Maximizing Your Business Profits with Duty Relief: Inward Processing
- Arne Mielken
- Mar 24, 2025
- 7 min read
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.
In order to facilitate the participation of domestic enterprises in foreign markets and enhance their competitiveness, several countries have implemented a policy known as Inward Processing (IP).
IP is a beneficial arrangement that enables the importation of raw materials or semi-manufactured goods. Under this procedure, manufacturers in a particular country are exempted from paying customs duty and value-added tax (VAT) on the goods they use, provided that these goods are intended for processing and subsequent re-exportation outside their country. This exemption serves as an incentive for manufacturers to engage in international trade and promotes the efficient movement of goods across borders.
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.
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What can a business do under IP?
Allowable operations typically encompass a range of activities that businesses can undertake with regards to your goods. These activities may involve storing, temporarily using, processing, or repairing the goods. By engaging in these operations, businesses may be eligible to receive partial or full relief from import duty. In certain cases, they may even qualify for the suspension of import duty.
Different forms of IP
Typically, there are two different variants when it comes to handling duties. In one variant, the duty can be temporarily suspended, whereas in the other variant, the duty is initially paid and then reimbursed at a later time.
Conditions
To apply for inward processing, there are several requirements that you typically need to fulfil. Firstly, you will need to obtain authorization to engage in inward processing. Additionally, it is necessary for your business to be established in the country where you are applying for this process. Furthermore, you must possess a registration number, such as an Economic Operator Registration and Identification (EORI) number, which is applicable in either the EU or the UK. Lastly, it requires 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. They include
Commodity code
Value of the goods
The number of goods you’re going to process
The rate of yield
Comments on the "economic conditions"
If sensitive goods are concerned.
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.
CPC codes for inward
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
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
Collaborate with Customs Manager Ltd, a professional company specialising in IP authorizations, to receive comprehensive assistance in all areas related to IP authorization.
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