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☞ The Outline of Customs Drawback System of S. Korea
Refund refers to the return of the duty paid or payable (Customs, Temporary Import VAT, Individual Consumption Tax, State Tax, Transportation, Energy, Environmental Tax, Rural Special Tax and Education Tax) at the time of import of the exported raw material to the exporter or producer of the exported item.
Individual drawback system refers to a system under which refund amount is calculated by classifying and adding customs duties paid by imported raw material used for manufacturing export goods. Individual drawback system has advantage over simplified fixed drawback system in that paid custom duties are exactly calculated comparatively, but required documents are complicated and too much time is taken to calculate drawback amount.
Drawback customs duties are on the premise that customs duties are paid at the time of importing raw materials(refundable raw materials), and subsequently such raw materials(exports subject to refund) are used, processed and re-exported. The system is based on the Act on Special Cases concerning the Refundment of Customs Duties, etc. Levied on Raw Materials for Export.
■ Refundable raw materials
① If the exported goods are produced, the following items can only be refunded if they can be calculated objectively.
ㅇ Articles physically or chemically bonded to the exported goods
ㅇ Items consumed in the process of producing the exported goods(Except for items that are indirectly consumed and consumed in the production of exported goods, such as goods for the operation and maintenance of machinery and apparatus for producing exported goods)
ㅇ Packing goods for export goods
② If exported as it is , it is the exported goods
③ It is assumed that raw materials produced in Korea and imported raw materials have the same quality and characteristics so that they can be used interchangeably and that raw materials for export are used when they are not used in the production process of exported goods.
■ Exports subject to refund
It can get a refund for customs duties on export raw materials for the following exports.
① Exports where the export declaration has been accepted under the Customs Act.
② The exports are free of the following exports.
ㅇ Exports of goods exported for free at exposition, exhibitions, trade shows, film festivals and other events held in foreign countries used foreign currency and sold in foreign countries
ㅇ Used in relation to machinery, equipment, materials for workers and other necessities for export, such as investment, construction, service, export of industrial equipment, etc., to the citizens of the Republic of Korea (including corporations) The export of the goods identified by the head of the agency designated by the Minister of Justice
ㅇ Exports of goods to be replaced for returned goods differ from those of the exported goods
ㅇ Export of sample goods sent free of charge for export contract with overseas buyers
ㅇ Exports of goods receive processed or repaired with raw materials imported for the purpose of processing or repairing in the country after processing or repair from abroad, or for the return of goods not used for processing or repair of the raw materials
ㅇ Export of goods exported for the purpose of consignment processing in foreign countries
ㅇ Export of goods exported free of charge for consignment sale (Only when foreign currency is sold in foreign countries)
③ The following sales or construction to acquire foreign currency in Korea
ㅇ Sale of goods to USFK
ㅇ Construction carried out by USFK or foreign embassies in Korea
ㅇ Sales of domestic passenger cars to those who can be exempted from customs duties for passenger cars imported under the US Customs Status Agreement and the duty exemption regulations of the Customs Act (Article 88 of the Customs Act). (However, it is necessary to submit a recommendation letter of exemption from the Minister of Justice)
ㅇ Sales of capital goods (Korean production) to a person who has filed a report of foreign investment or investment (Article 5 ~ 8 of the Foreign Investment Promotion Act). Provided, however, that if the imported capital goods are exempted from customs duties (Article 121-3 of the Restriction of Special Taxation Act).
ㅇ Sale of goods (produced in Korea) in the international competitive bidding by the financing facility provided by the International Financial Institution (including cases where the contract is received from the winner). Provided, however, that if the goods are imported, the customs duty shall be exempted under the Customs Act.
④ Supply to enterprises in the following bonded zones or Free Trade Zones (Act on the Designation and Operation of Free Trade Zones) under the Customs Act
ㅇ When repairing or repairing the goods exported to the bonded warehouse (Article 183 of the Customs Act) or importing parts for overseas assembly and production
ㅇ If it is supplied as a raw material for export to the bonded factory (Article 185 of the Customs Act)
ㅇ Bonded store (Article 196 of Customs Act)
ㅇ In the case of importing parts for the repair or repair of goods supplied or exported as raw materials for export in the comprehensive bonded area (Article 197 of the Customs Act) or for overseas assembly production, or bringing them in for sale in a bonded area
⑤ Refunds are allowed in the following cases, which are recognized as exports
ㅇ Supply of goods used as supplies or supplies to vessels or aircraft flying between Korea and foreign countries.
