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The question is: how can certain customs considerations impact your strategic sourcing, and how can you make more informed decisions as a result?
A consideration of the entire supply chain is the basis to decide whether you and your customers can use free trade agreements. It depends on the countries from which you purchase and where the goods originate. This means that the decisions you make can have an impact, not only on your cost savings but also on your sales opportunities.
The compliance risks associated with the use of the wrong country of origin can be severe. If the product you want to import contains parts from different countries, you need to be especially careful. Authorities place a lot of importance on the country of origin because importation is about revenue and permissibility. If you are unsure about the country of origin, you can reduce the risks by asking the customs authorities for a binding decision in advance. In the EU, this is called an ’Advance Ruling of Origin‘ or a ‘Binding Origin Information’ (BOI) decision.
Classification of goods – First-class classification of goods
For example, commodity codes determine whether import or export restrictions apply and whether import or export licenses are required.In addition, classification determines whether the product is subject to excise tax and, in some cases, whether you can take advantage of reduced VAT rates.
Although there is a clear framework, the classification of a product can be a matter of discretion to a certain extent. As with the country of origin, you can apply in advance for a binding classification decision from the relevant customs authorities (BTI: binding tariff information). If this is granted, you have the certainty that the commodity code you want to use for your product is the correct one.
Customs valuation
For each product, customs authorities have a predefined value range: what should the product cost? If you enter a lower customs value than the lower threshold of this range, it will probably cause a reaction from the customs authorities. Consequently, you will be asked to justify the value you have entered. This may result in unforeseen higher duties and higher VAT costs. Failure to comply may result in fines and penalties. To prove a specific customs value, you must be able to show what happened in each link of the chain of monetary events for the product. This includes all transactions, what the product includes, the origin, and processing and manufacturing cost of the product.
To customs authorities, transparency is crucial. You and your suppliers need to provide them access to the information they need to avoid facing the risk of increasing costs. If you know from the beginning that your sourcing, manufacturing and sales activities lead to a low customs value, you should have a method and structure to prepare all monetary transactions associated with the product. You can submit this information with the import declaration or have it on hand in case customs or tax authorities ask for it.
Incorporating customs considerations into your purchasing strategy can have significant benefits. If you have questions and would you like to discuss how you can expand your customs management and better understand the impact of customs on your business, please contact our Maersk Customs experts here.
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