Customs Special Procedures allow suspending, paying less or paying no duty on imported or exported goods. While these cost-saving customs and excise authorisations are universal, they may be known by different names in different countries globally. The main universal Special Procedures are Customs Warehousing or Bonded Warehousing, Inward Processing (IP), and Outward Processing (OP).
In this post, we’ll explore the benefits of inward processing (IP) and how it works, along with how it is integrated into CAS, our automated customs software solution.
What is Inward Processing?
Inward processing (IP) is a duty relief procedure designed to give businesses the possibility to process goods imported from outside the EU customs territory, even before deciding on whether to sell the finished products within or outside of the EU. IP also applies to goods which require standard forms of handling to preserve them, improve their marketable quality, or prepare them for distribution. The processed products under this procedure can either be re-exported or released to free circulation in the EU without incurring additional duties.
Inward processing also applies to goods which require standard forms of handling to preserve them, improve their marketable quality, or prepare them for distribution.
Benefits of Inward Processing
When imported under IP, these goods are not subject to:
- Import duty: Inward processing allows businesses to import goods into the European Union (EU) for processing without having to pay import duties and VAT upfront. This can result in significant cost savings, especially for businesses dealing with high-value goods.
- Other taxes related to their import, such as VAT and/or excises: By deferring the payment of import duties and VAT until the processed products are released to free circulation or re-exported, companies can improve their cash flow and allocate resources more efficiently.
- Commercial policy measures: Inward processing facilitates participation in global value chains. Companies can source raw materials or semi-finished products from different parts of the world, process them within the EU, and then distribute the finished products both within the EU and internationally.
Under IP, the concerned business can apply to pay duty at the rate and customs value applicable to the imported goods at the time of acceptance of their customs declaration. Otherwise, the duty and import VAT will be calculated according to the rate and customs value of the processed products at the time they are released for free circulation—which typically is significantly higher.
Inward Processing—How It Works
After the processing operations, the processed products can either be re-exported, released into free circulation in the EU, or stored under customs warehousing or in a free zone.
Businesses wanting to benefit from Inward Processing need the appropriate authorisation from customs authorities to use this special procedure. This authorisation specifies to which goods the procedure applies as well as defines the discharge period to be maintained. At the end of each discharge period, a Bill of Discharge needs to be presented to customs accounting for all goods imported under IP that are to be discharged at that time.
The authorisation can also allow for Union goods, called 'equivalent goods,’ e.g., sugar, to be processed instead of the non-Union goods placed under the IP procedure. Economic operators can then, under specific provisions, export the processed products, e.g., biscuits, before or after the importation of the non-Union goods they are replacing.
The Complexities of Inward Processing
The benefits of using IP are quite clear, so “what’s the catch”?
As mentioned before, the first prerequisite for businesses to use IP is having the right authorisation. Aside from that, using IP requires extensive administration of all goods placed under the special procedure. The business needs to keep records of every action carried out, from placing the goods under the special procedure until their discharge. This includes, among other things, storage, processing activities, and movements of goods. Furthermore, at the end of each discharge period, a Bill of Discharge needs to be presented to customs authorities.
As many customs brokers are less experienced with special procedures, businesses wanting to use them are often left with no choice but to insource the required knowledge.
An Easier Way to Exploit IP with CAS
Customs4trade’s software solution, CAS, enables clients to seamlessly keep records on all goods held under IP. From automatically creating stock records based on the inbound declaration to keeping track of all kinds of movements afterwards, all required administration is housed in the Special Procedures module. The system also knows when a discharge period is due and automatically generates a Bill of Discharge.
To accommodate this, and more, there are several functionalities included in the CAS Special Procedures module.
Here, the user can find an overview of all items held under a special procedure with their respective balance at any moment in time.
A stock record forms the basis for customs reporting and includes all data needed for keeping stock balance and calculating customs debt. It also holds elements for write-off rules and links to the related customs declaration information. The records provide full visibility of all stock movements in the respective storage location(s). As such, stock records are key for customs authorities during customs controls and audits.
In a similar fashion, the movement view provides an overview of all customs movement transactions for a certain item or product at any moment in time. Examples of such movements are stock adjustments, scrappings, and transfers.
Material Lists and Formulas
Through the use of material lists and formulas, CAS knows instantly what stock needs to be decreased and when a processed product is being released into free circulation or re-exported under IP. The material list and formulas define which materials will be processed as well as what products will be created out of these materials.
Depending on the user’s needs, the related stock is written off FIFO or by specific write-off rules.
In addition to the pre-defined material lists in the system, CAS can also create material lists automatically at the time of an outbound shipment.
The bottom line: there is no need for painstaking administration to start processing goods under IP when you’re using CAS.
Are you ready to take advantage of the benefits of the IP Special Procedure?