ㅇ Exports of goods identified by the Director of the Ministry designated by the Minister of Maritime Affairs and Fisheries or the Minister of Maritime Affairs and Fisheries as goods to be exported by the recipient of permission, approval or designation by the Minister of Maritime Affairs and Fisheries (Article 6 (1), Article 17 (1) and (3) of the Marine Industry Development Act) for free delivery to the fishing vessels.
■ Requirements of Individual Drawback
ㅇ At the time of importation of raw materials, import declaration form submitted shall be the one containing imported raw materials which are possible for drawback of customs, etc.
ㅇ The goods shall be the ones which paid customs duties at the time of importation.
ㅇ The imported raw materials are required to be manufactured, processed and re-exported in 2 years from the date of acceptance of import declaration. Within 2 years from exportation, an application for drawback shall be made.
ㅇ The drawback is possible only for raw materials imported within 2 years retroactive to the end of the month on which raw materials were provided for export, etc.
■ Calculation of Individual Drawback Amount
To calculate drawback amount through individual drawback, it's required to check the item name, standard, quantity of raw materials used for manufacture of export goods. To do that, a business itself may estimate materials quantity applied and make a statement of materials quantity applied to compute drawback amount.
To calculate drawback amount, it's required to calculate customs duties paid for import raw materials of relevant export goods. Import declaration form, etc. is necessary in the course of calculation.
■ Goods Applicable to Individual Drawback
Individual drawback is preferentially applied to export goods which aren't subject to simplified fixed drawback rate table. In Korea, as a whole, individual drawback accounts for the majority of whole performance of drawback.
■ Required Documents for Individual
☉ Import Declaration Form, etc.
The item name, standard and quantity of exported goods are checked by a import declaration form, etc.
☉ A Statement of Materials Quantity Applied
The statement of materials quantity applied is made by export manufactures, and item name, standard, quantity of raw materials used for manufacture of export goods shall be stated by raw material.
☉ Import Declaration Form, etc.
Import declaration form is a document verifying paid tax amount at the time of importation of raw materials. It has different forms according to the methods of buying raw materials such as an import declaration form, a certificate of payment of basic raw materials, a certificate of average tax amount.
■ The Procedures of Customs Drawback
To get customs drawback, the person who is eligible to applying for customs drawback should provide products manufactured and processed by imported raw materials for exportation, and he/she should apply for drawback within 2 years from the date provided for exportation.
1. Preparation Step
To apply for drawback, an applicant is required to choose a drawback agency(a competent customhouse) beforehand.
An applicant is required to apply for drawback to the head of a customhouse who is in jurisdiction of a manufactory or main branch(including an office registered as a place of business by ordinance) of an applicant. An applicant is required to notify documented bank account number only for drawback to a competent customhouse before application of drawback. If an applicant wishes to change account already opened, he/she is necessary for notifying account changes to the head of a customhouse, and letting changed account number registered in electronic system of Korea Customs Service.
2. Filling out Application
Drawback agencies(substitute applicants such as a customs broker, etc.) are required to fill out an application by pulling together exportations, on a monthly basis, from among import declaration forms subject to drawback on the same month by same HS code. (Provided that, for simplified fixed drawback, a simultaneous application is possible if HS code is the same though the month exported is different, by a notice unit of simplified fixed drawback table (noticed by a unit every year).
On the basis of materials quantity applied of imported goods used for relevant exportation, information of drawback applicants and all sorts of certificates are entered in S/W for processing drawback. A small business which isn't equipped with S/W is necessary for entrusting drawback to a customs broker, or for using systems at major customhouses across the country and the Chamber of Commerce and Industry.
3. Transmitting and Receiving Electronic Documents
When completed, the information is transmitted to Korea Customs Service in electronic document called EDI(electronic data interchange). Businesses may fill out and transmit documents around the clock.
4. Checking up Errors in Application
Drawback system checks whether electronic documents received are made according to written rules of electronic documents and basic inputs(an identification number of customs clearance, classification of drawback, account number, import/export information). The business which received a notification of any errors is required to correct such errors and retransmit the document in the original submission number.
5. Providing Receipt Number and Electronic Inspection
Drawback system provides a receipt number if checking result of a received document is OK. And then, it designates a competent inspector automatically on allocation bases of customs inspector. Received application is inspected automatically by drawback system of Korea Customs Service. The system inspects logical links among related items of application in an logical orderly basis, A, B, C, D and detailed contents of each application.
