How will Inward Processing Change with the Union Customs Code

When the Union Customs Code (UCC) is fully implemented in May 2016, there will be significant changes to the current Inward Processing procedure. 

Inward Processing Drawback procedure will no longer be an option for traders, while Processing under Customs Control (PCC) will be combined with Inward Processing (IP), and IP Suspension will remain.

European Union (EU) importers bringing non-EU goods into the EU for processing under Inward Processing Drawback will need to consider transitioning to the Inward Processing Suspension authorisation well before the May 2016 implementation.  Whilst Inward Processing Drawback goods entered on or before 30 April 2016 but discharged on or after 1 May 2016 can still be discharged under the current Community Customs Code rules, all goods entered to IP after 1 May 2016 will need to follow the new UCC rules, even if the authorisation is still valid beyond that date.  It will be important to speak to your Customs Officer to understand any specific transitions of Drawback goods discharged beyond 30 April 2016.

What do you need to know about Inward Processing (IP) Suspension to be prepared for the transition to the UCC? 

First, let’s define Inward Processing Suspension as it stands today and what it may look like after the UCC is implemented.

By Michiko Lloyd, Vice President European Operations, Integration Point

The current definition, according to HM Revenue & Customs, is “IP Suspension is a Customs Procedure with Economic Impact (CPEI). It allows Customs duties*, import VAT and excise duty on third country goods imported to the EU for processing to be suspended on condition that there is an intention to re-export the goods at the end of processing and that all the requirements of the procedure are met. It is intended to assist EU established processors to compete on an equal footing in the world market without harming the essential interests of EU producers of similar goods.”  

Once the UCC is implemented, as mentioned before, IP Suspension will remain as a Customs Procedure and Inward Processing Drawback will cease to exist.  In addition, the intention to re-export IP goods is no longer required; goods declared to IP can be re-exported or declared to Free Circulation under the new UCC rules.

To use IP Suspension in any form today, you must gain prior authorisation from a Customs Authority, and with this authorisation the organisation becomes responsible for all duty and associated charges on all goods entered under this CPEI.  Once the UCC goes into effect, CPEI will be renamed to ‘Authorisation by Declaration.’

However, one thing will not change – how processing is defined.  Processing is defined as anything from re-packing or sorting of goods to the most complicated of manufacturing, according the Irish Tax and Customs website.   But what will change is what happens to those goods after processing.  If you do not re-export goods or enter the goods to free circulation after processing, or dispose of them, payment of suspended duties, import VAT and any other charges will be due immediately.

One more change that will be widely noticed in regards to Inward Processing – requirements to apply for IP.  While you do not need to be the owner of the goods, you must be legal entity established in the EU, be the one carrying out the processing, authorised to use the procedure, and have an Economic Operator Registration and Identification (EORI) number.

Finally, you will need to understand the type of authorisation needed after May 2016. 

There are five types of inward processing authorisations – simplified, local, specific, single community and integrated.

• Simplified allows for the entering of IP goods without prior authorisation.  This is really for traders importing goods occasionally to IP and processing is within the relevant Member State.

• Local is for those companies that will regularly use IP and hold an authorisation to use simplified procedures

• Specific comes into play when an EU company has to import goods from outside the EU because they were unable to source those goods from within the EU.   This is for agri-food.

• Integrated is for when you plan to include IP Suspension with other customs procedures (such as Customs Warehousing, Outward Processing, etc.) 

• Single Community-Wide Authorisation is for organisations wishing to carry out processing operations in more than one Member State. 

To apply for any of these authorisations, organisations would apply in the Member State where their main operations are held.  Authorisations are typically valid for three years from receipt of application but it is important to check with local Customs Authorities when completing the application to confirm.    

Once implemented, IP Suspension can produce savings but only if managed properly.  Companies that use IP Suspension need to make sure that once the paperwork is done and the process is complete, that they don’t get mired down in maintaining the process.  Look to automation to assist with managing import/export declarations, communicating with agents, generating reports and more that is required to maintain compliance under Inward Processing.

Most importantly, organisations should remember that we are still 1 year away from full implementation and changes are being made almost monthly.   The information here is the most current as of April 2015, but there could still be more changes as the implementation deadline nears and Customs Authorities throughout the EU begin working with the new procedures.