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[Customs Drawback System for Export]
The customs drawback refers to a system under which received import duties are refunded for certain reasons. Each country is operating different customs drawback system in order to fulfill the purpose of policy, to secure tax revenues, to promote exportation and other purposes.
Customs drawback system is necessary because customs, which are theoretically categorized into the excise tax imposed on consumed goods, aren't required to be imposed when goods aren't consumed in Taiwan, or is required to be returned later.
Customs drawback system is divided into a refund of mistakenly paid customs duties under which mistakenly overpaid customs is refunded, and other drawback systems. The characteristics of other drawback system are revealed distinctively when imported raw materials are re-exported after going through processing within the country.
In particular, a rigorous supervision is necessary for the case where customs duty of imported raw materials is refunded because this is the area of conflict between the institutional purpose such as the facilitation of export and possibility of abusive use such as unjust refund.
In the other hand, from the perspective of trader or manufacturer, drawback of import duty has a great influence over manufacturing cost.
Hereinafter, we'll learn basic matters concerning drawback, and drawback for imported raw materials at the time of re-exportation.
■ Distinctive Concept
☉ Refund for mistaken payment
It refers to a system under which overpaid customs duty is refunded, in the case where customs duty is overpaid or mistakenly paid by the administrative error or by the mistake of taxpayer at the time of importation of relevant goods(Article 63 of the Customs Act).
Customs duty is refunded upon the request of application from taxpayer or by the authority of Customs which notices mistaken payment, within a year of refund period at any cases. This system has different nature, purpose and procedure from those of imported raw materials because it merely means a process to correct mistaken payment.
☉ Drawback for unusable imported goods
Under this system, previously paid customs duty is refunded through the investigation of Customs in the events where imported goods whose customs duty were already paid become unusable due to a calamity, or the amendment of the laws and regulations, or where said goods are required to be returned to foreign exporters because they're different from the terms of contract(Article 64 of the Customs Act).
The principle of this system is similar with that of drawback of customs for imported raw materials, because they're based on the principles of tax law under which customs duty isn't imposed on the goods which aren't consumed in Taiwan(nature of the excise duty). But, this system is different from drawback for imported raw materials in terms of targets, requirements, procedures, etc.
☉ Bonded area system
The term "bonded" means the state of imported goods before they are cleared, and "bonded area" means the area where foreign goods may be brought in the state of being cleared(still foreign goods). Therefore, such bonded area is regarded as foreign countries in trade terms.
Bonded area is the region designated particularly in order to promote export, and to support industry, and to further streamline customs procedures, which exists at any countries.
In Taiwan, various bonded area systems have been in operation, and utilized positively, compared to other countries including bonded factory(保稅工廠), Logistics Centre(物流中心), Export Processing Zone(加工出口區), Science and Technology Park(科學工業園區), Agricultural Biotechnology Park(農業科技園區), Free Trade Zone(自由貿易港區).
This system is different from drawback system for imported raw materials in various ways that import clearance procedure isn't necessary for the goods which are brought in bonded area and then returned to foreign countries, and importer isn't liable to pay customs duty, so not in need of receiving refund of customs duty.
That is, customs drawback system which will be dealt with in this manual is relevant to the enterprises which have no relations with bonded system.
☉ Comparison with drawback system for raw materials of other countries
Refund for mistaken payment, and drawback for the goods which are different from the terms of a contract, etc. are the systems in operation at any countries, but, with regard to drawback for imported raw materials, there is considerable variation from country to country.
Drawback system of South Korea is similar with that of Taiwan. But, Korean system is different from Taiwanese system in that ① Korean system has operated a simplified duty drawback system, ② but hasn't operated a system of providing security to import raw materials, and of offsetting such security at the time of export of finished products, and ③ all sorts of imported raw materials may be eligible for the drawback.
As for Japan, there is a customs drawback system for imported materials, but it's not enough to play a practical role because target items for drawback are extremely limited(currently, drawbacks are available for the goods which are manufactured by imported sugar as raw materials and exported by being sealed in can, bottle, pot, etc. or other ways, covering items such as jam, marmalade, fruit, juice, tomato ketchup.).
As for China, instead of customs drawback system, it widened the range of processing trade system to fulfill original purpose of such system. That is, China has adopted the system under which customs duty isn't paid at the time of importing raw materials, but possible exemption from customs duty is determined when final products manufactured by imported materials are subsequently re-exported.