6. Receipt Notification and Notification for Error of Application
If there aren't any errors in the application as the result of inspection, it's necessary for notifying a receipt number and a customs office in charge to relevant business. With the application found in errors, it's required to notify mistaken items, point of failure, a receipt number and a customs officer in charge to relevant business.
7. Submission of Documents in 3 days after a Receipt Notification
For the business informed of necessary submission of documents, it's required to submit relevant supporting data to a competent head of a customhouse in 3 days from the date of receipt notification. If an applicant fails to submit such documentations, it's recognized that relevant application isn't received.
8. Checking Electronic Data with Submitted Documents
A customs office compares submitted documents with electronic data already entered in computer, checking problematic points, and approves them.
9. Determination of Drawback and Approval of Payment
If there aren't any problems with application, procedures of determination of drawback are completed. But, if an applicant has customs duties in arrear, amount in arrear is deducted before the notification, and the rest of drawback amount is returned to a drawback applicant.
10. Transfer and Payment of Drawback Amount
The Bank of Korea deposits drawback amount to the account of an applicant, in compliance with the request of the head of a customhouse. and then notifies result of deposit to the head of a customhouse in electronic document.
■ Restrictions of Payment of Individual Drawback Amount
Individual drawback, designed to compute paid tax amount of imported raw materials used for the manufacture of export goods, is based on a principle to return paid tax amount at the time of importation of raw materials. But, for the purpose of policy, there are some cases to restrict payment.
☉ Deduction System of By-products
By-products subject to deduction from among by-products generated in manufacture of export goods are those goods which are sold due to their economic value or used for personal purpose. For those by-products which aren't exported, drawback of customs duties, etc. isn't appropriate. So, it's required to drawback the rest of amount after deducting the amount equivalent to the value of by-products. This is called By-products Deduction System.
The deduction ratio is computed by a following formular.
Deduction ratio of by-product = -----------------
A * C / B + D
But, in case that entire purchase price of goods and transfer tax amount aren't printed separately when applying for issuance of a certificate of payment of basic raw materials, a following formular is used to compute purchase price of goods and, a calculation formular of simplified fixed drawback amount is used for a final result.
Transaction amount in local letters of credit in own currency Purchase price of goods = -----------------------------------------------------------
[ 1 + (applicable simplified fixed duty) / 10,000 ]
*A: The price of goods produced in relevant processing that by-products generate
*B: The price of all raw materials used in relevant processing that by-product generate
*C: The price of raw materials which causes by-product
*D: The price of by-product
(Provided, that in case where the calculation of price, A, B is deemed hard, they're replaced by D/C, and where the calculation of price, A, B, C, D is hard, generation ratio of by-products can replace deduction ratio of by-products.).
☉ Payment Restrictions System of Individual Drawback Amount
For the goods, prescribed by Ministry of Strategy and Finance for the purpose of protection of domestic industry, it's required to deduct drawback amount as much ratio as the Minister fixes, and then pay the rest of drawback amount. It's called, Payment Restrictions System of Individual Drawback Amount.
Applicable goods are following:
ㅇ The goods subject to anti-dumping duties, retaliatory tariffs, countervailing duties
Restriction ratio = customs amount by tariff rates such as anti-dumping duties, etc. - customs amount by general tariff
ㅇ Other goods whose postponement of drawback and a notice of payment is restricted by the Minister of Strategy and Finance
■ Other Notes on Individual Drawback
ㅇ The key of individual drawback is drawing up and submitting a statement of materials quantity applied. Accordingly, it's convenient to strictly manage the management books of raw materials, and import/export declaration forms at ordinary time to help the process of drawback.
ㅇ It's beneficial for the business with ERP(Enterprise Resource Planning) program, electronic processing system, to trace materials quantity applied by providing individual codes for each raw materials.
ㅇ It's necessary to consult with a responsible customs officer of a competent customhouse in dealing with individual drawback. The possibility of drawback and its coverage are important factors to affect the finance of export and import businesses, and requirements and the procedures of proceeding are tricky. Therefore, it's recommended to consult with experts such as a customs broker, etc.
ㅇ Extra attentions are required for usable period of imported raw materials and permissible period of drawback application(2 years) to avoid the situation drawback is rejected.