Ukrainian classifier of goods for FEA or what are the codes of UKTZED?
In order to accurately identify the product, the rate of duty and control measures, any product that crosses the border of Ukraine in the import or export direction is assigned a 10-digit code. About 80% of the problems that arise at customs when registering goods are incorrect classification of goods. Therefore, the main task of the broker is to choose the right code.
UKT ZED and code selection mechanism
When the task is to customs clearance of goods, it all starts with the Ukrainian Classifier of Goods for Foreign Economic Activity (UKT ZED). It consists of a set of product codes, product descriptions corresponding to these codes, and explanations of how to classify products according to certain codes. UKT is divided into 21 sections and 97 product groups. Moreover, each of the groups, in turn, is divided into headings, subheadings, categories and subcategories. In half of the cases, the success of customs clearance depends on the broker’s ability to work with UKT. What is the code selection mechanism and the quality of the broker itself?
First step– using the UKT, a code is selected by the name of the product. And if everything were so simple, then the services of brokerage companies would certainly not be needed. But the complexity of the classification lies in the fact that not every product has a separate code and often there are controversial situations in which more than one code can be assigned to the same product. Therefore, in order to correctly classify the product, a second step is needed – check the notes for the product, where there is its detailed description.
If the item code is still controversial, experienced customs brokers use additional tools. In particular, we are talking about the register of classification decisions, which contains information about previously contested customs codes of goods declared by brokers. Another possible additional tool is laboratory research. This method can be used when there are two questionable codes. The laboratory makes it possible to find out the exact composition in order to correctly classify the goods. This method is used, as a rule, for medical products, chemicals, textiles, precious metals, etc.
What else an experienced broker can do when he is not sure about the correctness of the code is to get a preliminary classification decision from the customs. Thanks to this, it is possible to prevent the change of the code (as practice shows for an increased duty rate), confiscation or a fine, the amount of which can be 300% of the value of the goods.
Very often, to simplify their work, inexperienced brokers, when declaring imported goods, use the country code of the sender. However, as a rule, they coincide only at the level of the first four characters, that is, groups and subgroups of goods. In many countries, most of the export is subject to a zero duty rate, so the customs broker may disregard the classification of the goods when registering. This means that, relying on the country code of the sender when registering the goods, there is a high probability of making a mistake and going into a high rate of duty and, as a result, overpayments at the customs office of the tax burden, which, as a result, will fall on the cost of goods in the market and reduce competitive strength.
After the product code has been correctly identified, a product certificate is created, which indicates all the requirements necessary for the import or export of a specific product. In particular, tax rates, possible preferences (benefits) that exist for this code, prohibitions (as a rule, sanctions) and non-tariff regulation, that is, all kinds of permits that may be required for the product.
Risks of misclassification of goods
- Increase in the rate of duty. The most common case of an incorrectly selected item code is an increase in the duty rate. If initially the cargo is declared at a zero rate of duty, and later the customs authorities increase it to 10% or more, an additional financial burden falls on the importer, for which he was not ready. As a result, these costs are transferred to the end user, which reduces the competitiveness of the products in the market.
- A ban on the import or export of goods. In addition, since the product code determines not only the duty rate, but also non-tariff regulation (licensing, quotas, technical, sanitary, environmental standards, etc.), incorrect classification can lead to the fact that the necessary documents will not be prepared, which will also cause problems with customs and make the import or export of goods generally impossible.
- Post audit of customs. Sometimes the customs authorities carry out a post-audit – verification of deliveries for the past period. Not all deliveries are checked, but selectively – a specific group of goods, a region or a separate customs office. In the event that, during such a check, it is found that the product code was determined incorrectly and at a lower duty rate than it should be, the importer will be obliged to pay taxes for all deliveries with the wrong code. The higher the duty rate, the lower the likelihood of claims against the product. The customs code says so – if the broker doubts the choice, then he has the right to choose the code at his discretion with the highest rate of duty. However, if the goods are declared at a zero rate, and even more so for the first time, you need to be extremely careful when registering them. As a rule, all subsequent deliveries are made out according to the principle of the first one and there is a high probability that the goods will still “roll” in the wrong code, which further carries the risk of additional costs for the importer.
The wrong classification of goods can cause many problems – from a ban on import or export to an increase in duties. And it’s good if the problem was tracked down on the first delivery and the overpayment amount is only 10%. And if this is revealed by the customs office itself, when the goods have been “rolled” in the wrong code for a year, three or more? The business may simply not be able to withstand such an unplanned financial burden.
An experienced customs broker uses all possible tools in order to correctly classify goods and minimize the risks described above, and most importantly, to build a documentary and legal line of protection for imported goods into the territory of Ukraine.
It must be remembered that a mistake made in the registration of goods during the first deliveries can stretch over the entire life of a business in the form of constant overpayments at customs, which will be considered the norm. But is it really the norm to overpay from UAH 1.6 to 30 million per year due to incorrect product coding? Or may be differently? Read about this in the next article, where we will talk about why a proactive audit of a business in the form of a customs audit is needed, what it is and how often it needs to be carried out.