A wide variety of tools are available on a global basis to save customs duties and reduce transaction costs. You can even combine them for increased effectiveness.
Here are some ideas of Customs duty reductions per business department for your various business functions.
Temporary Duty Reductions: Governments can introduce temporary duty reductions for a twelve months period or longer. These often cover goods with high duty rates. The sales team should react fast when such a window of opportunity is opening. For instance, in the highly protected Brazilian market, some capital goods that would normally carry a 25% duty rate are now subject to only 2% duty. And even nil duty for some products.
Commodity Codes: Some design features can move the product into a heading where it will be subject to a higher duty rate. This is also the case with the choice of certain components or materials. By running a “classification test” on the prototype one can estimate the future transaction costs and adjust the design if necessary. Products can have different duty rates at the various stages of manufacturing. If the intermediary product has a lower duty rate than the finished item, it might be beneficial to import the intermediary product and carry out the final manufacturing stages locally.
Procurement & Supply Chain
Free Trade Agreements: Sourcing decisions and purchase agreements have a significant impact in determining the dutiable value at import. Seasoned buyers look for suppliers in countries that have trade agreements with their countries of manufacturing to import goods duty free.
Production and Operations
IPR and OPR: The manufacturing process may also generate some substantial savings. Using Inward Processing Relief (IPR) you can eliminate duty and import VAT on goods you import for repair or process for re-export. IPR can provide savings in procurement and deliver sales benefit by reducing the cost of goods sold. Outward Processing Relief (OPR) helps the business reduce costs by sending goods abroad for manufacture or assembly before returning them partially manufactured or in the finished state with reduced payment of duty. It is of particular value to companies looking to take advantage of lower production costs by offshoring a stage of the manufacturing process. For instance, by sending parts to China for processing before re-importing them for final assembly.
Customs Warehouse: The logistics department can set up a Customs Warehouse. It can be an area of the business warehouse where you hold stocks of imported components, material of finish goods. A Customs warehouse delay the tax point until the release of the goods. It is therefore beneficial for the cash flow. The use of a Customs Warehouse can reduce inventory costs by 20%.
Customs Valuation: The value on which import taxes are assessed is not necessarily the final invoice value. Careful and knowledgeable planning can significantly reduce the value for customs purposes. However, it is important when planning for Customs Valuation to consider any transfer pricing implications and vice versa. Involving the finance department in any decision related to Customs valuation is therefore critical.
Remember compliance comes first! Customs compliance is about strong processes and a sound understanding of the rules. Looking for savings without focusing on compliance creates a risk of penalties resulting from a Customs audit. Trade Facilitation measures are only the rewards from meeting compliance obligations.
Customs duty reductions per business department can be found across several business units in different countries. For international operation with multi-country sites contact us at firstname.lastname@example.org and we’ll introduce you to Alegrant local Customs experts. They will help you identify saving opportunities available in their country.
Contact us today to explore how these mechanisms can fit with your operations email@example.com.
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