Approval
The approval of section 1313(a) proposal takes the form of a letter from a Regional Commissioner of Customs to the applicant. The approval of a section 1313(b) drawback proposal takes the form of a letter from U.S. Customs Service headquarters to the Regional Commissioner of Customs where the applicant will file claims. The applicant receives a copy of this letter. Synopses of all contracts are published in the Customs Bulletin and Decisions The proposal and approval together are called a drawback contract or drawback rate.
If the manufacturer desires to have his contract (rate) changed in any way, he should file a new proposal (statement) and the procedure is the same as above.
Completion of Drawback Claims
Claims must be filed within three years after the exportation of the articles. To prevent tolling by the statute of limitations, a claim may be filed before a drawback contract (rate) is effective, although no payments will be made until the contract is approved. For completion of same condition
Export Procedure
It is necessary for a drawback claimant to establish that the articles on which drawback is being claimed were exported within five years after importation of the imported merchandise which is the basis for the drawback. In the case of same condition drawback, the time period for exportation is three years after importation. There are three methods which can be used to do so, and these are described in sections 191.51 through 191.56 of the Customs Regulations. Before exporting, a future claimant should make certain that he is taking the necessary steps to comply with one of these procedures.
Export of qualified U.S.-made petroleum products may be shown by matching production at a specific refinery with exports of qualified petroleum of the same kind and quality that occur within 180 days after the refinery produced the designated petroleum product.
Export of qualified imported petroleum products may be shown by matching the amount imported with exports of qualified petroleum products of the same kind and quality that occur within 180 days after the import (section 1313(p) drawback).
Payment of Claims
When a claim has been completed by the filing of all required documents, the entry will be liquidated by the Regional Commissioner of Customs to determine the amount of drawback due. Drawback is payable to the exporter unless the manufacturer reserves to himself the right to claim the drawback.
Accelerated Payment
Accelerated payment of drawback under certain conditions is authorized by section 192.72 of the Customs Regulations. Accelerated payment generally will ensure that a claimant will receive his drawback no later than two months after he files a claim. Accelerated drawback currently applies to same condition drawback.
Effect of the North American Free Trade Agreement
The North American Free Trade Agreement (NAFTA) provisions on drawback will apply to goods imported into the United States and subsequently exported to Canada on or after January 1, 1996. The NAFTA provisions on drawback will apply to goods imported into the United States and subsequently exported to Mexico on or after January 1, 2001.
Drawback
Under the NAFTA, the amount of Customs duties that will be refunded, reduced, or waived is the lesser of the total amount of Customs duties paid or owed on the finished good in the NAFTA country to which it is exported, for purposes of sections 1313(a), (b), (f), (h), and (g).
No NAFTA country, on condition of export, will refund, reduce, or waive the following: antidumping or countervailing duties, premiums offered or collected pursuant to any tendering system with respect to the administration of quantitative import restrictions, tariff rate quotas or trade preference levels, or a fee pursuant to section 22 of the U.S. Agricultural Adjustment Act. Moreover, same condition substitution drawback was eliminated as of January 1, 1994.
U.S. Foreign-Trade Zones
Exporters should also consider the customs privileges of U.S. foreign-trade zones. These zones are domestic U.S. sites that are considered outside U.S. customs territory and are available for activities that might otherwise be carried on overseas for customs reasons. For export operations, the zones provide accelerated export status for purposes of excise tax rebates and customs drawback. For import and reexport activities, no customs duties, federal excise taxes, or state or local ad valorem taxes are charged on foreign goods moved into zones unless and until the goods, or products made from them, are moved into customs territory. This means that the use of zones can be profitable for operations involving foreign dutiable materials and components being assembled or produced here for reexport. Also, no quota restrictions ordinarily apply to export activity.
There are now 217 approved foreign-trade zones in port communities throughout the United States. Associated with these projects are some 356 subzones. These facilities are available for operations involving storage, repacking, inspection, exhibition, assembly, manufacturing, and other processing.
More than 2,800 business firms used foreign-trade zones in fiscal year 1995. The value of merchandise moved to and from the zones during that year exceeded $143 billion. Export shipments from zones and subzones amounted to nearly $17 billion.
Information about the zones is available from the zone manager, from local Commerce Export Assistance Centers, or from the Executive Secretary, Foreign-Trade Zones Board, International Trade Administration, U.S. Department of Commerce, Washington, D.C. 20230.
Foreign Free Port and Free Trade Zones
To encourage and facilitate international trade, more than 300 free ports, free trade zones, and similar customs-privileged facilities are now in operation in some 75 foreign countries, usually in or near seaports or airports. Many U.S. manufacturers and their distributors use free ports or free trade zones for receiving shipments of goods that are reshipped in smaller lots to customers throughout the surrounding areas. For further information, contact your local Department of Commerce Export Assistance Center or the Trade Information Center (1-800-872-8723).
