Duty Relief: Inward Processing - A business guide
Businesses processing goods imported from abroad can save or delay millions of duty payments, but read the small print, says customs expert Arne Mielken of Customs Manager Ltd.
To make it possible for national enterprises to offer their products or services on foreign markets at competitive prices, thereby promoting economic growth and helping provide more employment opportunities for national labours many countries allow for Inward processing or IP.
It is a customs special procedures allows imported
raw materials or
semi-manufactured goods
The manufacturers in that country do not have to pay customs duty and VAT on the goods being used if these are to be processed for re-export (outside your own country).
A definition
“The Customs Procedure under which certain goods can be brought out of a Customs territory conditionally relieved from the payment of import duties and taxes, on the basis that such goods are intended for manufacturing, processing or repair and subsequent exportation”
REVISED KYOTO CONVENTION of the World Customs Organization
The details of the scheme are found under national law.
For example, in the EU, the Union Customs Code applies, see articles. Or the UK Taxation (Cross-Border Trade) Act: The Customs (Special Procedures and Outward Processing) (EU Exit) Regulations 2018 in Great Britain.
A Brexit Example: You can use Inward Processing (IP) to get relief from Customs Duty and import VAT on goods that are imported from outside GB/EU/NI to be processed, and then exported outside the GB/EU/NI, or released for free circulation in the EU.
ONLINE TRAINING COURSE ON INWARD PROCESSING
Study from anywhere at any time with live tutors, available 24/7. Complete six modules of how to make a successful IP application and manage the obligations of IP. Receive a certificate of completion to showcase your achievement.
What can a business do under IP?
Allowable operations can usually include businesses to store, temporarily use, process or repair your goods and get partial or full relief from import duty, or in some cases suspension.
Different form of IP
There are usually two variants
one allows the duty to be suspended, while under the
other it is paid and later repaid.
Conditions
To apply for inward processing, you’ll usually need:
to get an authorisation
to be established in the country of application
hold a registration number, in the EU or the UK that is, for example, an Economic Operator Registration and Identification (EORI) number
a financial guarantee (check with local authorities).
About the financial guarantee
It is not uncommon for authorities to wish to secure potential customs debts. Usually, a guarantee has to be provided to secure the future payment of the Customs Duty should they become due, for example, for IP where the goods are released to free circulation and the debtor fails to pay.
Other requirements
Also:
There should usually be the intention to export or re-export goods entered into IP
Imported goods can be identified in the compensating products
Use of IP must help create the most favourable conditions for export or re-export of compensating products, provided that the essential interests of producers are not adversely affected.
Information businesses need to provide
Businesses need to gather certain information together to ensure a smooth and successful application:
Classification: The eight digit commodity codes for your products. See:
https://www.customsmanager.org/customs-global-trade-blog/categories/customs-classification & https://www.customsmanager.org/easy-customs-hs-code-classification
The valuation of goods if released to free circulation
If goods imported to IP have to be released to free circulation, then you must pay duty on the original value of the goods as declared at import (bearing in mind this must be an accurate value applicable to a true sales/insurance value for the goods). You have a choice to discharge your duty liability by declaring the goods to free circulation under the value of the manufactured item (a higher price, obviously) but at the duty rate of the manufactured item. This is only a benefit if the finished product duty rate is zero or comes under a reduced or zero duty end-use rate.
The number of goods you’re going to process
You will need to calculate the number of goods you want to import over the period of your authorisation. We can advise further on this.
The process you’re going to carry out
The products that you intend to make are known as the ‘processed products’. There are 2 types of processed products:
main processed products are the goods you’re applying to make
secondary processed products are by-products of the processing operation, they’re not production losses, waste or scrap
You must calculate the number of main and secondary processed products you’ll make. You should do this by using the ‘rate of yield’.
The rate of yield
You’ll need to tell customs your expected ‘rate of yield’. This is the number of processed products made from the number of goods you enter to inward processing. For example, if you simply repair and return goods, the rate of yield will be 1:1. If you import 300 metres of cloth to produce 100 identical items of clothing, the rate of yield will be 3:1. If you’re running more than one processing task, each will have its own rate of yield.
