New Local Customs Clearance Procedure under the Union Customs Code

The new Union Customs Code applicable since May 2016 brings several changes that may impact on business operating models of companies involved in international supply chains.

One of them, probably one of the less discussed, impacts on local customs clearance procedure (re-named under the new Customs Code as "entry in declarant's records").

For those who are not familiar with, local customs clearance is a simplified procedure for import &  export that brings multiple advantages e.g. speeding up the supply chain,  reducing logistic costs or less customs formalities.

We will analyse in this post the main changes regarding this procedure.

1.-LOCAL CUSTOMS CLEARANCE & REPRESENTATION

As commented above, the local customs clearance procedure under the new code is re-named as "entry in the declarant's records". First at all, who is the declarant?

According to the new Code (that keeps the definition of the old Customs Code) declarant means: 

"the person lodging a customs declaration, a temporary storage declaration, an entry summary declaration, an exit summary declaration, a re- export declaration or a re-export notification in his or her own name or the person in whose name such a declaration or notification is lodged”.

Therefore the declarant is not the importer or exporter of records but also the customs representative under indirect representation. The fact of acting as indirect representative means that the customs representative becomes co-debtor jointly with the importer and exporter. It should be noted that no limitation regarding the kind of customs representation to be used can be found in the current Customs Code.

This modification of the current legislation should be carefully analyzed to avoid and mitigate risks and liabilities with the design of an optimum structure in the context of the new regulation.

It is important to bear in mind as well that under the new Customs Code other liabilities for the declarant acting as a customs representative increase significantly.

2.-LOCAL CUSTOMS CLEARANCE ON IMPORT

Under the new Customs Code the entry in the declarant's records procedure is not applicable any more for the release for free circulation of goods (including re -import) which are exempt of import VAT (and or excises duties) based on the fact that a subsequent intra-EU delivery is going to take place after the import (article 138 of the EU VAT Directive). This procedure regarding import VAT exemption is called from a customs point of view 42 regimen.

What does means? Just imagine for instance a distribution HUB as Bonded Warehouse in the EU from which goods are delivered all over the EU. If the 42 regimen cannot be applied in the framework of a entry in the declarant's records, two potential scenarios should be analyzed: 

A.- Customs clearance for free circulation in the  framework of the entry in the declarant's records and later to perform an intra EU delivery of goods exempt of VAT (provided of course that certain requirements are met). I will just list two main consequences:

1.  If a VAT deferment account is in place no major problems should arise. But in countries in which VAT deferment accounts are not granted, this solution may have an impact on VAT cash management. Of course VAT compliance increases as well (e.g. Intrastat will be required in principle in most of the EU countries or a double entry into VAT monthly returns)

2. What will happen with an enterprise not registered for VAT purposes in the country in which  the import is taking place? Not every EU member state allow to use the limited or punctual fiscal representation out of the art. 138 of the VAT Directive.

B.- Customs clearance for free circulation applying the article 138 of the EU VAT directive out of  the  framework of the entry in the declarant's records procedure

1. If this solution is chosen, two parallel procedures should be in place (one under the framework of the entry in the declarant's records and another one out of this procedure) with e.g. two IT set up and maintenance.

2. The fact of lodging import declarations out of the entry in the declarant's records means that e.g. in general terms no recapitulative import declarations could be lodged and therefore a declaration must be filed on a transaction basis.

3. Under this scenario, customs duties must be paid on a transaction basis (or in 30 days by the means of a e.g Bank guarantee) provided that a customs duties deferment account is not in place. Licenses should be therefore reviewed.

Other additional impacts should be taken into consideration as well.

Of course there are potential solutions to be analysed and implemented on a case by case basis.

In addition new changes has been introduced as the abolishment of the possibility to use INF documents or the transit procedure. Self-assessment  advantage is a new aspect to consider too.

3.- LOCAL CUSTOMS CLEARANCE PROCEDURE ON EXPORT

An important modification took place a few years ago regarding this procedure based on the security initiative from the United Nations. Where on import it is still feasible,lodging recapitulative export customs declarations for all the exports/shipments performed the previous month was abolished. Why?  The reason is simple, for security purposes.

The risk posed by cargo entering and leaving the EU is analyzed on the basis of cargo information submitted electronically in a single declaration by operators prior to departure or arrival of the goods. Several reasons justify this analysis (e.g. terrorist threat, drug or weapon trafficking, counterfeit or sanitary reasons).

That is why the export declaration should be lodged at the moment the export/shipment takes place and therefore cannot be lodged in a later stage as e.g. recapitulative export declaration.

Currently the main reason for using the local customs clearance procedure on export it is the waive of the obligation for the goods to be presented at Customs when the export declaration is lodged. In principle this advantage under the new Code is only foreseen for import.

It should be highlighted that currently several EU member states allow this simplification out of the framework of the local customs clearance on export.

Under the new Customs Code, export and re-export procedures are only allowed under entry in the declarant's records" under very specific circumstances; although in practice those  scenarios were already allowed in many EU member states. 

Minor changes should be mentioned under the new regulation ( e.g. low value shipments or regular shipping line's good flows).

In summary export and re export transactions will be allowed under an entry in the declarant's records if the export and re export declarations are exempt of a pre departure declaration, that means (1)for goods just passing through EU the territorial waters or the airspace and (2) in other specific cases, where duly justified by the type of goods or traffic or where required by international agreements.

4.-BOND WAREHOUSES UNDER THE ENTRY IN DECLARANT'S RECORDS

The Bonded warehouse type D has been abolished and therefore valuation rules for goods introduced within a Bonded warehouse have changed.

Potential solutions to arrive to the same valuation treatment are possible under the new Customs Code if certain conditions are met.

5.-SOLVENCY

Under the new coming Customs Code in order to apply for  the entry in declarant's records License, the financial solvency condition is not required. However in order to apply for security waive or reduction on secured customs duties, solvency requirement (so AEO-C) must be fulfilled.

 Other changes are critical as well regarding this simplified procedure that should be carefully analyzed to avoid any disruption in the supply chain, to minimize or mitigate risks and to look for potential savings.