PwC’s John O’Loughlin outlines strategies firms engaged in international trade can use to mitigate financial pressures during the Covid-19.
Covid-19 has led to significant challenges for companies as they adjust at pace to the changing global trade and supply chain landscape.
In many cases, companies are under contractual obligation to fulfil orders. They may be required to hold increased levels of stock for longer periods than normal, as demand patterns and economic markets adjust.
What can you do to mitigate the pressures on your working capital during this challenging time?
Customs Warehouse procedure and Customs Duty Deferred payment account
One potential strategy that you might consider is using a Customs Warehouse procedure coupled with a Customs Duty deferred payment account. This delays the crystallisation and subsequent payment of customs duty and import VAT arising on import, and provides greater flexibility regarding inventory in these uncertain times.
A Customs Warehouse procedure can reduce pressure on an importer’s cash flow and working capital, while allowing flexibility to hold inventory for an extended period.
A Customs Warehouse procedure allows an importer to store non-EU goods in an authorised designated location without being subject to import duties (Customs duty and import VAT). If the goods are released to free circulation—moved from the warehouse or storage facility—the duty and other charges only become payable at this time.
Furthermore, should a scenario arise where inventory needs to be returned or re-exported to another country, having a customs warehouse in place will mean that import duties don’t become payable.
To further assist in working capital management, having a Customs duty deferred payment account in place could delay the payment of customs duties up to a maximum of 45 days from the date of release from the Customs Warehouse.
A working example
- No Customs planning: Product is shipped from China to Ireland, and arrives in Ireland on 1 June. Shipment is valued at €250,000 and subject to 5pc customs duty rate (€12,500) and import VAT at 23pc (€60,375). In the case where no planning arises, import duties of €72,875 become payable.
- With Customs planning: Product is shipped from China to Ireland, and arrives in Ireland on 1 June. Shipment is valued at €250,000 and subject to 5pc customs duty rate (€12,500) and import VAT at 23% (€60,375). Product immediately enters the importer’s Customs Warehouse facility for storage. No import duties become payable on arrival. The import duty payment of €72,875 is suspended. On 1 August, the importer receives a purchase order from a customer or initiates a stock transfer to a retail location. They release the product from the Customs Warehouse Procedure. An Import declaration is processed for the product. While the duties of €72,875 become payable, with the use of a deferred payment account, the monies owed are only debited on 15 September.
As you can see from the above example, customs duty potentially due on 1 June can be postponed until 15 September allowing working capital to be optimised for day-to-day operations.
While the above actions do not negate the payment of customs duty, they can potentially allow an importer to manage and extend deadlines and take pressures off of cash flow. In addition, this planning solution would also be applicable in the case of where imports are subject to import VAT only.
Time to take action
In conclusion, the time is now to consider if a Custom Warehouse facility is an appropriate strategy for you and your business. If so, you should promptly complete your application for the relevant procedures.
Consider your working capital requirements for purchases of non-EU products.
Consider if a Custom Warehouse facility is an appropriate strategy for you.
Promptly complete your application for the relevant procedures.
John O’Loughlin is a partner in the PwC’s Tax practice where he leads the PwC Global Trade & Customs team. John specialises in the provision of global trade and customs advice and provides extensive consultancy support to a wide range of Irish and multinational companies across all sectors in supporting their businesses getting products and services across international borders in both a compliant and tax efficient manner. John is also part of the PwC’s Brexit task force and is actively assisting PwC clients across all industries prepare for the customs and trade impact associated with Brexit.
Published: 3 June, 2020