How Corporations Save on Customs Duties For Import Shipments

Anyone with a passing interest in global commerce knows today’s global marketplace necessitates managing shipments from origin to a destination not only in a timely manner, but also in keeping with the regulatory requirements, administrative procedures, and prevailing laws of all countries involved within each shipment’s supply chain, a best practice generally known as “compliance.”

Compliance is and will always be a key component of any well-run supply chain — after all, fall afoul of regulations and watch your organisation pay stiff penalties, potentially risk costly delays, legal exposure, reputational damage, and even loss of trading privileges.

However, compliance isn’t the only benchmark of value for global organisations today.

Competitive corporations are now expanding their focus to become more proactive and cost-efficient in their trade management strategy, by taking advantage of special programmes that allow them to find significant savings.

3 ways how to save on global customs and duties for import shipments

There are many ways to leverage your global supply chain to maximise your profits and establish an advantage over your competitors. Let’s focus on three, two of which are generally applicable, and one of which is particular to the Vietnam market. These are Free Trade Agreements (FTAs), Tariff Classification, and Export Processing Zones (EPZs).

Free Trade Agreement (FTAs)

Free Trade Agreements are pacts between 2 or more countries that are designed to lower trade barriers and foster trade between the partnering countries. As duty suspension programmes exist all over the world, this is perhaps the most recognised of these cost-savings methods. The increase in overall agreements and notifications has been sharp. One of the most recent FTA, the Regional Comprehensive Economic Partnership (RCEP), which covers the Asia Pacific region and went into effect in 2020, is the largest ever signed, covering an estimated 2.4 trillion USD in total trade.

How can you save with Free Trade Agreements?

By leveraging these programmes, an organisation can reduce, defer, or eliminate duty payments on qualifying goods under rules specific to each agreement, rules which often allow for transformation (through mixture, manufacturing, or assembly) of component materials from other countries into a finished good deemed to be originating within the country.

Discover how ONESOURCE FTA Management can help maximise your profits.

Tariff Classification

Classification is the act of assigning a Harmonised System (HS) number to an imported or exported product for the purposes of applying tariffs. Some countries use this for trade statistical information. No matter the country, every object crossing a border needs to be declared using a global code known as an HS (or Harmonised System) code. The HS code structure also includes the duty rates associated with the code and is used to determine the duty to be paid.

How can you save with Tariff Classification?

A forward-thinking corporation can assess its products at the point of creation to find favourable duty rates and engage in tariff engineering to create products that would allow for more favourable rates. With the proper analytics, a few percentage points can add up to millions.

Discover how ONESOURCE Global Classification can help identify favourable duty rates.

Export Processing Zones

Export Processing Zones are specially designated sites near Vietnam ports of entry that allow importers and exporters of all sizes to move goods in and out of the country paying reduced or no customs duties, taxes, or fees. They are specialised areas applied for by corporations and other organisations and approved by Vietnam’s Government, which create areas deemed to not exist within the Customs territory of Vietnam.

The Export Processing Zone programme is Vietnam based, but other countries like the United States have similar programmes such as the Foreign Trade Zones.

How can you save with Export Processing Zones?

These EPZs allow companies to realise many savings and benefits, including tax incentives, land tax discounts, import and export tax exemption and value added tax. At the same time, legal supervision of complex administrative and customs procedures is reduced. In addition to the above benefits, export processing zones are conveniently located close to seaports and airports, making the import and export of goods easier and more convenient.

Additionally, an EPZ gives a savvy organisation the ability to control its expenses. Say you’re an export processing enterprise (EPE) that imports raw materials from overseas or from other non-tariff areas that are exempt from import duties and export duties to export countries and other export processing zones – an EPE enjoys a 0% applicable VAT rate and corporate income tax (CIT) including tax exemption for the first two years, a 50% decrease in the 17% tax rate due over the next 4 years. For those who have not yet made a profit, there is a maximum of 3 additional years of tax exemption in the first period. You are also entitled to purchase construction materials, stationery, foodstuffs and consumer goods from domestic to build the enterprise and serve office administration and staff activities and workers working for the enterprise.

Discover how ONESOURCE Vietnam CFR can help stay compliant while saving costs.

To give just one example from the programmes listed above, analysing the HS or the various rules of qualification for the best savings requires mapping product flows across trade lanes, identifying the FTAs that are available for each trade lane for each product, to say nothing of the HS code and country of origin and rules of transformation—and that’s without even getting into the thousands of changes that can occur over dozens or potentially even hundreds of different countries’ duties, codes, and rules. Either hiring this work done in-house or outsourcing all this work to third-party consultants can result in massive expense, which cuts into ROI. Due to time, information availability and labour constraints, companies often choose not to claim preferential status and miss out on the savings—or even decide the savings aren’t worth the expense.

It can be useful or necessary to understand what your ROI is likely to be, before taking on the operational and administrative burden of such opportunities. Being able to compare trade lanes one to another to see the duty, tax, and fee burden, or the total landed cost can help you forecast and plan your next step. Being able to model out different multilateral FTAs can help you determine which special savings programmes will give you the biggest return, and for what products. And being able to report on your data can let you utilise “what if” scenarios to forecast future costs and impacts on your company.

Competitive corporations use analytic software tools fed by rich global content that allow them to evaluate opportunities for savings such as assessing FTA eligibility or duty savings opportunities.

With the proper determination and the proper tools, it is not only possible to take advantage of the existing duty savings, but necessary in order to stay competitive in a changing global market.

This article was originally published on the Thomson Reuters Institute and has been amended for Business Insight, featuring on Business Insight with permission.

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Now is the time to go digital and prepare for the future of global trade.

Globally, many organisations have taken measures to diversify their supply chain but are struggling to re-define their duty optimisation strategy. With each new FTA, such as RCEP, duty optimisation becomes more complex and savings opportunities more difficult to identify.

Organisations need to reduce complexity, mitigate risk and delivery cost savings by adopting automated, reliable and repeatable processes.

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