August 2020
Duty Drawback: Don’t Leave Money on the Table!
Importers and exporters today are working in a crowded space. Any way in which to gain, keep, and grow a competitive edge is welcome. That is why you need to be taking advantage of any duty drawback eligibility. If you’re not, and you are eligible, you may as well be throwing your money straight out the window. Don’t be put off by the admittedly complicated process of claiming drawback. Working with JF Moran means a painless process.
What Is Duty Drawback?
Duty drawback is a method of lowering exporters’ material costs. While duties are still paid upon the importation of goods—Customs certainly isn’t doing away with that!—those duties may be eligible for drawback in certain scenarios. If they are eligible, then the exporter recovers up to 99% of duties paid.
When Is Duty Drawback an Option?
You cannot file for drawback indiscriminately. Certain criteria must be met in order to recover duty expenses. You may be eligible for drawback on materials/merchandise that you’ve imported if:
Those materials/merchandise are exported again in unused condition
Those materials/merchandise are manufactured into new products and are exported
Those materials/merchandise don’t meet specifications and are rejected and re-exported
Those materials/merchandise are destroyed while under Customs supervision (and conditions of an example above are met)
What Are the Different Types of Duty Drawback?
To be honest, there are too many different types of duty drawback for us to cover here. They can actually get extremely specific. For instance, there is a drawback option for salt used to cure fish. If you import salt, and you cure fish with that salt, then you can file for a refund on the tax you paid for the salt. Yes. Really.
That being said, there are a few major types of duty drawback to be aware of. If you have any questions about these key types of duty drawback, just let us know.
Direct Identification Manufacturing – Articles manufactured in the US with the use of imported merchandise are eligible for drawback if those articles are subsequently destroyed or exported. Drawback is not to exceed 99% of duties paid on imported merchandise.
Substitution Manufacturing – If you use imported merchandise and any other merchandise of the same kind and quality to manufacture products, and some of those products are exported or destroyed before use, then drawback may be payable on those exported/destroyed products. Drawback is not to exceed 99% of duties paid on imported merchandise
Rejected Merchandise – If merchandise is shipped without the consent of the consignee, is found to be defective at the time of importation, or doesn’t match samples/specifications, then duties paid on the imported merchandise may be recovered. Drawback is not to exceed 99% of duties paid on imported merchandise.
Accelerated Payment
You’re excited to get your money back. We understand that. But as you can probably imagine, the duty drawback process can take some time. There is an accelerated payment option, which can be utilized when certain conditions are met. Typically, accelerated payments will be made within a couple of months.
While the accelerated payment program is an exciting option for eligible parties, keep in mind the fact that any excessive payments will need to be paid back to Customs. If you want to be certain that you’re being paid only what you are owed on drawback, then waiting for the drawback claim to be 100% finalized is the way to go.
Duty Drawback and the USMCA
We’ve previously talked about some of the finer points of the USMCA (United States-Mexico-Canada Agreement). We should readdress the USMCA here, as it does have some implications in regards to duty drawback.
The major point to note is the “Lesser of” rule. Under the USMCA, Customs duties to be refunded or waived are always the lesser of the total amount of duties paid on materials/merchandise imported into a USMCA country and the total amount paid on them in a USMCA country that they’re exported to.
So, if you were to pay $20 in duty on the importing of components for a stereo, and that stereo is exported to Canada and entered duty free (as a qualifying product under the USMCA), your drawback would be $0. This is the lesser of the duty paid.
Take Advantage of Your Duty Drawback Benefits
Okay. You made it to the end. If your head is spinning, we understand. That was a lot of information to share all at once. What is the key takeaway of this post? The one thing that you should absolutely remember and keep in mind moving forward? That your duty paid is not necessarily money out of your pocket.
While the processes surrounding duty drawback may be complex, it all comes down to the very simple benefit of gaining the bulk of your investment in duties back. Working with a professional Customs Broker like JF Moran and Scott Chipperfield, our Drawback Expert, you will help to ensure that you are 100% in compliance with these processes, and that you’re getting as much money back into your pocket as possible.