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[Simplified Fixed Drawback System]
☞ The Outline of Customs Drawback System of Korea
■ Meaning
Simplified fixed drawback system of Korea(hereinafter referred to as "simplified drawback“ or ”fixed drawback") is introduced to support the exportation of small and medium businesses incapable of receiving individual drawback, and to simplify the procedures of drawback.
When computing amount of refund of imported goods manufactured in a small business, with amount of refund below 600 millions won for second consecutive years right before the year refund performance from January 1 of the year in which the refund application date belongs to the refund application date(including the issuance of tax payment certificate for basic raw materials on home trade goods by a local letter of credit), under this system, amount of refund is computed on the condition that certain amount of money fixed by government(the money on simplified fixed drawback rate table) is regarded as paid import duty of raw materials used for manufacture of export goods.
From the perspective of individual export business, the excessive or insufficient refund occurs because simplified fixed drawback rate is fixed and applied, regardless of export businesses, by average refund of previous year on the basis of tax no. code(HS 10 digits)of export goods.
The business using local raw materials relatively often can facilitate the localization of raw materials for exportation by extending exportation through excessive refund, but businesses which receive excessively insufficient refund have possibility to hinder exportation itself. Accordingly, it is permitted export businesses to choose whether they're subject to simplified fixed drawback table, on the basis of application of non-applied simplified drawback.
■ The Difference Between Simplified Fixed Drawback and Individual Drawback
To apply for the refund of customs duties through individual drawback, materials quantity applied and customs duties payable by used raw materials should be computed based on export declaration form as a main document and statement of materials quantity applied and import declaration, etc. attached.
But, with respects to applying for the refund of customs duties through simplified fixed drawback table, amount of refund is computed by applying refund rate in simplified fixed drawback rate table. In this case, it requires export declaration form only which leads to reduce the cost for refund like costs for labor, time, paper, etc. by simplifying confirmation process and paperwork.
With respects to small business especially, it's very common that individual drawback is impossible due to the lack of import declaration form or the impossibility of calculation of materials quantity applied. Accordingly, fixed drawback is useful for small businesses incapable of refund because fixed drawback doesn't require statement of materials quantity applied and import declaration form.
■ The Requirements of Simplified Drawback
☉ Must be a small business with reimbursement results of less than 600 million won up to the last two years and the application date of the relevant year
The export business which is applicable to simplified fixed drawback rate table is small and medium business, pursuant to the provisions of Article 2 of the Minor Enterprises Act, with total amount of refund below 600 millions won for second consecutive years right from January 1 of the year in which the refund application date belongs to the refund application date(including issuance record of tax payment certificate of basic raw materials).
☉ Classification Criteria of Small Business
ㅇ The classification criteria for SMEs subject to national policy under this Act are as follows. However, SMEs can choose an advantageous method compared to individual refund methods
ㅇ SME standards apply to commercial or nonprofit social enterprises and must meet both scale and independence criteria. The size criterion is an external evaluation criteria, and it is recognized as a medium and small-sized business by satisfying both the size standard and the upper limit of the industry. The independence criterion is a judgment standard based on the affiliation relationship.
