Outward Processing: A Business Guide
(S,P) Outward Processing allows businesses to export goods for processing abroad and import the processed products for less or no duty. Access a guide to OP.
What is Outward processing, and how do I save money?
Outward processing means that goods may be temporarily exported from a customs territory in order to undergo processing operations.
Or, in other words: Outward Processing allows businesses to temporary export goods out of one country (or better: customs territory) to be processed in another country (customs territory).
The processed products resulting from these goods can be re-imported and released for free circulation with total or partial relief from import duty.
Do I pay the duty or not - can you be clear, please?
Yes sorry. Upon re-entry to free circulation in your country, the customs duty is only payable on the value-added when processed abroad, as a partial relief of the customs duty. So:
YOU DON'T PAY: Total relief from import duties must be granted when the goods have been exported merely to be repaired free of charge because of a contractual obligation or because of a manufacturing or material defect.
YOU PAY SOMEWHAT: In other cases of outward processing, the import duties on the re-imported products are calculated only on the basis of the value resulting from the processing operation undertaken outside the customs territory of your country.
What is the benefit of Outward Processing?
Outward processing procedure is designed to give businesses the possibility to take advantage of benefits such as lower labour costs or specific technical expertise in other countries.
How can I use Outward Processing?
An authorisation from the customs authorities is required for the use of the outward processing procedure. This specifies the measures to establish either of the following:
that the processed goods have resulted from its processing under a processing procedure, or
that the conditions for using the equivalent goods or the Standard Exchange System (SES) are met.
Where do I find the law on outward processing?
The legal basis for these requirements needs to be carefully considered. In the EU, for example, Art. 259 - 262 of the Union Customs Code specifically talk about OP and its quirky particulars. Earlier articles deal with general provisions like authorisations, movement and handling of good, equivalent goods and so on.
Since 1 January 2021 for Great Britain, the conditions of Outward Processing Relief are laid down in the Taxation Cross Border Trade Act and in the Customs (Special Procedures and Outward Processing) (EU Exit) Regulations 2018.
What are the requirements for Outward Processing?
The main requirements to obtain such authorisation are:
To be established in the customs territory of your country, and
To provide the necessary assurance of the proper conduct of the operations.
Be financially solvent
Have a good history of compliance with customs requirements
Have (or be able to keep) appropriate records and have good knowledge of customs procedures
the applicant meets any professional standards of competence
the applicant’s practical experience makes the applicant suitable to carry out the activity for which authorisation is sought.
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
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How long can I have my goods processed abroad?
Customs authorities must specify the period within which the outward processing procedure is to be discharged, usually no more than 6 months, but sometimes up to a year.
Prior import of processed products
I heard of special business flexibility in outward processing. What is that all about?
An OP authorisation can also allow businesses to previously import non-agricultural processed products obtained in a third country in return for the export of an equivalent quantity of raw materials. So, for example, you can also import replacement products prior to the defective goods being exported as long as approval has been given by the authorities, very useful to hold stock when goods are returned. usually, defective goods may need to be exported within 2 months from the importation of the replacement goods. An extension may be granted upon a justified application by the holder of the
authorisation.
But note: If you decide to import processed goods before you have exported the raw materials for them, then a guarantee may need to be provided to cover the amount of the customs duty that would be payable should you decide not to place the materials used for the creation of the goods under the OP. That is the amount of the customs duty that would have been due if the defective goods are not exported.
What about repairs?
Total relief from customs duty could be granted when the customs authorities are satisfied that the goods have been repaired free of charge. Such is either due to a contractual or statutory obligation arising from a guarantee, or due to a manufacturing defect. So, OP also allows for faulty goods to be returned to another country for repair, or for replacement with equivalent goods under the Standard Exchange System (SES).
For example, in the UK, the law says "If the processing of the goods under an outward processing procedure consists in their repair by any person without charge, the goods continue to be regarded as domestic goods but only if, while the procedure has an effect
(a)there is no breach of the terms of the declaration for the procedure, and
(b)there is no breach of any other requirement in relation to the procedure".
In other words: Domestic goods are not international goods, so no duty is to be paid.
Where you use the "Prior import of processed products" procedure, note that the
temporary export goods must be capable of being repaired, and the procedure must not be used to improve the technical performance of the goods.
What are Equivalent goods?
You may be able to use a system called Equivalence. Equivalent goods have the same 8-digit commodity code, the same commercial quality, and the same technical characteristics as the goods they are replacing.
What is the Standard Exchange System (SES)
Imported replacement goods may replace processed goods when:
The processing operation involves the repair of defective goods
Replacement products must have the same 8-digit commodity code, the same commercial quality and the same technical characteristics as the defective goods.
If the defective goods have been used, then the replacement goods must also be used unless the replacement product has been supplied free of charge due to a contractual or statutory obligation arising from a guarantee or due to a manufacturing defect.
The use of SES must be approved by your customs authorities.
Goods repaired free of charge
Total relief from customs duty could be granted when the customs authorities are satisfied that the goods have been repaired free of charge. Such is either due to a contractual or statutory obligation arising from a guarantee, or due to a manufacturing defect. For example, the UK post-Brexit legislation
Guarantee or warranty
In the instance of claiming total relief from customs duty as the exported goods have been repaired or replaced free of charge under a guarantee or warranty, a copy of the guarantee or warranty document needs to be provided. This is to prove that no charge was, or will be, made for the repair or replacement.
Service contracts or warranties
Where a regular service charge has to be paid for the repair, the service charge
is regarded as part of the value of the goods when they were originally supplied, and are therefore liable to customs duty. Similarly, an extended warranty for which a "one off" payment is made is liable to customs duty as the charge for this type of warranty is regarded as part of the original price of the goods.