The difference between Chinese system and Taiwanese system is remarkable in that Taiwan is adopting a drawback(export) after tax payment(import), but, China is adopting exemption determination(export) after provisional exemption(import).
■ Legal Base for Drawback of Raw Materials
ㅇThe Customs Act
ㅇEnforcement Rules of the Customs Act
ㅇBusiness Tax Act
ㅇCommodity Tax Ordinance
ㅇRegulations Governing the Offsetting or Refund of Duties and Taxes on Raw Materials for Export Goods
ㅇRules Governing Manufacturer Cash Rebate
ㅇOperational regulations of the Business Tax payable recorded on account and being offset on imported raw materials used for exportation
■ Basic Process for Customs Drawback System in Taiwan
Taiwanese drawback system for imported raw materials is divided into major 2 categories; ① customs duty is paid at the time of importing raw materials, and such paid customs are paid at the time of exporting final products(drawback in a narrow sense - tax rebate), and ② the security is paid first without paying customs duty for imported materials, and then at the time of exporting final products, customs duty and drawback amount are offset and expunged by paid security(offsetting and expunged).
The system above ① and ② combined is a drawback in a broad sense.
Hereinafter, a drawback in a broad sense will be called a drawback. Case ② has more stringent national supervision system than case ①, but they're in line with in each purpose and process. In this sense, they will be explained together.
Taiwanese customs drawback process may be simplified as below in a chronicle order.
1. Import of raw materials
Customs duty isn't paid but instead, the security is provided, provided that customs duties of relevant goods are paid, or final products manufactured by using such raw materials are subsequently exported.
2. Production of final products by using imported materials
Taiwanese government stringently supervises quantity material applied, etc. for imported raw materials in the course of production.
3. Export of final products
4. Drawback for customs paid at the time of importation of raw materials
In the event where final products manufactured by using imported materials are exported in compliance with certain requirements,
①Where customs duty is paid already in importing materials, import duty, etc. is refunded for raw materials used for the manufacture of export goods,
②Where the security is provided instead of paying customs duty, etc. estimated customs payable to the state and estimated refund amount caused by export are offset.
※Drawback procedure : filing drawback application form ⇒ receipt of application and examination(if failed, a notice of correction) ⇒ closing of examination(accounting processing) ⇒ drawback(remittance to drawback dedicated account) ⇒ issuing of a drawback notice
■ Requirements and Targets for Drawback
☉ Basic requirements
ㅇImport of raw materials
In order to receive a refund, imported raw materials must be used for manufacturing export products, and such materials are subject to the imposition of customs duty, business tax, commodity tax(hereinafter, referred to as customs duty, etc.). It's because raw materials which aren't subject to the imposition of customs duty, etc. don't have any grounds for refunds.
Refunds are available for importation of raw materials for consigned processing or joint export as well as direct importation.
ㅇExport of final products
Refunds are available only for the case where final products are manufactured by using imported raw materials and exported to foreign countries.
ㅇExistence of refund standard
There shall be refund audit standard with respect to material quantity applied for the manufacture of final products, and be a dedicated account for refund at the bank of Taiwan.
ㅇCompliance of time limits
Refund application form shall be filed within 1 and half a year following the date of import clearance of imported raw materials. But, such time limit may be extended up to maximum 1 year in the case where the approval from the Ministry of Finance is granted because of force majeure and other special circumstances.
☉ Goods subject to the Refund
Refund system isn't applied to every goods.
In Taiwan, there is a distinct division between refundable items and non-refundable items(items refund cancelled). Item division to determine the possibility of refund is based on raw materials of item, not on final product. Currently, around 7000 items by the CCC(on the basis of 11 digits of HS code) code are non-refundable items(if HS code is displaying code R, such item is non-refundable, but if displaying code R*, refund for some detailed items is impossible.).
※When you run the simulation in the TCS program, an automated screening system is giving a guidance on whether selected items are subject to the refund.
☉ Refundable tax
Every taxes aren't subject to the refund, but limited to the following three taxes.
ㅇCommodity tax(commodity tax which is collected by Customs is refunded by the Directorate General of Customs, the rest of commodity tax is processed in Tax Office)
ㅇBusiness tax(business tax which is collected by Customs is refunded by the Directorate General of Customs, the rest of commodity tax is processed in Tax Office)
■ Application of Refund
☉ Competent authority
Competent authority concerning refund is the Ministry of Finance, and details processing is authorized by the Directorate General of Customs and tax collection authorities.