U.S. Customs Bonded Warehouse
A Customs bonded warehouse is a building or other secured area in which dutiable goods may be stored, manipulated , or undergo manufacturing operations without payment of duty. Authority for establishing bonded storage warehouses is set forth in Title 19. United States Code (U.S.C.) section 1555. Bonded manufacturing and smelting and refining warehouses are established under Title 19, U.S.C., sections 1311 and 1312.
Upon entry of good into the warehouse, the importer and warehouse proprietor incur liability under a bond. The liability is canceled when the goods are:
o Exported;
o Withdrawn for supplies to a vessel or aircraft in international traffic;
o Destroyed under Customs supervision; or
o Withdrawn for consumption within the United States after payment of duty.
Types of Customs Bonded Warehouses
Nine different types or classes of Customs bonded warehouses are authorized under section 19.1, Customs Regulations (19 CFR 19.1):
24. Premises owned or leased by the government and used for the storage of merchandise that is undergoing Customs examination, is under seizure, or is pending final release from Customs custody. Unclaimed merchandise stored in such premises shall be held under “general order.” When such premises are not sufficient or available for the storage of seized or unclaimed goods, such goods may be stored in a warehouse of class 3,4,or 5;
25. Importers’ private bonded warehouses used exclusively for the storage of merchandise belonging or consigned to the proprietor thereof. A class 4 or 5 warehouse may be bonded exclusively for the storage of goods imported by the proprietor thereof, in which case it should be known as a private bonded warehouse;
26. Public bonded warehouse used exclusively for the storage of imported merchandise;
27. Bonded yards or sheds for the storage of heavy and bulky imported merchandise; stables, feeding pens, or corrals, or other similar buildings or limited enclosures for the storage of imported animals; and tanks for storage of imported liquid merchandise in bulk;
28. Bonded bins or parts of buildings or elevators to be used for the storage of grain;
29. Warehouses for the manufacture in bond, solely for exportation, of articles made in whole or in part of imported materials or of materials subject to internal revenue tax; and for the manufacture for home consumption or exportation of cigars made in whole of tobacco imported from one country;
30. Warehouses bonded for smelting and refining imported metal-bearing materials for exportation or domestic consumption;
31. Bonded warehouses established for the cleaning, sorting, repacking, or otherwise changing the condition of, but not the manufacturing of, imported merchandise, under Customs supervision, and at the expense of the proprietor;
32. Bonded warehouses, known as duty-free stores, used for selling conditionally duty-free merchandise for use outside the Customs territory. Merchandise in this class must be owned or sold by the proprietor and delivered from the warehouse to an airport or other exit point for exportation by, or on behalf of, individuals departing from the Customs territory for foreign destinations.
Advantages of Using a Bonded Warehouse
There are several advantages of using a bonded warehouse. No duty is collected until merchandise is withdrawn for consumption. An importer, therefore, has control over use of money until the duty is paid upon withdrawal of merchandise from the bonded warehouse. If no domestic buyer is found for the imported articles, the importer can sell merchandise for exportation, thereby canceling his obligation to pay duty.
Many items subject to quota or other restrictions may be stored in a bonded warehouse. Check with the nearest Customs office before assuming that such merchandise may be placed in a bonded warehouse.
Duties owed on articles that have been manipulated are determined at the time of withdrawal from the Customs bonded warehouse.
Merchandise: Entry, Storage, Treatment
All merchandise subject to duty may be entered for warehousing except perishables and explosive substances other than firecrackers.
Full accountability for all merchandise entered into a Customs bonded warehouse must be maintained; that merchandise will be inventoried and the proprietor’s records will be audited on a regular basis. Bonded merchandise may not be commingled with domestic merchandise and must be kept separate from unbonded merchandise.
Merchandise in a Customs bonded warehouse may, with certain exceptions, be transferred from one bonded warehouse to another in accordance with the provisions of Customs Regulations. Basically, merchandise placed in a Customs bonded warehouse, other than class 6 or 7, may be stored, cleaned, sorted, repacked, or otherwise changed in condition, but not manufactured (Title 19, U.S.C., section 1562).
Articles manufactured in a class 6 warehouse must be exported in accordance with Customs Regulations. Waste or byproduct from a class 6 warehouse may be withdrawn for consumption upon payment of applicable duties. Imported merchandise may be stored in a Customs bonded warehouse for a period of five years (Title 19, U.S.C., section 1557(a)).
