How do you reduce/eliminate customs costs?

The cost and complexity of doing business across international borders is increasing.  Customs duties are generally non-recoverable and are absorbed into the product costs affecting margins.

Often businesses are not aware that they can avail of customs simplifications which may reduce or even remove the requirement to pay customs duty or Vat.

Take the example of a manufacturer based in Ireland who imports raw materials from non-EU countries.  A certain quantity of their finished product is re-exported to non-EU customers and the remainder is released for consumption within the EU.

If the business applied for an inward processing authorisation, they would only have to pay duty and VAT on those goods which were released for consumption within the EU.  Equally, if the manufacturer is producing goods on which a 0% duty rate is applied,  then the duty liability can be based on the end product, rather than the imported goods, which means that no duty is payable.

An example of the flow of goods is shown in the diagram.

How can businesses benefit from these simplifications?   Firstly, the business must apply to Revenue for an authorisation.  This can be held by the processor of the goods (subcontractor) or the person who arranges for the goods to be processed on their behalf.

As part of the application, the authorities will complete a site visit and the business must provide the following details:

  • Expected rate of yield for goods (quantity of imported goods required to product a quantity of finished products)
  • Period of discharge (time taken for processing)
  • Details of processing taking place
  • Disposal of goods
  • Identification of goods
  • Commodity code, description and quantity of goods being placed under the procedure

The approved trader must complete a monthly return with details of all goods placed under the regime and comply with all authorisation conditions in order to qualify for duty relief.

Another useful customs facilitation that businesses may not be aware of is customs warehousing.  This can provide a cash flow benefit for businesses who may import materials in bulk or hold goods for a period of time before either re-exporting or releasing to free circulation (paying duty and VAT).

A customs warehouse is a building or other secure area in which goods can be stored without payment of customs duty and VAT. The Customs warehouse can be part of an existing warehouse at the trader’s premises as long as the boundaries are clearly marked.

To operate a customs warehouse, the business must apply to Revenue for an authorisation.

In order to apply, the business must be:

  • Established in the EU
  • Have verifiable stock control systems in place
  • Submit maps of the premises
  • Demonstrate that the premises is secure

The diagram below shows the flexibility of holding and moving goods within the customs warehousing regime:

There are many benefits of operating a customs warehouse such as:

  • Defer payment of duty and VAT until the products are removed from the warehouse.
  • No liability to pay duty and VAT on goods then exported outside the EU
  • Hold goods in a suspension regime until documentation is obtained
  • No payment of VAT for goods dispatched to another EU country

Under the Union Customs Code (UCC), all Special Customs Procedures require that a financial guarantee is in place before the authorisation can be issued. This is in the form of a comprehensive guarantee which must be applied for and be received before the authorisation is used.

In order to be approved for a comprehensive guarantee, there are a number of criteria which must be satisfied. Businesses must:

  • Be established in the EU;
  • Have had no serious or repeated infringements of customs or tax rules; and
  • Have no record of serious criminal offences related to your business activities.

 With regards to the latter two criteria, the authorities will look at these over the past three years as part of their assessment.

The level of the guarantee required relates to the ‘potential debt’ which may be incurred on goods held under a special procedure such as Inward Processing or Customs warehousing.

 To calculate the potential debt element, the volume of goods under the special procedure over the period of a year is calculated, and the highest duty rate applicable is applied to that volume to give the reference amount.

It is worth mentioning that businesses who hold an Authorised Economic Operator (AEO) accreditation or meet AEO criteria can apply for a reduction or waiver of the guarantee amount, see our article on 'Simplifying International Trade' which explains AEO in more detail.

If you feel that your business may benefit from operating these or any other customs regimes, please contact Donna Hemphill.  We can assist in the application process and provide training to staff on the operation of these procedures.

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