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Five common errors in the import of industrial equipment

11 April 2017
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Many businessmen are interested in how to import industrial equipment to Kazakhstan in the right way, quickly and at the least cost, what difficulties and how can they be avoided? We asked these questions the commercial director of the transport-logistic company "Wise Logistics Group" Alikhan Saginayev. Reference: Saginaev Alikhan Esengosovich, freelance adviser to the Chairman of the Board of NCE "Atameken", commercial director of the company "Wise Logistic Group". He served in customs: from the inspector to the Deputy Chairman of the Customs Service of Kazakhstan (2005), participated in the development of the first Customs Code of the country (1994), was the initiator and direct developer of many legal documents regulating foreign economic activity, worked in the state and legal department of the Administration of the President of the Republic of Kazakhstan (1996,2000). He is an expert on customs regulation, international trade and logistics, member of the Advisory Committees of the Eurasian Economic Commission for Customs Regulation and Entrepreneurship, independent director of JSC ICBC "Khorgos". Many years of experience in the market of international transportation services allows us to make some generalizations and highlight some of the most common mistakes that can occur when buying and importing industrial equipment in Kazakhstan. We will name 5 of them, although this amount is rather conditional, but will allow entrepreneurs to assess approximately and minimize their risks. Why are we talking about industrial equipment? The fact is that this category of cargo has some peculiarities, both during transportation and customs clearance, it’s high cost, depends on the delivery time, because this affects the timeliness of equipment installation and commissioning of the entire enterprise. Therefore, let's start in order:

Mistake No. 1 – is the nuances in concluding a foreign trade contract. It would seem that many specialized books, articles and recommendations have been written about mistakes in concluding contracts, that there should not be any problems here. However, the contracts often describe details of the subject of the transaction, the terms of sale and purchase, the responsibility of the parties, but do not take into account the important nuances associated with logistics. These nuances include international delivery conditions, which precisely determine the place of transfer of responsibility from the seller to the buyer. International rules "Incoterms", providing unambiguous interpretation of trade terms and representing the standard terms of contracts of international sale. Terms of delivery affect the definition of customs value and in the future, with customs clearance may affect the speed of customs clearance. Many entrepreneurs do not pay attention to these terms of delivery and formally indicate them in contracts, without much thought about the possible consequences. Another common mistake in contracts is the lack of a detailed specification for the supplied equipment. This moment can also negatively affect the customs clearance, when there will be a need to prove to the customs authorities the validity of the application of a particular product code. If detailed specification of the equipment with quantity, units of measurement, and even better with codes according to the Harmonized system is applied to the contract, it will greatly facilitate the customs formalities. Recall that we are talking about industrial equipment, often unique and, perhaps, not previously imported into the country. Here comes the second common mistake of importers.

Mistake No. 2 – is incorrect classification of goods. Entrepreneurs importing industrial equipment, as a rule, rarely encounter customs because they are producers and are not familiar with the specifics of customs legislation. When concluding a contract, they do not deeply study the issues related to customs, and therefore they do not care much what code of the goods will be assigned for customs clearance. But this is a serious omission, since the customs duties and non-tariff regulation measures (licensing, certification, various permits, etc.) are charged on the goods code in accordance with the Commodity Nomenclature for Foreign Economic Activity (abbreviated as TN VED). Thus, problems at customs often arise with the classification of complex and multifunctional equipment, parts of equipment. The fact is that according to the customs legislation, the code of the goods on the HS of the foreign economic activity is only authorized to be determined by the customs authorities and their decision will be final. Practice shows that when courts appeal, courts almost always take the side of customs authorities, since the classification of goods is a rather complex process and requires special knowledge and experience. For information: the Eurasian Economic Commission (EEC) is assigned to the unified interpretation of FEACN in the Eurasian Economic Area (5 countries - Kazakhstan, Russia, Belarus, Armenia and Kyrgyzstan), and in case of controversial situations, the final decision on classification is made by the World Customs Organization, which is located in Brussels (Belgium). As we see, the decision on the product code is not an easy procedure, therefore for industrial equipment, we recommend our customers to obtain in advance a preliminary decision of the customs authority and avoid the following common mistake.

Mistake No. 3 – is the absence of permissive and other supporting documents. Many importers learn about the need to obtain permits only at the stage of customs clearance, when the cargo is already in the temporary storage warehouse (SHW) and every day there is a cargo incurs additional financial costs. This can be avoided if in advance, preferably before importing equipment into the territory of the Customs Union, to begin obtaining permits. Why even before the import? As a rule, industrial equipment is large and is delivered in parts in a disassembled form. Therefore, in order to design all equipment under a single code, it is necessary for the customs authority to decide on its classification in an unassembled or disassembled state, the import of which is supposed to be carried out in a different consignment within a certain period of time. An application for such a preliminary decision shall be submitted prior to the submission of the first shipment of goods for customs declaration. Further, the concept of "non-tariff regulation" implies licensing, quoting and other measures of quantitative economic prohibitions and restrictions. For example, often spare parts of industrial equipment fall into the list of dual-use goods and are subject to export control. If you do not receive the necessary permits in advance, the customs clearance of the goods may be delayed.

Mistake No. 4 – is understating customs value. Some entrepreneurs, in order to reduce their costs during customs clearance, are trying to understate the cost of equipment. This "minimization of taxes" is a criminal offense and in the future can lead to serious losses for business. The fact is that at the stage of clearance customs officers can accept the declared customs value, especially if the automated risk management control system (SCUR) has not worked on this profile. But this does not mean anything, since customs authorities can carry out post-customs audit within 5 years after the release of goods and add customs payments and taxes. Moreover, if there are sufficient grounds, criminal or administrative proceedings may be instituted on the basis of inaccurate declarations. The customs bodies of Kazakhstan have international agreements on cooperation with almost all customs administrations of the world, therefore it is not a matter of time to reveal the fact of understating the customs value. So, if someone "advises" to reduce customs payments and taxes in this way, put such a "consultant" behind the door, as the business reputation and risks for your business are not commensurate with the benefit from understating the cost.

Mistake No. 5 is non- use of the possibilities of legislation on preferences. The legislation of Kazakhstan provides for various tax and customs benefits for business, which need to be able to properly use and apply in practice. For example, if certain conditions are met, it is absolutely legal to obtain exemption from payment of customs duties and VAT on imported goods. To do this, you can use the features of some customs regimes or obtain investment preferences. It is difficult to give some general recipes, because each case is individual and requires a separate study, but there are opportunities. To avoid the above mistakes and not to commit others, to maximize the use of all available domestic legislation, one should consult professionals with experience in this field, since the costs of such services are not comparable with the risks of losses in the implementation of major investment projects and construction of industrial facilities.



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