Everything You Need to Know About Inward Processing: A Customs Mechanism Serving Industry

Category: Customs Author: — Date: — Reading time: —

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Inward processing allows companies to temporarily import goods free of taxes and customs duties, in order to process them before re-exporting.

What is Inward Processing?

Inward processing allows companies to temporarily import goods free of taxes and customs duties, in order to process them before re-exporting.

This regime is particularly advantageous for companies that use raw materials or foreign components to manufacture products destined for export.

What are the benefits of inward processing?

The inward processing regime is designed to promote the economic activity of EU companies that process or repair non-Union goods. It offers these companies:

1. Customs duty exemption: Whether through suspension or drawback, companies benefit from exemption on customs duties and VAT on goods imported for processing.
2. Improved competitiveness: By reducing production costs, companies can offer more competitive prices on international markets.
3. Operational flexibility: Companies can adjust their production processes according to market conditions without being penalised by customs costs.

What are the 2 possible options for implementing inward processing?

Option 1: Suspension

Under this option, customs duties and VAT are suspended at the time of import. This means companies do not have to advance these costs upon importation.

Benefits of suspension:

1. Immediate exemption: Companies benefit immediately from exemption on customs duties and VAT.
2. Improved cash flow: By not paying these taxes upfront, companies can use their cash flow for other investments or operational needs.

What procedure should be followed to implement suspension?

1. Application for authorisation: The company must obtain prior authorisation from the customs authorities.
2. Monitoring and control: Goods imported under this regime must be rigorously tracked to ensure they are re-exported after processing.
3. Declaration and justification: Upon re-export, the company must prove that the goods have been processed in accordance with the conditions of the regime.

Option 2: Drawback

Under this option, customs duties and VAT are paid at the time of import, but they can be refunded after the re-export of the processed goods.

Benefits of drawback:

1. Cost recovery: Although companies must advance the costs, they can recover customs duties and VAT after re-export.
2. Administrative ease: For some companies, this method may simplify accounting and customs management.

What procedure should be followed to implement drawback?

1. Application for authorisation: Prior authorisation is still required.
2. Initial payment: Customs duties and VAT are paid upon importation.
3. Refund: Once the goods have been processed and re-exported, the company applies for a refund of the customs duties and VAT initially paid.

In conclusion, inward processing is a strategic customs regime for companies operating internationally. It helps reduce costs, improve competitiveness, and benefit from optimised production conditions.