Customs compliance is about knowing the law that is applicable to your export or import, understanding the provisions, meeting your obligations and keeping evidence that you have duly followed the rules. In the spirit of simplification, we have prepare a crib sheet of 10 steps to Customs Compliance that will lead you toward compliance. You can explore Customs compliance further in our article What is Customs Compliance?
Step 1: Declaring the goods and using the correct commodity code
To declare the goods to Customs authorities, traders must identify their products clearly using a numerical coding system. Classification is the process of allocating a commodity code to a product. In most Customs legislations around the world, Customs classification is the responsibility of the trader. Classification should therefore not be left to customs representatives (agents/brokers). Traders must find the most appropriate code for their products by applying the General Rules of Interpretation (GRI). In some countries, Customs authorities have developed online search for commodity codes. But, remember that this is only an online aid, trade must classify their products by applying the GRI’s. Declaring the wrong commodity code is declaring the wrong product. It could result in paying too much or not enough duty.You might be missing saving opportunities. Commodity codes are also increasingly used for sanctions and prohibitions. Using an incorrect code could result in a violation of a sanction or a restriction.
Step 2: Declaring the value of the goods and using the correct Customs valuation method
The Customs value of the goods is the taxable base for import duties and taxes. The objective of Customs valuation is therefore to reach a fair, uniform, and neutral system excluding the use of arbitrary or fictitious values. To declare the value of goods, traders must use valuation methods. Valuation methods are part of the GATT and present in Customs codes around the world. There are 6 valuation methods and traders must select the appropriate method with the relevant costs of their transaction. Trader must select valuation methods in a hierarchical order i.e applying Method 1, if it does not work, apply Method 2…. The value for customs is not necessarily the invoice value (although it often is) because some costs are subject to import duties and some costs are not. The customs value can’t be zero, even for free of charge products or returned faulty products.
Step 3: Declaring the origin of the goods and meeting the Rules of Origin (or paying import duty)
In trade legislations “Origin” does not mean the place of shipment. It means the economic origin of the goods. Basically, it is the place where the goods have been manufactured or processed. Each trade agreement contains Rules of Origin. These rules define the processing that products must have undergone to be considered “Originating” from countries that are party to a trade agreement. Products meeting the rules of origin therefore will benefit from low or nil rate of import duty. “Non-originating” products will consequently pay the full duty rate. When checking origin, Customs authorities will often go back several years. If the origin of the product you import is incorrect or if your suppliers can’t provide evidence of the origin of the product, you might have to pay import duties for past transactions. This possibly over several years. Check the origin carefully and audit your supplier’s evidence.
Step 4: Declaring the treatment of the product and using the correct Customs procedure (regime)
You’ll need to tell Customs authorities how and why you want to clear the goods. Will the product stay in the country? Are the goods for an exhibition? Is it a tool for an engineer? Is it to be re-exported? Customs procedures (in some countries called Customs regimes) are the various forms of Customs treatments of goods available to traders for instance Customs warehouse, temporary export… The trader is responsible for choosing the Customs procedure and meeting the compliance rules. Beware, each procedure comes with its own specific compliance obligations.
Step 5: Export documentation: Producing accurate paperwork
International trade is a paper-intensive activity. In a global transaction, many intermediaries will handle your shipment. One study counted 40 intermediaries per international shipment. Most of these intermediaries will never physically see your consignment. They will therefore only take decisions based on your documentation. Make sure your documentation is clear enough for the entire supply chain.
Step 6: Producing the Customs declaration and preparing clearance instructions
A Customs declaration is a fiscal declaration. We always advise our clients to treat it with the same degree of attention they treat their tax return, it is that important. There are 3 main stages to a Customs declaration: collecting the necessary information, lodging the declaration, checking the declaration. You can complete and submit the customs declaration yourself, but for most companies, the customs representative (broker) is lodging the declaration on their behalf. However, to do that they’ll need to receive details of the shipment from the trader. You are therefore responsible for providing the agent with accurate information. A cornerstone of the 10 steps to Customs Compliance is to understand that your Customs agent (broker) is not responsible for the declaration (except in very limited circumstances). You must provide accurate information to your Customs representative about the classification, valuation, origin and selected procedure (regime) for the goods.
Step 7: Checking the Customs declaration
Treat your customs declaration as you would treat any legal document or tax return. Ensure you receive a copy of the customs declaration from your customs agent soon after the clearance of the goods. Check it for any errors soon after you receive it. Keep a note of the check, the date, the person who made the check. If you noticed an error, notify your agent, and ask for a correction. The common responses to non-compliances are often “but it is our agent who deal with the declaration”, “It is our agent who made the error, not us”. They are irrelevant. In the eye of most customs codes, the trader is responsible for the declarations. During an audit, Customs authorities will be knocking on traders’ door if duty has been underpaid.
Step 8: Record Keeping
Record keeping is mandatory in most Customs laws around the world. Each country specifying the length of time to keep the document. Record keeping for imports and exports should allow an audit trail of the transactions. You should therefore have evidence reflecting the entire transaction. From the initial sales/purchasing enquiry, the contract/PO, the transport document, the Customs declaration up to the receipt of the payment in the bank.
Step 9: Internal compliance, Customs internal procedure and compliance programme
Develop internal policies and procedures to embed compliance into your daily tasks. Build your procedures across departments so all functions are part of the compliance process. Audit your procedures and keep them up to date.
Step 10: Customs law: Keep up to date
Global trade and Customs law is constantly changing. Customs laws are often being updated, court cases change their application, the commodity codes are modified, procedures are being amended… A critical part of the 10 steps to Customs Compliance is therefore to understand the rules applicable to your transactions. In fact, many Customs codes around the world specify that traders must have “read and understood the rules” before engaging in international activities. It is central to meeting your obligations and trade safely.
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