Keyword search

Do companies need to keep records of their imports and exports?

Companies are legally required to keep records related to their import and export transactions. That includes commercial, customs and shipping documentation. For example, if a company is exporting under preferential tariffs it needs to keep documentary evidence confirming that their goods meet the rules of origin requirements.

The retention period differs from country to country. In the UK, companies are required to keep records for four years for customs and six years for VAT and excise.

Companies using a customs broker to submit customs declarations should request copies of all documents. The best practice is to do it on an ongoing basis. Companies that receive a request for copies of documents from customs authorities a year or two after importation can easily find that it is difficult to obtain that documentation from a customs broker retrospectively.

In many countries, such as the UK, the awareness of this legal requirement is relatively low and companies often do not hold records of their imports and exports. This may lead to serious consequences in case of an HMRC audit. Recordkeeping is an important part of customs compliance.

What is non-preferential origin used for?

When goods are traded internationally, one of the data elements that need to be submitted to customs is the origin of goods.

Non-preferential origin is used to apply taxes and other trade policy measures. For example, it determines which goods require licenses and whether or not they are subject to anti-dumping or countervailing duties. It is also used for safeguard measures, any quantitative restrictions, quotas and embargoes. Product labels, in particular origin marking, and trade statistics are also based on non-preferential origin.

Non-preferential origin of a product can differ from its preferential origin. In some cases, non-preferential origin can have a much greater impact on the final cost of imported goods than preferential origin.

How to determine the customs value of goods?

When importing and exporting goods, customs value needs to be declared as part of customs clearance procedures. This is particularly important for imports as customs duties and other taxes are calculated based on this value. There are international rules for determining the customs value of goods. This is based on the World Trade Organisation’s agreement on valuation and is further defined by the World Customs Organisation. In the majority of cases, customs value is determined based on the transaction price. A number of additional costs, such as some transport costs, need to be added to the transaction price and some other amounts can be substrated. When there is no transaction price (no sale), other methods of valuating goods need to be used.

What does the Electronic Trade Documents Act mean for UK companies?

The Electronic Trade Documents Act entered into force on 20 September 2023. As a result, electronic trade documents, such as bills of lading, have the same legal basis in the UK as paper documents. In essence, the bill permits the use of electronic documents in international transactions instead of traditional paper documents.

The Act in itself doesn’t require UK companies to change the way they conduct international transactions. It gives the industry flexibility to develop and shift to new, paperless ways of trading. It paves the way for future changes outlined by the UK Government in Strategy 2025, for example, the Single Trade Window. It is a big step toward the digitalisation of cross-border trade in the UK.

One interesting element of the bill is the fact that electronic documents can now have “ownership” and “possession”. Over time, this will allow the industry to develop ways in which digital documents can move hand securely.

The Bill is based on the United Nations’ Model Law on Electronic Transferable Records and the UK is one of the first countries to adopt such law following Singapore.

Who is responsible for classifying goods and finding the correct commodity code (tariff code)?

It’s the importer and exporter that are legally liable for classifying traded goods.

The exporter is responsible for classifying exported products and submitting the code to local customs authorities via an export declaration. The importer is responsible for finding the correct commodity code for products declared to local customs authorities through an import declaration. As such, export and import commodity codes can differ.

In some cases, the customs agent submitting the customs declaration can be jointly liable. This is when the customs agent acts as an indirect representative.

What is an HS code?

An HS code is a six-digit code assigned to a group of products under the Harmonized System – a global classification system developed and maintained by the World Customs Organisation (WCO).

The Harmonised System is used in more than 200 countries worldwide and serves as the basis for classifying imported and exported goods. It is also used for various other trade policy purposes. The System is updated every five years and the WCO’s Explanatory Notes provide an official interpretation and guidance on the HS.

HS codes are NOT generally used for imports and exports. Countries develop their own classification systems by adding further digits to HS codes. For example, the EU’s Combined Nomenclature or Schedule B in the US. Since the national classification is built on the Harmonised System, the first six digits of commodity codes around the world are generally harmonised.

For more information on the Harmonised System check the WCO website (link).