ㅇ Size by Industry
The main business type of the company | Mid-small business (average sales) | Small business (average sales) | |
Manufacturing (6 industries) | Manufacture of apparel, clothing accessories and fur products | Under 150 billion won | 12 billion won or less |
Manufacture of leather, bags and footwear | |||
Manufacture of pulp, paper and paper products | 8 billion won or less | ||
Manufacture of primary metals | 12 billion won or less | ||
Electrical equipment manufacturing | |||
Furniture manufacturing | |||
Agriculture, forestry and fisheries | 100 billion won or less | 8 billion won or less | |
mine | |||
Manufacturing (12 industries) | Food production | 12 billion won or less | |
Tobacco industry | 8 billion won or less | ||
Textile products manufacturing (excluding apparel manufacturing) | |||
Wood and wood products manufacturing (excluding furniture manufacturing) | |||
Manufacture of coke, briquette and refined petroleum products | 12 billion won or less | ||
Chemicals and chemical products (excluding pharmaceuticals) | |||
Manufacture of rubber products and plastic products | 8 billion won or less | ||
Manufacture of metalworking products (except machinery and furniture manufacturing) | 12 billion or less | ||
Manufacture of electronic components, computers, video, sound and communication equipment | |||
Other machinery and equipment manufacturing | |||
Automobile and trailer manufacturing | |||
Other transportation equipment manufacturing | 8 billion or less | ||
Electricity, gas, steam and water supply business | 12 billion or less | ||
Water service | |||
Construction industry | 8 billion or less | ||
Wholesale and Retail | 5 billion or less | ||
Manufacturing (6 industries) | Beverage manufacturing | 80 billion or less | 12 billion or less |
Printing and recording media duplication business | 8 billion or less | ||
Manufacture of medical materials and pharmaceuticals | 12 billion or less | ||
Manufacture of non-metallic mineral products | |||
Medical, precision, optics and watch manufacturing | 8 billion or less | ||
Other products manufacturing | |||
Water, sewage and waste disposal, raw material recycling (except waterworks) | 3 billion or less | ||
Transportation & Warehousing | 8 billion or less | ||
Information and communication industry | 5 billion or less | ||
Repair of industrial machinery and equipment | 60 billion or less | 1 billion or less | |
Professional, scientific and technical services | 3 billion or less | ||
Business facility management and business support and rental service business (excluding rental business) | 3 billion or less | ||
Health and social welfare services | 1 billion or less | ||
Arts, sports and leisure services | 3 billion or less | ||
Repair and other personal services | 1 billion or less | ||
Accommodation and restaurant business | 40 billion or less | 1 billion or less | |
Finance and insurance | 8 billion or less | ||
Real estate business | 3 billion or less | ||
Leasing business | 3 billion or less | ||
Education service industry | 1 billion or less | ||
※Remarks: Exceptions are subject to separate standards in the following cases: | |||
New chair manufacture for automobile | Average sales etc. 150 billion or less | Average sales etc. 12 billion or less | |
Manufacture of railway car parts and related equipment | |||
Manufacture of aircraft parts, Aircraft chairs manufacturing | |||
ㅇ Upper limit: total assets less than 500 billion won regardless of industry
ㅇ Independence criterion (Judgment criteria based on affiliation)
It is recognized as SME unless it falls under any of the following three items.
① Companies belonging to the cross-shareholding group
② A corporation with total assets of 500 billion won or more owns directly or indirectly more than 30% (Excluding foreign corporations, non-profit corporations, etc.)
③ In case of a company belonging to an affiliated company, the average sales amount corresponding to the investment ratio is summed up, companies that do not meet the size criteria by industry
※ Affiliated companies : A company that is subject to external audit is a group of companies that are dominated by subsidiaries, etc.
※ However, non-profit social enterprises and cooperatives (associations) do not apply the related enterprise system
☉ Applicable goods for individual drawback.
ㅇ The goods which refund rate isn't fixed in simplified fixed drawback rate table can't be qualified for getting simplified drawback.
ㅇ Where drawback rate is fixed in simplified fixed duty drawback rate table, refund rate is determined based on drawback rate table activated in the acceptance date of export declaration filed of relevant goods, not the one in the application date of simplified drawback.
ㅇ If HS 10 digits tax no. of export declaration is identified with HS 10 digits of simplified fixed duty drawback rate table, such goods are applicable goods for individual drawback, regardless of goods name.
☉ The subject of refund should be a manufacturer.
ㅇ The subject of refund should be a manufacturer, not exporter. Accordingly, there isn't no problem where an exporter and a manufacturer is same one, but if they're different, the exporter can't be eligible for individual drawback.
■ The determination of simplified fixed drawback rate
Simplified fixed drawback rate means drawback rate per amount of export(FOB 10,000won) by considering the fluctuation of exchange rate and customs rate, which affect the calculation of tax rate payable of raw materials used for export goods present year, based on average drawback amount of previous year(individual drawback amount) by HS 10 digits of export goods.
