Understanding bonded warehouses: what do businesses need to know?

If you're looking to minimize your tax burden when importing and exporting products, one potential solution that should be investigated is the use of bonded warehouses. 

These options offer incentives to businesses to store goods without paying certain customer duties, and can be a great way to enter a new market by storing items closer to their final destination.

What is a bonded warehouse?

Bonded warehouses - which may also be known as customs warehouses or similar terms, depending on the jurisdiction - are secure facilities that allow companies to store and process imported goods in a country without paying customs duties or VAT. Countries and territories where bonded warehouses are in operation include the US, UK, EU, China and many others. This compares with non-bonded warehouses, which require duties to be paid immediately on arriving at the facility.

How do bonded warehouses work?

Companies may move a wide range of goods to a bonded warehouse, where they will be exempt from import taxes for as long as they remain in the designated zone. As well as simply offering storage facilities, businesses may conduct a range of processing operations on such goods, including some value-added amendments and repackaging. There will typically be a limit on how long items may be stored in these facilities - usually five years - so it's essential to be aware of this when making plans.

Once goods are removed from a bonded warehouse into the country's market, all applicable taxes will need to be paid, though this does not apply if goods are immediately re-exported.

When can firms use a bonded warehouse?

Amongst the reasons why a firm may consider using a bonded warehouse include the following:

  • If the items' final destination has not yet been determined
  • If necessary documentation is still being waited on
  • If goods are intended to be exported again without entering the bonded warehouse's market
  • If further processing or packaging is required before entering the market

Different jurisdictions will have their own rules on when firms are eligible to use bonded warehouses. For example, in the EU, goods must have arrived from outside the bloc, with the exception of some agricultural products.

When should firms consider a bonded warehouse?

A bonded warehouse solution can offer businesses significant financial advantages, but it may not be suitable for every situation. It's therefore important to understand what the potential benefits of this solution will be and whether they will apply to your circumstances. In addition, there are also a few potential disadvantages to take into account. 

The advantages of bonded warehouses?

There are several benefits to using a bonded warehouse. For instance, it allows businesses greater flexibility when it comes to importing goods, enabling them to adjust to seasonal trends or other fluctuations in demand by storing items duty-free until needed. This can also be useful in managing cashflow, by avoiding the need to pay potentially significant amounts of duties in one lump sum.

For some businesses, the use of bonded warehouses will allow them to avoid paying tax altogether. This can be the case if goods are simply being imported, repackaged and then moved on to a third country, for example.

The potential drawbacks to consider

Among the possible disadvantages to consider include the cost of storing goods in bonded warehouses, which can add up if goods are maintained in these facilities for long periods of time, especially for fragile or potentially hazardous materials that need special attention.

They also come with an extra administrative burden, as they require strict recordkeeping and reporting to authorities to remain in compliance with customs rules. 

What are firms' responsibilities when using a bonded warehouse?

In order to use a bonded warehouse, companies must usually have an established presence in the territory, including all necessary registrations and licenses. They must also demonstrate they have a genuine business need for the use of the facilities and a good record in dealing with customs authorities.

Firms will also still need to make a full declaration to authorities of exactly what goods are being moved to these facilities. Typically, this must be done within five working days of customs clearance.

Calculating the correct levels of duty

When removing goods from a bonded warehouse, firms will need to work out exactly how much they will be required to pay in duties. In order to do this, the following information will be essential:

  • The quantity of goods being removed
  • The value of the goods
  • The tariff classification of the goods - this is vital in ensuring you're applying the correct duty rate

Fast and accurate reporting

It's also important to be aware if there have been any changes to goods when in bonded warehouses that may result in a new classification code being needed - for example if items have been repackaged or transferred into different containers. Any such alterations must be tracked and accurately reported on.

To make the most of bonded warehouses, all documentation needs to be sent to the relevant authorities quickly and in full. This can be time-consuming for many companies, but with the right software solutions to automate these processes, much of the hassle can be taken out of these processes. 

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