extra upfront, always make sure to retrieve a sample before placing an order. It is a good idea to take your time to properly analyse the sample to ensure it meets your product quality expectations. This helps to avoid any disappointment or dissatisfaction later down the line, and allows you to inspect your product before you sell it to customers so you can protect your brand reputation.

Business Structure

The majority of Alibaba suppliers are manufacturers and trading companies who sell in bulk. As such, they normally prefer to sell to buyers who are running a business. Alibaba does allow users to buy goods without having a business by using the Wholesaler function, however this limits you to goods available in low minimum order quantities and you will consequently not be able to deal directly with some sellers.

You should consider what type of business structure would best limit your liability and protect your funds. If you will run your online business by yourself, you can operate your business either as a sole trader or a company. While operating as a sole trader is simple and cost-effective, you have the personal liability of your business’ debts. This stands in contrast to running the business as a company where, as a shareholder, you will only have limited liability.

Manufacturing and Supply Agreements

Many Alibaba suppliers will offer their products under a contract. Any agreement you sign should outline the terms and conditions of your arrangement with the supplier, particularly as problems can arise even if the supplier previously had positive reviews and offered trade assurances. You should properly review the agreement and negotiate with the seller if there are terms that you are not comfortable with. This will help to reduce the risk of any legal disputes arising that could become costly and inconvenient.

Alibaba’s trade assurances include:

  • applying a credit-rating system; and
  • guaranteeing money back in the event a supplier fails to meet the terms of the contract.

The agreement should clearly stipulate who stands the risk for transportation of the goods, as this is one of the most important steps in the process. A commonly used standard contract term at Alibaba is ‘Free On Board’. This means the seller is responsible for any costs associated with getting your product to the stipulated place of delivery. Often, this is the shipping dock closest to where the manufacturing takes place. Afterwards, you, as the buyer, bear the financial responsibility of transporting the goods to your final place of storage.

The Ultimate Guide to Starting an Online Business

It’s now easier than ever to start a business online. But growing and sustaining an online business requires a great deal of attention and planning.

This How to Start an Online Business Manual covers all the essential topics you need to know about starting your online business.

The publication also includes eight case studies featuring leading Australian businesses and online influencers.

Download Now

Trade Mark

You will likely want to sell your goods under your own brand on the Australian market. To protect your brand, you should consider applying for a trade mark.

Before deciding on a brand name and your trade mark, you should do a search of the Australian trade marks register. This will allow you to ensure there are no other businesses or products using a similar name or branding.

Additionally, you should note that goods which pass through Australian customs and infringe trade marks or copyright under Australian law will be seized. Therefore, you should take every step to ensure the goods are legitimate and are not counterfeits by brand or design.

Import Tax

When importing goods bought on Alibaba into Australia, you should understand what fees and taxes you are liable for. All goods imported into Australia are liable for duties and taxes unless exemptions apply.

For smaller imports, the main exemption to take into account is that there are no duties, taxes or charges to pay if you are importing goods with a value of less than $1,000. Additionally, no declaration is needed if these goods arrive by international mail. However, if goods arrive by air or sea, you or your agent will need to make a Self-Assessed Clearance declaration.

You should keep in mind that some goods, such as alcohol or tobacco, are not eligible for the small goods exemption.

Tax Payable

The amount of tax and duty payable is based on the value of the goods. Normally this is calculated based on the actual price you paid for the goods. Therefore, it is important you show the exact price and currency in which you paid. The taxes and duty you must pay include:

  • import processing charges, being the fees that customs will charge for processing your import. The fee is based on the value of your goods and is currently between $23 and $192;
  • customs import duty, which is calculated as a percentage of the price you paid for the goods. The duty falls between 0% and 10% depending on the goods, the most common rate being 5%; and
  • goods and services tax (GST), which is payable by businesses as well as private individuals. This means GST must be paid irrespective of whether you are registered for GST or not. However, if you are importing goods for your GST-registered business, you may be able to claim a tax credit for the GST that you pay on those goods.

In order to be eligible for tax credits for the GST you pay on taxable imports, you must apply for an Australian Business Number (ABN) for your business and register for GST.

The GST payable is 10% of the value of the taxable importation, which is the sum of:

  • the value of the goods;
  • the customs duty;
  • the amount paid to transport the goods; and
  • the insurance cost for that transport.

Key Takeaways

Finding the right product is a good start when sourcing material from a marketplace such as Alibaba. However, it is essential you also:

  • find the right type of supplier;
  • ensure you have a proper agreement; and
  • understand the various implications of importing goods into Australia.

If you have any questions about how to buy goods from Alibaba or setting up your online business, get in touch with LegalVision’s e-commerce lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is Alibaba?

Alibaba is China’s largest online commerce business. The Alibaba business-to-business website connects exporters of goods — predominantly Chinese companies — with international businesses looking to source goods directly from the supplier.

Should I buy from a manufacturer or trading company?

Directly dealing with the manufacturer is generally the most cost-effective choice. However, using a trading company may be more suitable if you are having trouble finding a factory that offers your specific goods.

How much tax is payable?

The amount of tax and duty payable is based on the value of the goods. Normally this is calculated based on the actual price you paid for the goods.

Webinars

Everything You Need to Know about SaaS Agreements

Thursday 7 April | 11:00 - 11:45am

Online
Understand which contracts will protect your SaaS contract from risk, and how. Register for free today.
Register Now

What to Consider When Buying a Tech or Online Business

Wednesday 13 April | 11:00 - 11:45am

Online
Learn how to get the best deal when buying a tech or online business. Register for our free webinar today.
Register Now

Corporate Governance 101: Responsibilities for New Directors

Wednesday 27 April | 11:00 - 11:45am

Online
If you are a new company director, join our free webinar to understand your legal compliance obligations. Register today.
Register Now

Rogue Directors and Business Divorces: How to Remove a Director

Thursday 28 April | 11:00 - 11:45am

Online
Removing a board director is not simple. Join our free webinar to learn how to handle rogue directors. Register today.
Register Now

Employment Essentials for Tech Businesses

Thursday 5 May | 11:00 - 11:45am

Online
Protect your tech business and your employees by understanding your employment legal obligations. Register for our free webinar today.
Register Now

How to Protect and Enforce Your Trade Mark

Wednesday 11 May | 11:00 - 11:45am

Online
Protect your business’ brand from copycats and competitors. Register for this free webinar to learn how.
Register Now

How Franchisors Can Avoid Misleading and Deceptive Conduct

Wednesday 18 May | 11:00 - 11:45am

Online
Ensure your franchise is not accused of misleading and deceptive conduct. Register for our free webinar today.
Register Now

New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects

Wednesday 25 May | 10:00 - 10:45am

Online
If you operate in the crypto space, ensure you understand the Federal Government’s proposed licensing and regulation changes. Register today for our free webinar.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Online
Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Online
Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer