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Know your duties

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03 February 2005

In the final part of a series on international trade, Catherine Truel navigates the tax regulations on imports and exports

When your overseas order lands in the country, it's time to stump up duties and tax. At least, it should be, but adopting more efficient customs management can help to reduce or remove the cost. So, how do you access the savings on offer?

The first thing to do is to clarify internal responsibilities for customs duties. By its very nature, this is often a cross-departmental task; the administration or distribution department is handling the clearance process while finance is looking after taxes and duties. This kind of dilution runs the risk of not complying with the rules and raises the possibility that opportunities for savings could be missed.

But beware: the customs authorities don't suffer with this kind of ambiguity: they consider responsibility rests with the importing business, end of story.

Customs declaration

Once you have decided whose job it is, you'll need to handle is customs clearance. This is an important step because in essence it is a declaration of your imports to the tax authorities. So it's not something you want to revisit. But it's not just a form-filling exercise.

In addition, the customs declaration form might look incomprehensible. Ironically, it is like this to make it clearer and avoid mistranslation and jargon. Although the sender may have completed the form, you, as the importer, are responsible for accurately classifying the imports according to a code that carries legal force and applies in all 25 European Union countries.

First-time importers often assume that an incorrect code means an administrative error, whereas the cause is more likely to be an incorrect description.

Tax advice

How can this type of confusion be avoided? Research is the answer. A good starting point is HM Customs & Excise's website (, which contains a starter pack and public notices for almost every aspect of import or export.

A network of advisers can answer questions that need a personal touch. Business support teams can arrange visits to answer a business's specific needs. The International Trade Development Liaison Officers cover trade facilitation initiatives and new developments.

Ultimately, training is not only a safeguard for compliance but it is an investment in knowledge that can yield some substantial returns. In a way, customs clearance is similar to tax matters. No business would have its VAT return prepared by a complete novice: it's the same with imports.

Customs agent

However, if errors are made, the customs agent - a specialist who handles the deliveries - can amend the import declaration. Bear in mind that it is always preferable to disclose an error or a contravention voluntarily.


The indispensable tool of customs man­agement is "The Tariff". This contains all import and export requirements, including product classifications and instructions on completing a declaration.

Classification is a kind of translation exercise. It is about translating the description of any product into customs' international language: commodity codes. Also known as tariff numbers, these codes are used across the globe to identify any products, anywhere in any language.

The correct commodity code is fundamental to customs planning. It determines duty rates, restrictions, licensing requirements, quotas and preferential measures. Again, it is the responsibility of the importer to provide the appropriate code - and it is not necessarily the code shown on the supplier invoice. Agents are usually quite familiar with the subject and customs tariff classification service can help to clear any doubt.

It's also worth checking the value declared to customs. Import duty and taxes do not have to be assessed on the total invoice value. Some elements of the commercial transaction might not be liable for duty (see Features, 7 October 2004).

Compliance has often been perceived as a cumbersome and onerous activity but this is beginning to change.

Trade deals keep border formalities to a minimum and the authorised trader benefits from a super-fast clearance.

Rules of origin

Once you have complied with all of the regulations, how do you go about making some savings?

For buyers, the most powerful tool is probably the rules of origin. EU trade agreements allow products from many developing countries to receive preferential treatment and enter the community at reduced or zero duty.

The goods' country of origin can therefore seriously reduce the duty cost. Of course, these countries must manufacture or substantially transform the products. Transit or simple repacking does not confer origin.

Industry tax rates

In some industries, such as telecommunications, the duty rate on the finished product is lower than the rate on the components used in manufacturing. This anomaly is discouraging production in the EU and encouraging imports. To correct this, the processing under customs control procedure suspends duty on the components at import. Once manufactured, the finished goods are liable to a lower rate of duty.

Other industries benefit from a particularly low or nil rate of duty on imports, provided that they are put to a prescribed use. The measures are then implemented under the end-use relief procedure.

Repairs: import and export

There are many options for almost all situations and customs management is about selecting the most appropriate.

For instance, when goods are received damaged or if they do not match the purchase specifications, the rejected imports procedure will remove or suspend duties and taxes.

If the goods have to be returned to the supplier outside the EU for repair of for further processing, exporting them under the outward processing relief scheme will ensure that when they come back, duty is paid only on the added value.

If the goods are travelling in the opposite direction, entering the EU for repair, the inward processing relief scheme will suspend duty and taxes until they are re-exported. Tax and duty are also suspended if the goods are entering the EU for a short time, such as for an exhibition.


If the goods will be stored for a while or, for some reason, it is critical to move the "tax point" (the date of supply), customs warehousing is a flexible and efficient device. Procedures suspending taxes can be useful even if a product is duty free, because with a VAT rate of 17.5 per cent, freezing the tax bill for a time can have a nice effect on cash flow.

But when all duty costs have been reduced or removed, the cost of the administrative clearance remains. Agent's fees can be higher than the duty paid. Depending on the volume of transactions, it might be worth investigating the possibility of in-house clearance.

Single declaration

In the future, businesses should be able to declare all of their imports in one member state under the Single European Authorisation regime. For companies with European branches or multi-source imports, centralising the process in one place could generate some substantial savings.

Customs authorities are well aware that although duty rates are coming down, the need for compliance cannot hinder international trade.

In an era of globalisation and getting to market before the rest, the clearance process could become a source of competitive advantage for the buyer with the right knowledge.

Catherine Truel is a freelance business journalist


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