Every goods are individually determined whether such goods are applicable for individual drawback, and how much amount of drawback per 10,000 won is.
■ Required Documents for Drawback
☉ Documents to submit before application
The refund applicant must notify customs beforehand of the account to which the refund will be paid before applying for the refund. In the case of a simple flat sum refund, it only have to submit a refund account application. it must seal the seal on the original application form for the refund account, along with a seal certificate (original within the last three months) and a copy of its bankbook.
ㅇ Articles manufactured directly : Confirmation of manufacture such as factory registration certificate
ㅇ Commissioned goods : Processing contract, processing tax bill, purchase of raw materials, tax invoice, raw materials, etc.(Recipient acknowledged to provide raw materials)
ㅇ Small business confirmation documents : Small and Medium Business confirmation from Small and Medium Business Administration (Available online for free)
ㅇ Drawback computer system operated by Korea Customs Service confirms the company with total amount of drawback below 600 millions won for second consecutive years right before the year to from January 1 of the year in which the refund application date belongs to the refund application date. Accordingly, it's not required to submit additional documents.
Total record of drawback reflects issuance record of tax payment certificate of basic raw materials as well as drawback record. In this case, the calculation of amount of drawback or transfer tax is possible with any calculation methods of individual drawback and fixed drawback.
■ The calculation methods of simplified drawback
ㅇ Amount of drawback and shifting tax are determined by following calculation method.
The amount of export(supply) by FOB won currency × simplified fixed drawback rate
※ Simplified fixed drawback rate is prescribed in the form of 50 won per 10,000 won by FOB won currency, and the unit is the 10 won.
ㅇ Where the amount of export in export declaration or supply price of local letter of credit don't meet the conditions of FOB, or payment of goods isn't identifiable because shifting tax and payment of goods aren't printed separately in a local letter of credit, simplified drawback rate is determined by FOB price calculated by following computation, omitting number below decimal.
1 + (amount of drawback/10000)
ㅇ When calculating amount of simplified drawback, drawback payment isn't limited and drawback for by-product isn't deducted additionally.
■ Goods Excluded from Simplified Fixed Drawback
Following goods aren't qualified for simplified fixed drawback.
① Goods provided for exportation exactly same as raw materials used for exports goods are imported or goods provided by a local letter of credit, etc.
② The goods supplied by the national credit or export goods manufactured and processed by the person who obtained non-applied permission of simplified fixed duty drawback.
③ Exported processed goods of imported raw materials imported for processing purposes in Korea after being processed from overseas specified in Article 2 (1) 5 of the Enforcement Regulation of the Special Act on Special Rewards
④ The exported goods pursuant to ③ above will be different from the post-export contract conditions
⑤ Export (supply) Goods for which the producer of the goods is not known (for the export declaration certificate, the manufacturer's clearance identification code is "Manufacturing unknown 9999000")
⑥ Items that are exported (supplied) by simply inputting (combining) software (operating system, computer program or application program)
■ The Non-applied permission and Applied permission
ㅇ The person who intends to obtain the permission of non-applied simplified fixed drawback should submit relevant application to the head of customshouse in compliance with regulations of a drawback processing notice.
ㅇ Submitting relevant application is required to obtain permission of non-applied fixed drawback or permission of re-applied fixed drawback.
ㅇ 2 years should be passed when the person who obtained permission of non-applied fixed drawback intends to apply for simplified drawback again. Therefore, a company should carefully determine whether it applies for simplified drawback in the first place.
ㅇ The conversion between simplified drawback and individual drawback effects in each businesses, not each goods. Accordingly, a business can't apply for non-applied simplified drawback for certain goods separately.
■ Notes
ㅇ Simplified drawback is simpler in application procedures compared to individual drawback.
ㅇ Usually, application is processed through EDI(Electronic Data Interchange) by a customs broker. Refund amount is deposited to a company account once simplified drawback is permitted.
ㅇ The subject obtaining simplified drawback is a manufacturer. In this case, a manufacturer is required to be control of full ranges of manufacture such as manufacture, logistics, etc. to get simplified drawback.