☉ Qualification for refund application
Refund application for tax of imported raw materials may be filed by importers of raw materials, processing manufacturers, and exporters of final products.
In the cases where customs duty isn't paid for import materials, and security provided is offset and expunged, manufacturers who have recorded book for import raw materials only may apply for offsetting and write-off.
☉ Required documents for refund
ㅇAt the time of application for refund, refund application form shall be submitted along with import license for raw materials, export license stating the intent for refund, statement of materials used containing the name, quality, standards, ingredients, quantity or weight, supplying amount by supplier, etc.
Other than these, a joint enterprise needs a refund agreement, and particular documents and documented evidence, etc. required by refund processing authorities.
■Refund Standard and Recording Keeping
☉ Audit refund standard of materials used
Refund standard refers to quantity materials applied for the production by item, which is divided into 2 categories.
ㅇGeneral standard : With respect to the same products as specific final products in terms of standards and name, such standard is applied to all enterprises, which is valid for 5 years.
ㅇProfessional standard : its approved by the Industrial Development Bureau under the Ministry of Economic Affairs upon the request of specific enterprises, and such standard is applied limitedly to specific enterprises, which is valid for 3 years.
☉ Record keeping for customs duty and commodity tax
The items falling under any of the following conditions are required to apply for record keeping to relevant processing authority at the time of importing raw materials, excluding non-refundable exported goods by other regulations. At the same time, a pledge shall be made that relevant materials will not be used for domestic sale, etc.
ㅇWhere security or deposit is provided in importing raw materials;
ㅇWhere the qualification to voluntarily finalize raw material tax of export goods based on drawback method for raw materials of export goods is provided.
☉ Record keeping and write-off of business tax
Business tax is calculated based on regulations of Business Tax Act, and export business shall record tax levied on imported raw materials and retain the record. In this case, imported raw materials which are required to be recorded in the book of tax shall amount to NT$ 2 million or more of dutiable value in relevant import declaration.
On the other hand, raw materials listed in the book are limited to the materials which are imported by an export business and re-exported to aborad. This shall not apply to the materials in the middle of transportation between taxed area and bonded area.
In recording the book, business tax which may be expunged is calculated by a formular, < FOB price of export goods × tax rate of raw materials>, and business tax which is approved for its record keeping is summed and expunged on a monthly basis.
☉ Write-off and refund for commodity tax and business tax which are collected by Customs as proxy
Application for refund and write-off shall be filed with respect to commodity tax and business tax which are collected by Customs as acting along with customs duty. In addition, commodity tax and business tax whose records are kept by Customs as acting also are refunded and expunged at Customs along with customs duty.
ㅇRefund rate and write-off rate of customs duty and commodity duty
Customs duty and commodity tax which are eligible for receiving refunds for imported raw materials are calculated by customs duty rate and commodity tax rate applied at the time of importing raw materials. But, customs amount refundable may be smaller than actual customs paid because the person who is applied by the third column(base tariff rate) at the time of importing materials may be applied by the first column(WTO Conventional Tariffrate), and customs duty is refundable by such column.
Raw materials whose quota duty rate is applied may be refunded in a lower rate(in-quota rate) all the time regardless of either low rate in-quota is applied or
high rate out-of-quota is applied.
Refund amount of customs duty, etc. is calculated by material quantity which has been applied at a normal level(material refund standard) for the manufacture of export goods.
Provided, that customs duty of finished products consist of troublesome and small amount of parts without material refund standard may be refunded based on actual quantity applied.
In addition, in the case where quantity applied isn't calculated for small amount of imported raw materials used for export goods, tax refund is available without the application of refund standard, limited to the case inspection is performed by advance notification to Customs.
ㅇThe case FOB price of exports goods is lower than CIF price of raw materials applied
In the event FOB price of exports goods is lower than CIF price of raw materials applied, the refund of customs duty and commodity tax is made according to the proportion of FOB price and CIF price.
■ Self-Executed Affidavit for Import Raw Material Tax
☉The case self-executed affidavit is possible
Export manufacturers which comply with the following regulations may execute affidavit by themselves against imported raw materials consisting of export goods.
