Tax payments are calculated on the basis of the customs value of the cargo, which consists of: the value of the invoice and the costs that were paid during transportation to the border (not considered if, according to the terms of delivery, the cost of delivery is included in the price of the goods).
Let’s take a look at the example of importing car parts from Berlin. The cost of the cargo according to the invoice is 50 thousand dollars, transportation costs to the Ukrainian border – 2 thousand dollars.Thus, the customs value of the cargo will be 52 thousand dollars. According to the Ukrainian Classifier of Goods for Foreign Economic Activity, a duty rate of 5% applies to most imported spare parts, which will amount to another 2,600 dollars. VAT is charged on the total amount (customs value + rate of duty) and will be equal to 10,920 dollars. In total, all tax payments will be 13,520 dollars.
When exporting goods, the tax payment scheme is the same, except that, as a rule, there is a zero duty rate and goods are not subject to value added tax.
At first glance, everything seems quite simple, but why are importers so often faced with overpayments at customs?
Each product that is imported into the territory of Ukraine – from food to special equipment, is in the so-called “risk table”, where it is indicated at what minimum cost it can be imported. Thus, the customs authorities are trying to protect themselves from the import of goods at a reduced cost and, accordingly, reduce tax revenues to the budget.
For most groups of goods, such as food, clothing, furniture, and many others, this figure is calculated in dollars per kilogram. If we are talking about the import of machinery, equipment, etc., the risks are determined by comparative analysis with previous deliveries of similar goods.
Is it possible to import a product if its value is lower than the risk? The answer is yes. An experienced broker can determine how high this probability is even at the stage of receiving a preliminary invoice and coding from the client. If the product does not pass in value, there are several scenarios. Let’s consider each of them:
⇒ Confirmation of customs value
If the customs value of the goods is lower than the risks, it is necessary to prepare a package of documents to confirm its price. This is one of the main tasks of a broker – to act as a business lawyer in front of the customs authorities and protect its rights. Among the documents may be: price lists, tax invoices, past import declarations, calculation of the pricing of the cost of goods from the manufacturer, documents confirming transport costs, export declaration of the country of the sender, etc.
The entire package of documents is sent to customs along with a declaration, where a decision is made whether this product can be imported at a specified value. The whole process, on average, takes about a week. It should be borne in mind that all this time the cargo will be at customs.
⇒ Increase in customs value
Option A: Voluntary increase in customs value
the option is the simplest and makes sense when the cost of overpayment is not significant. In this case, this solution will be more efficient and will significantly save time.
Option B: Forced increase in customs value
a case that is possible if the customs, even in spite of the prepared package of documents, made a decision that the value of the goods is not legal and the importer is obliged to pay taxes at a higher customs value. In this situation, only two options are possible – either increasing the customs value, or challenging the customs decision in court.
The peculiarity of experienced brokerage companies is that they have experience and understanding of building an evidence base, register goods, the customs value of which is lower than the risks. About 90% of VR GROUP’s registrations are just such, and the company’s reputation in the market plays an important role here. An advance risk analysis and calculation of customs value will give an accurate understanding of what the tax payments will be and minimize the likelihood of overpayments. You can read about what mechanisms still exist to minimize customs costs in our next article.