Inward Processing Relief (IPR) is a method of obtaining relief from Customs duties and VAT charges. The relief applies to goods imported from outside the EU, processed and exported to countries outside the EU. IPR provides relief to promote exports from the EU and assist EU companies to compete on an equal footing in the world market.
The processing allowed under IPR can be anything from repacking or sorting goods to the most complicated manufacturing. If a company therefore manufactures, processes or repairs goods obtained outside the EU and exports the finished product, they can save the Customs duty and VAT normally payable at import.
Being able to get relief from paying import duty and VAT can be very beneficial to companies, especially for cash flow reasons. There are two methods of Duty relief, suspension or drawback. To use either there must be an intention to re-export goods from the EU and an authorisation to enter goods to IPR will be required. Goods must be processed within an agreed time limit (through-put period) and records kept for all operations carried out. If suspension is used, returns detailing all receipts and disposals will need to be submitted to Customs.
Duty and VAT is suspended when the goods are first entered to IPR in the EU. For companies planning to export all their IPR goods, transfer them to another IPR authorisation holder or dispose of them in one of the other ways allowed by Customs (see the Disposing of VAT Goods section), suspension is likely to be the most suitable method to use.
If a company plans to export only a percentage, suspension can be used for that percentage of imported goods, based on a reasonable estimate. The remainder should be entered into Free Circulation, with any Duty or VAT liable being paid in full.
If more goods are imported under IPR suspension than are needed for their export market or other eligible disposals, the surplus goods will have to be diverted to Free Circulation. The suspended import duty and VAT will have to be paid and Customs will charge compensatory interest from the date the goods were imported into the EU.
Customs duties and import VAT are paid when the goods are entered to IPR. If the goods are subsequently exported, transferred to an IPR suspension authorised holder or disposed of in one of the other ways allowed by Customs (see the Disposing of IPR Goods section), the duty can be claimed back. It may be possible to claim the import VAT as input tax.
This method may suit companies who do not know how much of the imported goods will be exported and how much is for use in the EU. With the drawback method a company is not charged compensatory interest on the goods released into the EU.