ㅇThere shall be performances in compliant with regulations like the case where average annual exports during the recent 2 years are more than NT$ 60 million yuan, or export amount refundable is more than NT$ 30 million yuan, or annual export sales during the recent three years are more than NT$ 40 million, and export amount refundable is NT$ 20 million yuan.
There shall be no poor records such as deficit, tax evasion and unpaid taxes during the relevant years.
ㅇWith respect to an emerging strategic industry which is compliant with the Ordinance for Industry Promotion and Improvement, there shall be no poor records, or unpaid taxes shall be less than NT$ 500,000 yuan.
☉ Required documents for self-executed affidavit
ㅇProof documents for export performance issued by foreign currency or trade related authority
ㅇA book examination certificate issued by the competent collection authority controlling the location
ㅇProof of eligibility issued by the competent collection authority controlling the location
☉ The case self-executed affidavit is prohibited
If the following events occur in manufacturers whose self-executed affidavit is approved, such approval is cancelled, and self-executed affidavit is prohibited.
ㅇWith respect to the person who has a history of law violations such as unpaid taxes, tax evasion, etc. which amount to a total of NT$ 500,000 yuan;
ㅇWhere business conditions worsen significantly;
ㅇWhere the fact that self-executed affidavit was approved with a false data has been revealed.
■Management of Book Recording, etc.
☉ Collection of tax recorded in book
ㅇThe tax levied on raw materials shall be collected from the person who fails to write off import raw materials recorded in book within a fixed period, and such collected amount is based on dutiable value which is determined at the time of importation.
ㅇWith respect to export raw materials whose follow-up payment of customs duties, etc. aren't made to the competent authority, or whose penalty isn't paid, such materials shall not be provided for domestic sales.
ㅇWhere follow-up payment for customs duties of import raw materials are made, or penalty is also paid, a refund application may be filed at the time of exporting finished products after going through processing.
☉ The case book recording is suspended
Where the following reasons occur to the manufacturers who have been recording tax book, Customs may give an order to suspend book recording during the period of less than 6 months.
ㅇThe person who fails to pay tax in addition, or penalty within a fixed period;
ㅇThe person who fails to provide documentation required by the competent or processing authorities;
ㅇThe person who sells imported raw materials whose customs duty isn't paid;
ㅇThe person who deceitfully records raw materials whose export is prohibited.
☉ Cancellation of Warranty
The person who records a book by receiving the security from the Lenders with respect to customs duty and commodity tax of import raw materials needs to cancel taxes written in the book within a fixed period, and release warranty liability. Penalties will be charged against the exceeding period.
☉ Refund regulation for joint export manufacturers
In the case where a joint export manufacturer applies for refund of customs duty and commodity tax, he/she needs to make sure the consent of original manufacturer by attaching a consent of original manufacturer, or by sealing export license and fund application form(for example, in the event where a material importer of export goods, processing manufacturer and exporter of finished products are all different, if the exporter from among them applies for refund, consent forms of material importer and processing manufacturer are required.).
Provided, that if the business is suspended for the person who needs to submit above refund consent form, and such situation is verified by the competent authority, refund procedures may be peformed without a consent form.
If a material importer, manufacturer and exporter are all the same, a consent form, no doubt, isn't necessary.
■ Other Notes
ㅇBased on refund application documentation for raw materials of export goods, if the standards, ingredients, material quantity applied, etc. aren't compliant with refund standard, the competent authority needs to notify applicant accordingly, and such applicant needs to submit complementary data, or to explain the contents of application.
If such applicant fails to explain properly, the competent refund authority carries out refund in a low price of raw material or tax rate, and if it's difficult to do such things as well, 70% of amount refundable based on submitted data may be refunded uniformly.
ㅇRefund application may be filed per single case or various cases combined. If a refund has been paid in excess or in lack, the competent authority and refund recipient shall correct it.
ㅇIf a refund recipient is liable to pay other taxes or penalty, relevant amount from amount refundable shall be appropriated as taxes, etc. and the rest of money will be refunded.
ㅇIn the event where refund standard is modified or cancelled, the application of new and old version is based on the date of exports of items subject to the refund.
ㅇRefund system of customs duty, etc. has very stringent and complicated procedures from the perspective of Taiwanese government because it's designed to increase the competitiveness of export while taking risk of reducing tax revenue. Therefore, such refund affairs are mostly processed by a professional agent.