How to Establish a Customs Bonded Warehouses
Application
An owner or lessee seeking to establish a bonded warehouse must make written application to his or her local Customs port director describing the premises, giving the location, and stating the class of warehouse to be established.
Except in the case of a class 2 or 7 warehouse, the application must state whether the warehouse is to be operated only for the storage or treatment of merchandise belonging to the applicant, or whether it is to be operated as a public bonded warehouse.
If the warehouse is to be operated as a private bonded warehouse, the application must also state the general character of the merchandise to be stored therein, with an estimate of the maximum duties and taxes that will be due on the merchandise at any one time.
Other Requirements
The application must be accompanied by the following:
A certificate signed by the president or a secretary of a board of fire underwriters that the building is a suitable warehouse and acceptable for fire insurance purposes. At ports where there is no board of fire underwriters, certificates should be obtained and signed by officers of agents of two or more insurance companies.
A blueprint showing measurements to be bonded.
If the warehouse to be bonded is a tank, the blueprint shall show all outlets, inlets, and pipelines and shall be certified as correct by the proprietor of the tank. A gauge table showing the capacity of the tank in U.S. gallons per inch or fraction of an inch of height, shall be included and certified by the proprietor as correct.
When a part or parts of the building are to be used as a warehouse, a detailed description of the materials and construction of all partitions shall be included.
Bonds Required
Bonds for each class of warehouse shall be executed on Customs Form 301.
Duty-free shops (class 9) have specific requirements governing their establishment. These requirements include location, exit ports, record-keeping systems, and the approval of local governments.
Where are Customs Offices Located?
The U.S. Customs Service has more than 300 ports of entry in the United States, Puerto Rico, and the U.S. Virgin Islands. Please consult your local telephone directory under “U.S. Treasury Department, Customs Service.”
Foreign Sales Corporations
One of the most important steps a U.S. exporter can take to reduce federal income tax on export-related income is to set up a foreign sales corporation (FSC). This tax incentive for U.S. exporters replaced the domestic international sales corporation (DISC), except the interest charge DISC. While the interest charge DISC allows exporters to defer paying taxes on export sales, the tax incentive provided by the FSC legislation is in the form of a permanent exemption from federal income tax for a portion of the export income attributable to the offshore activities of FSCs (26 U.S.C., sections 921-927). The tax exemption can be as great as 15 to 30 percent on gross income from exporting, and the expenses can be kept low through the use of intermediaries who are familiar with and able to carry out the formal requirements. A firm that is exporting or thinking of exporting can optimize available tax benefits with proper planning, evaluation, and assistance from an accountant or lawyer.
An FSC is a corporation set up in certain foreign countries or in U.S. possessions (other than Puerto Rico) to obtain a corporate tax exemption on a portion of its earnings generated by the sale or lease of export property and the performance of some services. A corporation initially qualifies as an FSC by meeting certain basic formation tests. An FSC (unless it is a small FSC) must also meet several foreign management tests throughout the year. If it complies with those requirements, the FSC is entitled to an exemption on qualified export transactions in which it performs the required foreign economic processes.
FSCs can be formed by manufacturers, nonmanufacturers, or groups of exporters, such as export trading companies. An FSC can function as a principal, buying and selling for its own account, or as a commission agent. It can be related to a manufacturing parent or it can be an independent merchant or broker.
An FSC must be incorporated and have its main office (a shared office is acceptable) in the U.S. Virgin Islands, American Samoa, Guam, the Northern Mariana Islands, or a qualified foreign country. In general, a firm must file for incorporation by following the normal procedures of the host nation or U.S. possession. Some nations, offer tax incentives to attract FSCs. To qualify, a company must identify itself as an FSC to the host government. Consult the government tax authorities in the country or U.S. possession of interest for specific information.
A country qualifies as an FSC host if it has an exchange of information agreement with the United States approved by the U.S. Department of the Treasury. As of September 17, 1996, the qualified countries were Australia, Austria, Barbados, Belgium, Bermuda, Canada, Costa Rica, Cyprus, Denmark, Dominica, the Dominican Republic, Egypt, Finland, France, Germany, Grenada, Guyana, Honduras, Iceland, Ireland, Jamaica, Korea, the Marshall Islands, Malta, Mexico, Morocco, Netherlands, New Zealand, Norway, Pakistan, Peru, the Philippines, St. Lucia, Sweden, and Trinidad and Tobago. Since the Internal Revenue Service (IRS) does not allow foreign tax credits for foreign taxes imposed on the FSC’s qualified income, it is generally advantageous to locate an FSC only in a country where local income taxes and withholding taxes are minimized. Most FSCs are incorporated in the U.S. Virgin Islands or Guam.