Bonded Warehouse Essay ⋆ Business Essay Examples ⋆ EssayEmpire

A bonded warehouse is a public or private warehouse authorized by customs officials to hold goods for which payment of duties and VAT (value added tax) has been deferred until removal. Goods stored in a bonded warehouse can be taken out only after applicable taxes and duties have been paid on them, or when they are moved by a bonded carrier to another bonded warehouse or a customs area. If the goods are destroyed under customs supervision, no duty is payable.

Bonded warehouses are also used to store certain types of finished products on which there are heavy domestic excise taxes, since the producer is not required to pay taxes until the product is taken for distribution. Since a producer may carry substantial inventories of some of these products, a bonded warehouse arrangement helps conserve capital. For example, consider a United Kingdom company trading in spirits that pays £18,000 excise duty and £4,000 VAT per order. Fifteen monthly orders result in £330,000 of duties per month. Two-month average stock turnaround would save the company £660,000 that would otherwise be tied up in prepayment of taxes.

Bonded warehouses sometimes may be used to store goods imported temporarily into a country for transshipment or for consolidation in a shipment going elsewhere. For example, a U.S.-based distributor may be importing products from Europe with the intention of part-exporting to South America. The imported product from Europe would be held at a bonded warehouse until a decision is made about what to import into the United States and what to export. The imported product may be combined with a domestic product and then shipped to South America with the cost benefits of a consolidated shipment. The goods that are imported have the benefit of tax deferral until the time they are withdrawn for consumption, and the exported goods never entered the U.S. economy, so no taxes/duties would be obligated. For the export, the goods would transit from the bonded warehouse to the outbound port by a bonded carrier. Bonded warehouses may also be used to avoid return or destruction of merchandise for which a quota has closed (when the quota opens, stored merchandise may then be withdrawn).

Traditionally, companies have had the choice of delivering the goods through one central point of entry, possibly using a bonded warehouse, where they deconsolidate the cargo, then physically distribute the goods from there, or through a multiple entry approach, physically transporting products to as many ports of entry as necessary to support their distribution model. Today, through the use of a “virtual bonded warehouse” it is possible for a European Union (EU) importer to separate the physical entry of products from their related financial transactions (for example, physical in Madrid and financial in Amsterdam), thereby improving the ease of transportation throughout the continent.

Cross-border customs warehouses can also be set. If a company has several warehousing facilities in more than one EU country, they can be linked together into a single bonded warehouse system under one license. This offers the advantage that all the customs declarations can be filed in the location where the centralized administration is kept. It is the company’s own inventory control system, and not its physical facilities, that is bonded. Transporting goods from one bonded warehouse to another under the same license can be done without customs documents.

In a bonded warehouse simple activities such as cleaning, labeling, and repackaging may be carried out. More substantial activities, such as the completion of manufacturing operations before the finished product is shipped out to another customs jurisdiction, may also be carried out, but require an additional authorization for inward processing relief (IPR) or processing under customs control (PCC).

Bibliography:

Thomas Cook, Rennie Alston, and Kelly Raia, Mastering Import & Export Management (AMACON, 2004);
Robert Feinschreiber and Charles Crowley, Import Handbook: A Compliance and Planning Guide (Wiley, 1997).

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