Inward Processing allows an importer to claim relief from customs duty and import VAT on the importation of non-EU goods that are processed in some way and then either exported outside the EU or released for free circulation in the EU. If the processed goods are released within the EU then they might be liable for a lower rate of customs duty and import VAT. You may also be able to suspend the payment of excise duty when using Inward Processing
Inward processing means that non-EU goods are imported in order to be used within the EU in one or more processing operations, for instance, for the purposes of repair, repacking, sorting, destruction or more complicated manufacture.
Businesses can utilize Inward Processing procedures even before deciding whether to sell the finished products within the EU or outside.
The procedure can be used for goods which only need to undergo processes intended to preserve them; to improve their appearance; to improve their marketable quality, or to prepare them for distribution or resale. It is also possible to store processed products under customs warehousing or in a free zone.
To use Inward Processing, an authorisation from the customs authorities is required that will specify the period within which the inward processing procedure needs to be discharged.
To obtain authorisation the business must be established in the customs territory of the Union.
- provide necessary assurance of the proper conduct of the operations.
- provide a guarantee where a customs debt or other charges may be incurred.
- carry out processing operations on the goods or arrange them to be carried out.
If the processed products are released for free circulation, the business concerned can apply to pay duty at the rate and customs value applicable to the imported goods at the time of acceptance of their customs declaration. Otherwise, the duty and import VAT will be calculated according to the rate and customs value of the processed products at the time they are released for free circulation.
Guarantee – Authorisation for inward processing will not be issued without an appropriate guarantee. The purpose of the guarantee is to secure duties suspended on goods imported under any authorisation.
Record keeping – Businesses keep records of all goods entered into inward processing for at least 4 years after their export or disposal.
Processed products – If multiple products are created as a result of the processing operations, each product needs to be distinguished. This means distinguishing between the main product(s) and any secondary product(s). Anything that is produced, as a necessary by-product of making your main product is usually considered a secondary product.
Bill of discharge – This is the periodic inward processing return that accounts for all imported goods and how they are discharged from the procedure. It must be lodged within the specified time-frame.
Rate of yield – This is a measure of how many imports are produced by processing. If the inward processing application covers more than one processing operation then the rate of yield for each one needs to be stated separately.
The economic test – Applying to specific goods where a business needs to provide evidence of why it cannot use EU-produced goods instead.