multiple type of transport with a world map and skyline in the background

How to Optimize Duties & Taxes in Your Cross-Border Supply Chain Operations?

Customs charges, taxes and duties: everything you need to know to reduce the costs of your cross-border supply chain!

When shipping internationally, computing landed cost is crucial to ensure all associated costs are included when moving products around the globe.  For most companies, freight cost is by far the largest spend in any cross-border transactions.  However, it is also true that, many multinational corporations are paying millions of dollars in duties and taxes annually when their goods are crossing borders. Under today’s interconnected world, new markets are discovered, and companies are expanding their international supply chain footprint into different continents regularly, it is therefore critical to consider reviewing opportunities in optimizing duties and taxes when conducting cross-border operations.

In general, many companies do not utilize the potential customs savings opportunities available, and as a result they are overpaying customs duties.  In this article, we would like to showcase a variety of duty & tax relief and exemption programs to reduce duty and tax outlays effectively: 

Duty Saving Through FTA

With the proliferation of Free Trade Agreements globally, many new business opportunities have evolved over the last few years. Some recent examples of concluded trade agreements are: European Union–Vietnam Free Trade Agreement (EVFTA), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Regional Comprehensive Economic Partnership (RCEP), ASEAN Trade in Goods Agreement (ATIGA) and The African Continental Free Trade Area (AfCFTA). One of the major benefits offered by FTA is the reduction of customs duty upon importation, regular review of the suppliers as well as reconfiguring product contents under FTA provisions could yield enormous financial paybacks in customs duty reduction.

Tax Rebate Through Local Incentive Schemes

In order to promote local economy and enhance employment rate, many governments in emerging markets have introduced innovative economic policies to attract foreign investment. Many of the incentive schemes include fiscal and non-fiscal incentives, including corporate tax holidays, duty and VAT/GST exemptions. Some of the most common schemes are customs bonded warehouse, Free Trade Zone (FTZ), Export Processing Zones (EPZ) and Special Economic Zones (SEZ). Companies operating in international supply chain business should seriously researching these trade incentive schemes and re-design their supply chain footprint to take full advantage of all potential duty & tax benefits.

Duty Saving Through Tariff Concession

In some countries (such as Australia and New Zealand), local governments introduce Tariff Concession System that removes the import duty for certain goods. These may be goods used for social, humanitarian or industry assistance purposes. The tariff concessions system could be vital to local industries because it helps to reduce costs for some imported goods, where suitable alternatives are not locally manufactured or produced. Importers will have to make application to the respective government agency before tariff concession could be granted for a specific good entering the country duty-free.

Tariff Saving Through Duty Drawback

Under some conditions, traders can apply for duty drawback if the imported goods are used to manufacture final products exported from the country. Similarly, imported goods that are unused could also apply for duty drawback when they are re-exported out to other countries. As in all other customs procedures stipulated under the respective regulations, traders need to fulfil a set of requirements in order to be eligible for any refund of import duty.

Additional Cost Reduction Opportunities

Besides outright elimination of customs duty, there are also other corresponding measures implemented by local governments to reduce business costs of the traders. Duty deferment scheme is readily available in many countries, this scheme is designed to alleviate the cash flow of the traders by deferring the duty & tax payment at the point of import. Such scheme comes in different shapes and forms, consolidated payment once a month is possible in some countries, traders are also allowed to only pay duty after the goods are removed from customs bonded warehouse by importing into local market. 
Such provisions will only be granted to traders in good standing (eg; AEO certified trader) or a surety bond to be required as guaranty to cover all potential liabilities in duty and tax payments. Similar scheme such as Duty Suspension is also available for the aerospace and high-tech industries with expensive parts to be imported and stored for maintenance. This scheme is vital to support the growth of specific strategic industries by alleviating the cash flow challenges faced by businesses due to duty and tax payments.

GEODIS: Your Trusted Partner in Customs & Trade Compliance

The cost of doing business in cross-border trade rose tremendously over the years, it is important for all companies to review their logistics and supply chain operations regularly to identify any potential cost saving opportunities. Any duty and tax optimization exercise should be supported with full regulatory compliance in mind, as it is easy to get carried away when the company is too focused in achieving duty saving at the expense of trade compliance.

As the world’s leading customs brokerage service provider, GEODIS provides a full range of professional customs & trade management solutions to all our clients globally. We have more than 1200 professional trade experts worldwide to support our customers in researching customs and trade regulations, as well as providing effective cross-border digital customs solutions to ensure efficient and cost-effective cargo shipping, duty & tax optimization with full customs compliance at all times.

Want to know more?

Feel free to contact us if your company needs any support in customs brokerage and global trade management.

Dr Chang

Kian Chuan Chang

Regional Director – APAC & ME, Customs Brokerage & Trade Compliance

Dr. KC Chang is currently the Head of Customs Brokerage, Asia Pacific & Middle East region for GEODIS Logistics, based in Singapore Regional Office. Dr. Chang is an experienced industry leader with a demonstrated history of working in the express transportation sector; he received his MBA from Imperial College London as well as Professional Doctorate from Central Queensland University and DBA from Skema Business School.