Taxation and Customs Union

Inward processing

Inward processing means that non-Union goods are imported in order to be used in the customs territory of the Union in one or more processing operations, for instance, for the purposes of manufacturing or repair. When imported, such goods are not subject to:

  1. Import duty
  2. Other taxes related to their import, such as VAT and/or excises.
  3. Commercial policy measures.

Inward processing procedure is designed to give businesses the possibility to process goods imported from outside the customs territory of the Union even before they decide, according to logistical, commercial or other conditions, whether to sell the finished products within the Union or outside. The inward processing procedure can also be used for goods which just have to undergo standard forms of handling intended to preserve them, improve their appearance or marketable quality or prepare them for distribution or resale.   

After the processing operations, the processed products can be either re-exported or released for free circulation in the EU; the latter would imply the obligation to pay import duty and taxes, as well as the application of commercial policy measures. In addition, it is also possible to store processed products under customs warehousing or in a free zone.

An authorisation from the customs authorities is required for the use of the inward processing procedure. The competent customs authorities must specify the period within which the inward processing procedure is to be discharged. Such authorisation can also allow businesses to previously export Union products which have been already processed in return for the import of an equivalent quantity of non-Union raw materials. The requirements to obtain such authorisation are:

  1. To be established in the customs territory of the Union. Only in exceptional cases an authorisation can be granted to a person not established in the customs territory of the Union.
  2. To provide necessary assurance of the proper conduct of the operations.
  3. To provide a guarantee where a customs debt or other charges may be incurred.
  4. To carry out processing operations on the goods or arrange them to be carried out.

If the processed products are released for free circulation, the concerned business can apply to pay duty at the rate and customs value applicable to the imported goods at the time of acceptance of their customs declaration. Otherwise, the duty and import VAT will be calculated according to the rate and customs value of the processed products at the time they are released for free circulation.

Use of inward processing

According to a 2012 study[1], the benefits of inward processing are visible on examination of the sales abroad of products that emerge from the processing and assembling in the EU of imports. For example, out of €160 billion worth of EU motor vehicles exports in 2011, almost 43% (€69 billion) were exports of motor vehicles that were produced under the inward-processing regime i.e. they were essentially cars assembled in Europe from parts and components imported from the rest of the world. This example shows how important can the inward processing procedure be for businesses in the EU.

1http://trade.ec.europa.eu/doclib/docs/2012/october/tradoc_150006.pdf