What importers need to remember when bringing goods into Poland from outside the European Union.
Importation of goods means bringing goods into the territory of the European Union from the territory of a country that is not part of EU territory. Importation of goods to Poland, which is part of the EU customs territory, from countries that not EU member states requires customs clearance. This involves preparation of a customs declaration together with presentation of the necessary accompanying documentation, and payment of customs duties and taxes owed on the import of the goods. Providing payment or security for these amounts enables the goods to be released for free circulation in the EU (including Poland) and disposal of the goods according to the wishes of the owner or holder of the goods. The amount of duty and tax owed must be paid within 10 days after acceptance of the customs declaration by the customs authority. Until then, if security is not provided, the customs authority will not release the goods to the party declaring the goods. If it is necessary to pay customs duties, the customs authority will release the goods for free circulation only when payment is made or security is provided (e.g. through submission of a bank guarantee) for the customs duties (and taxes) calculated in the customs declaration.
Import is treated under Polish tax law as an activity subject to VAT.
The taxpayer required to pay VAT in the case of import will be the natural or legal person or organisational unit without legal personality that bears the obligation to pay duty, also in the case where under customs regulations the imported goods are exempt from duty or the duty has been suspended in whole or part, or a preferential, reduced or zero rate of duty has been applied. Moreover, the obligation to pay tax rests on a taxpayer entitled to use the customs procedure covering inward processing, temporary importation, or processing under customs control, as well as persons to whom the rights and obligations connected with these procedures have been transferred under separate regulations. If the taxpayer who bears the obligation to pay customs duty has appointed a tax representative, the representative becomes the taxpayer for VAT on import of goods within the scope of the representative’s authorisation.
The tax obligation arises:
- At the time the customs debt arises
- If the goods are covered by the procedure of processing under customs control, at the time the goods enter this procedure
- In other instances, upon introduction of the goods into a free zone or free warehouse, or when compensation fees become due, if such fees are charged for introducing the goods into the free zone or free warehouse.
The basis for taxation is the customs value plus the duty owed, and in a situation where the subject of the import is goods subject to excise tax, the customs value plus duty and excise tax. The tax basis also includes fees and other amounts the customs authorities are required to collect for import of the goods, as well as additional costs such as the costs of packaging, commissions (excluding purchasing commissions), transport and insurance, if not already included in the customs value.
Currently the basic VAT rate is 23%. Subsequently, the tax assessed in the customs declaration, as deductible input VAT, will generally constitute a basis for reducing the output VAT in the taxpayer’s VAT declaration. VAT payers on import of goods are required to calculate and report in the customs declaration the amount of tax, reflecting the applicable rates. The VAT Act provides for the possibility of non-cash settlement of import tax in the tax declaration. A basic condition for exercising this option is to make a customs declaration (for the procedure of release for free circulation) using the simplified customs procedure governed by Art. 76(1)(b) or (c) of the Community Customs Code. This procedure generally allows a customs declaration to be made away from the location of the customs authority.
In order to use the simplified procedure allowing cash-free settlement of VAT on import of goods, it is necessary to obtain the relevant permit from the customs authorities. However, obtaining such a permit is subject to a number of strict requirements, including a positive audit from the customs chamber for the importer or exporter’s location.
In practice, such permits are awarded to importers and exporters who are recognised by the customs authorities due to the scale of the customs operations they conduct. Thus, in practice, an importer or exporter seeking to use this procedure must undergo a reference period when its imports or exports of goods may be analysed by the customs authorities.
The law also provides for the possibility to use this procedure when the goods being imported are included in the simplified procedure by an entity other than the importer and the other entity has been appointed by the importer as its indirect representative within the meaning of the customs regulations.
In commercial practice, the indirect representative is typically a customs agency. For the importer, it is particularly recommended in this situation to enter into cooperation with a customs agency that holds a permit to use the simplified procedure and holds a certificate as an Authorised Economic Operator, issued in Poland by the director of the customs chamber on the basis of the Community Customs Code. An indirect representative holding such a certificate provides an additional guarantee of reliability and professionalism in the services it provides, as recognised by the state in issuing the AEO certificate.
