As a new feature in tax.point we bring you back to basics on all things Brexit.

Operation of the EU Customs Regime

Import charges and customs checks are operated where trade takes place with a country outside the customs union with the EU or where a free trade agreement is not in place. Import charges can comprise of Customs Duty, Excise Duty and VAT. Anti-Dumping Duty and Countervailing Duty can also be imposed.

In the context of Brexit, if the UK leaves the EU’s Customs Union or does not agree a customs union with the UK, there are likely to be customs checks between the EU and UK as a third country after Brexit. There may also be a requirement for customs checkpoints and an IT infrastructure associated with customs payments and declarations.

Duty on goods from outside the EU’s Customs Union is generally paid when the goods first enter the EU and after that there is nothing more to pay and no more checks if goods move across the EU.

How to make a Customs declaration for importing goods

The importer of the goods or a customs agent generally lodges a customs declaration with the customs office where the goods will be presented.

The declaration can be made on a Single Administrative Document (SAD) which is filed electronically (using the dedicated online system used by the exporters country) or in writing. For travellers and non-traders, these declarations can be made orally.

What is a SAD?

The SAD form shows details of the exporter and the importer, the country of export, origin and destination, the value of the goods and currency, the mode of transport of the goods, the weight of the goods among other details. It is used by EU member states and each country’s version is harmonised with other EU member states.

The SAD was introduced to control goods arriving from outside the EU and goods being exported outside of the EU. The SAD is not used for trade within the EU Single Market. The SAD also covers the movement of non-EU goods within the EU.

Traders moving goods between European countries don’t need to complete a SAD.

The aim of the SAD is to encourage openness in national administrative requirements as well as standardising and harmonising data to reduce the administrative burden on traders.

In addition to detailing what the goods are and the movement pattern of the goods, two of the most important pieces of information required in the SAD electronic customs declaration (which is also known as an import declaration) are the Commodity Code and the Customs Procedure Code.

A Commodity Code for imports is a ten-digit number which equates to the description of the goods being imported and determines the rate of customs duties applicable. Information on Commodity Codes can be obtained by accessing an EU database called TARIC. The importer is responsible for correctly classifying their goods on import and export.

The Customs Procedure Code describes the procedure and/or regime under which the goods are to be placed. For example the regime can include removal from a customs warehouse or entry into a free zone.

How are charges calculated?

Customs Duty is normally calculated as a percentage of the value or per unit of quantity or weight of the goods being imported. The percentage varies depending on the type of goods and the country of origin.

Customs Duty is charged on the price paid for the goods including local sales taxes (VAT equivalent) plus shipping, packaging and any insurance costs.

Invoices which are declared in currencies other than the Euro will need to be converted to Euro. This allows the correct import duty to be calculated. The EU publishes monthly exchange rates.

Excise Duty is charged on alcohol, tobacco and oil products and is in addition to Customs Duty.

VAT is charged at the point of importation at the same rate that applies to similar goods sold in the importing country. The value of the goods for the purpose of calculating the amount of VAT payable at import is their value for customs purposes, described above, increased by the amount of any duty or other tax (but not including VAT).

Accounting for VAT

For imports from outside the EU into the EU, importers must pay the VAT to the relevant tax authorities at the time when the customs duties are paid rather than declare it at the time of filing their VAT returns. This position differs when businesses acquire goods within the EU. In these instances acquisition VAT must be accounted for in the next VAT return rather than being payable upfront.

An example of how customs and VAT are applied is illustrated below.

How are charges paid?

Once an electronic customs declaration has been lodged and accepted by the tax authorities, payment must be secured before the goods are released to the importer. Some payments are made upfront while other importers may be able to avail of a delayed payment mechanism.

What documents need to accompany the customs declaration?

When submitting a declaration electronically, accompanying documents for customs inspection/audit must be retained for a period of three years from the end of the year in which the goods are released from Revenue control.

Examples of supporting information required are:

• the invoice on which the customs value of the goods is declared
• documents required for preferential trade agreements or other reliefs from duty
• import licences or other documents required under provisions governing the release for free circulation of the goods

Customs warehousing

A customs warehouse allows traders to store goods with customs duty or import VAT payments suspended. Once goods leave the warehouse, duty must be paid unless they are re-exported or move to another customs procedure. Traders can store goods in a customs warehouse if they are dutiable goods from outside the EU or moved from another EU country under duty suspension.

Traders can also put goods into a customs warehouse if they don’t know the final destination of the goods when they come into the EU or paperwork has been delayed.

Authorised Economic Operator status

Authorised Economic Operator (AEO) status is a certified authorisation issued by customs administrations in the EU for traders involved in customs declarations which allows a trader to be recognised worldwide as a safe, secure and compliant trader in international trade.

AEO is not mandatory but it does give faster access to certain simplified customs procedures and in some cases, shipments can be fast-tracked through customs procedures. The AEO status also indicates that a trader’s customs controls and procedures are efficient and compliant.

According to the European Commission, other benefits which arise are:

• Priority treatment if selected for checks
• Possibility to request a specific place for customs controls
• Lower inspection costs
• Reduced theft and losses
• Fewer delayed shipments
• Improved planning
• Improved customer service

There are generally three types of AEO status. Traders authorised for customs simplification (an AEOC), traders authorised for security and safety (AEOS) or a combination of the two. The AEO status granted by one member state is recognised by the customs authorities in all member states.

Any trader established in the EU who is part of an international supply chain and is involved in customs activities can apply to their country’s customs authority for AEO status (so the Revenue Commissioners for traders established in Ireland, HMRC for traders in the UK).

Common Transit

Common Transit is an EU customs procedure that allows goods to move between the EU and common transit countries or between the common transit countries themselves with duty being paid in the country of final destination.

This procedure facilitates the movement of goods by temporarily suspending duties and other charges on imported goods until they reach their final destination. Common Transit may therefore be useful for road freight that transits from Ireland through the UK to mainland EU or from the UK through the EU to Asia, for example.

The common transit countries are Switzerland, Norway, Iceland and Lichtenstein (the EFTA countries), Turkey, Macedonia and Serbia.

Each member state and common transit country has designated customs offices. Import charges on goods that move under the common transit convention are suspended and collected at the customs office of destination in the member state and not at the external frontier. This means multiple customs charges do not arise.

In order to avail of the benefits of the common transit area, declarations under the common transit system must be made electronically at the place of departure, using the New Computerised Transit System (“NCTS”) which is used by all common transit countries.

A Transit Accompanying Document, known as a TAD, must accompany the goods during transit and be presented along with the goods at an office of transit or at the office of destination. The movement of goods under common transit ends when the goods and the TAD are presented at the approved office of destination.

More information can be found in the European Commission’s Transit Manual.

Read all of our Brexit updates and Back to Brexit Basics on the dedicated Brexit section of our website.