Examining the economic conditions of your authorisation
Depending on the goods you import and, in some instances, the method you choose for calculating any duty that is due, your application or authorisation may be examined to make sure it does not disadvantage local producers.
If your application is considered to have an impact on local producers, the application may have to be amended or you may have to withdraw it.
Other information
what records you will keep and where you will keep them
where you’ll enter the goods to inward processing
where you intend to discharge them from inward processing
names and addresses of anyone else that will be processing or repairing goods, for example, sub-contractors.
List of sensitive goods
This sensitive goods document lists the goods which can be declared as sensitive for the purpose of Customs (Special Procedures and Outward Processing) (EU Exit) Regulations 2018 and the Taxation Cross-border Trade (Special Procedures Supplementary and General Provision) (EU Exit) Regulations 2020.
Sensitive_Goods_-_Final
.pdf
Download PDF • 206KB
ONLINE TRAINING COURSE ON INWARD PROCESSING
Study from anywhere at any time with live tutors, available 24/7. Complete six modules of how to make a successful IP application and manage the obligations of IP. Receive a certificate of completion to showcase your achievement.
CPC for Inward Processing
READ MORE: What are Customs Procedure Codes?
The standard import CPC for goods entered to IP when the intention is to process the goods and export them from the GB to a third country after the process. This is CPC 51-00-000. There are various flavours of CPC codes related to inward processing.
Authorisation for IP
There may be several types of authorisation you can get to use inward processing, for example:
full, e.g. when business intent to use inward processing regularly
retrospective, after you’ve imported your goods, even if you’ve already exported them.
by declaration, for limited use, e.g. 3 times a year.
It may take more than one month for authorities to assess and approve an application, so planning ahead is essential.
Responsibilities once authorised
The holder of the IP authorization is responsible for the duty and associated charges on all goods under that authorization whether they actually own the goods (this also includes goods entered under the authorization by any named processors until the goods are put to eligible disposal (i.e. re-exported, released to free circulation etc.).
The responsibilities of the authorization can be summarised as:
Declarations on the SAD are correctly completed using the appropriate IP CPC code
Ensuring that any processor named on the authorization or third party such as customs agent/freight forwarder is given clear written instructions of the goods to be entered and the procedures to be followed
The correct procedures are used for IP goods received or transferred
The re-export of suspension goods are made correctly using the appropriate re-export/export CP and for keeping evidence of their disposal
The payment of duty, import VAT (and compensatory interest) for suspension goods diverted to free circulation
Returns of receipts and disposals of IP suspension goods are made by their due date
Amendments or alterations to your authorization are properly communicated to the customs authorities
Any application to renew the authorization is made on time
The authorisation letter
The letter you will receive from the authorities will list the authorisation conditions. Conditions include things like:
paying Customs Duty and other charges
keeping detailed records
There are more details in the online course on IP offered by Customs Manager Ltd.
Bill of Discharge
Once the period of discharge has expired, the authorisation holder has to submit a bill of discharge to customs. This is used to determining if all imported goods were re-exported within the period of discharge or have received another new customs-approved treatment. This can be labour-intensive work that may require a great tracking and tracing system. Questions to consider are
How many goods have been placed under IP?
How many compensating products have you produced?
What's the yield?
How many did you re-export and how many have you entered to free circulation?
Re-export or disposal of IP goods
Your liability for suspended duty on IP goods ends when the goods are exported or otherwise disposed of.
Eligible disposals usually include:
exporting directly outside the country
placing the goods to free circulation
moving goods to another customs procedure
moving goods to another IP authorisation holder
destruction - under IP suspension.
How we can help
Customs Manager Ltd offers businesses of all locations and all sizes support with duty optimisation customs procedures, such as Inward Processing. We prepare the process with you and bespoke for your business, we analyse your supply chain, explain the procedures and responsibilities, we help set up what you need to successfully apply and manage your IP authorisation. Explore how we can help
There is also live and on-demand training for you to get upskilled.
Any updates or changes to processes, procedures, laws and guidance are communicated via our expert blog, dedicated to duty saving opportunities.
https://www.customsmanager.org/customs-global-trade-blog/categories/duty-savings