Inward processing is a customs procedure that allows the inputs used to manufacture goods for export to be imported either without paying customs duties or with the duties refunded afterwards.
The purpose is straightforward: to reduce the exporter's input cost. It is widely used in sectors where inputs are imported and output is exported, such as steel, textiles and machinery.
Two systems
| Suspension | Duty is not paid up front; security is lodged |
|---|---|
| Drawback | Duty is paid and refunded after export |
| Security | Required under suspension, not under drawback |
| Cash flow | Easier under suspension |
| In practice | Suspension is the more commonly used route |
The authorisation process
An inward processing authorisation is obtained in advance. It defines the inputs to be imported, the goods to be produced, the quantities and the period.
The authorisation carries a commitment: a stated quantity will be exported within a stated period. Period and quantity are the two most critical elements.
Discharging the commitment
At the end of the period, documents evidencing that the export took place are submitted to the administration. If the commitment is discharged in full, the security is released.
Where it cannot be discharged, the unpaid duties are demanded with interest and further consequences may follow. For that reason the authorisation period and the export schedule must be set realistically from the start.
Waste and secondary products
Waste and secondary products arising in production are also defined in the authorisation. In steel processing, offcuts and swarf fall into this category.
If their treatment is not established at the outset, difficulties arise when discharging the commitment because the quantity balance does not reconcile.
How it relates to bonded warehousing
Bonded warehousing and inward processing are separate procedures but can complement one another. Inputs can wait in a bonded warehouse while the authorisation is being obtained, and be entered to inward processing by a change of procedure once it is issued.
This route is used to avoid container costs accruing while the authorisation is awaited.