Customs duties are fees charged by the authorities of the country of import for bringing goods into its territory produced in the territory of another country in order to protect domestic producers against competition from foreign suppliers.
The factors influencing the amount of customs duty include:
- Customs value
- Tariff classification
- Origin of the goods.
The customs value is the basis for calculation of duty. It generally comprises the price paid or due for the goods as well as the costs of transportation and insurance.
If any additional costs (apart from the value of the goods) were included in the purchase price, they are not added again to the customs value. In that case, however, the importer should be prepared to provide an explanation to the customs authority upon request, with evidence supporting the importer’s position.
If the customs value does not include certain costs incurred by the purchaser, they should be indicated separately in import invoices or invoiced separately. These costs will be a tax cost but will not be an element of the customs value. To determine precisely which costs could be excluded from the customs value, it is necessary to conduct a detailed analysis of the specific elements of the price of the imported goods.
The tariff classification essential for customs purposes is the classification of the goods in accordance with the Combined Nomenclature (CN) set forth in the Common Customs Tariff Regulation, containing a description of the goods together with an 8-digit code assigned to that type of goods pursuant to the CN statistical system.
To identify goods even more specifically, a 9th and 10th digit were added to create the TARIC system, which is necessary to fully complete a customs declaration. Assignment of the TARIC code to the imported goods requires specialised knowledge on tariff classification, including familiarity with the classification rules, the annotations to the Combined Nomenclature, and analysis of the applicable regulations and classification rulings. To make a proper tariff classification of the goods it is equally important to be as familiar as possible with the characteristics and properties of the goods. Only full knowledge of the classification of goods, properly applying the rules and principles of tariff classification, will ensure assignment of the proper CN or TARIC code to the imported goods.
Proper tariff classification of the goods under the CN system is crucial for determining the correct amount of customs duty. This is because there is an individual rate of duty assigned to each CN or TARIC code, and thus to each of the types of goods covered by the Combined Nomenclature. Incorrect determination of the tariff classification (i.e. assigning the goods an incorrect CN or TARIC code) may result in underpayment or overpayment of duty. In the case of underpayment this may generate additional negative consequences because of understatement of amounts payable to the State Treasury.
An important institution in the system of customs law is Binding Tariff Information, which is an administrative decision, issued upon request of an interested party without cost, in which the director of the Warsaw Customs Chamber issues a binding predetermination that goods will be assigned to a specific CN or TARIC code.
The origin of the goods means the determined political affiliation of the goods with a specific country or group of countries. This results in awarding special (preferential) treatment to goods from certain countries, or regulation of their importation through imposition of additional fees or restrictions. Goods may also be said to be of “ordinary” origin, referred to in customs regulations as a non-preferential origin.
The rules for determining preferential origin are usually found in agreements between countries which seek to introduce preferential rules for trade in line with standard solutions. The tariffs established in such agreements are preferential compared to the tariffs included in the Common Customs Tariff Regulation, which sets forth rates of duty for goods of non-preferential (ordinary) origin.
In order to properly determine the amount of customs duty, it is therefore necessary to properly determine the customs value of the imported goods and to determine the rate of duty based on a proper classification of the goods by assigning them the correct CN or TARIC code.
To properly determine the amount of tax, it is then necessary to determine the correct tax basis, which is made up of the customs value and the duty, to which the VAT rate of 23% is then applied.
In light of the increasingly complicated construction and breakdown of imported goods, proper classification of the goods may present a problem for the importer, and the consequences of a potential error can be costly for the importer when the imported goods are of high value. Therefore it is essential to exercise due care and possess the knowledge required to properly classify imported goods.
Kazimierz Romaniec, Tax Practice, Wardyński & Partners