10 18 January 2001
Processing under Customs Control
The Department of Customs will be introducing a number of new procedures over the forthcoming two years for the clearing of goods. The following are extracts from the Department's handbook, from the processing under customs control section, which it has prepared in order to assist customs' users in making the transition as smoothly as possible.
The following guidelines explain how one may be able to avoid paying Customs duty if you process imported goods and sell the finished product, a compensating product, in Malta under the new customs procedures that the Department of Customs will be introducing. One may be able to do this by using a Customs duty relief system known as Processing under Customs Control (PCC).
Processing under Customs Control (PCC) is a Customs duty relief scheme established under the Fourth Schedule of the Import Duties Act. It allows goods to be imported for specified processing which changes their nature or state without being subject to import duties or certain commercial policy measures. Duty becomes payable when the finished product is put on the Maltese market.
The duty is then payable on the finished product as if it had been imported directly. PCC also applies to excise duty but does not apply to VAT.
The benefits of PCC
If the duty rate on the finished product is less than the duty rate on the imported goods, PCC offers an obvious saving. Likewise, if the value of the finished product is less than the value of the imported goods, a lower rate of duty may be available.
As its name implies, PCC is subject to control by Customs. This control falls into two categories, physical and accounting. Therefore, your premises and accounts must be made accessible to customs staff for inspection while operating under the scheme. Specific control measures may be required in some cases.
To claim relief under PCC you must be authorised and authorisation issued by the Comptroller must be obtained before importation takes place.
To get an authorisation you must seek the approval of the Comptroller of Customs. Application for an authorisation should be made to the Comptroller of Customs, where it will be examined to see that you fulfill the conditions for applying for PCC before the Comptroller issues the authorisation. The application form should be completed in full.
In order to apply for an authorisation:
One must be established in Malta; it must be possible to identify the import goods in the finished product; it must not be economically possible to restore the goods after processing to the state they were in before they were processed; the procedure may not circumvent the effect of the rules concerning quantitative restrictions or origin of the import goods; the use of the procedure must not adversely affect the essential interests of other Maltese producers of similar goods.
The Role of Customs
The Comptroller issues the authorisation and Customs monitor the scheme. They must therefore approve of the proposed procedure. When the Comptroller has approved your application it is forwarded to the Customs Economic Procedures Unit. Before authorisation is given, the Comptroller will arrange for his representative to set up a meeting with you to discuss your proposal and in particular the following points: -
What process is involved:- the official will want to know details about the processing you do; for example:
- how many products do you make from the import goods (the rate of yield)?
- is there any scrap or waste bi-products from the process?
How long your process takes:- you must complete the processing within a certain time limit. The official will tell you what this time period is, based on factors such as how long it takes you to import, process and dispose of the goods. If at any stage you need more time, you can ask for an extension of the time limit.
Records to keep:- you will need to keep records of all the goods you import to PCC. These records must show:
What the goods are, date of importation, details of processing, how goods were disposed of.
You can normally use your commercial records, although the Comptroller may ask you to adapt these to show the specific information required in order for the Comptroller to grant you an authorisation.
Security:- the level of security or guarantee you will be required to provide to cover your proposed operation.
When the Comptroller is satisfied that your operation can be monitored and that everything is in order he will approve the proposed procedure. The Comptroller will then issue the authorisation.
If you wish to add goods to your authorisation or to amend the process involved (or indeed make any other change) you should apply for the amendment or extension to the Comptroller. This request is treated in the same way as your application.
When the amendment is approved a written notification will be sent directly to you.
An economic review of the operation must be completed at least every two years. Therefore it is normal for authorisations to be issued for periods not exceeding two years.
An authorisation is always required, however in the case of certain isolated operations of a limited financial value the lodging of the relevant Customs entry may be regarded as an application for PCC and acceptance of the entry may constitute the issue of an authorisation.
In order to avail yourself of this simplified procedure, an appropriate declaration must be lodged with the Customs entry.
This declaration must:
Identify the import goods, quoting relevant invoice or other reference, specify the nature of the processing operation, give the trade and/or technical description of the compensating products, specify the rate of yield or, where appropriate, state the method by which the rate will be established, state the time limit for processing the goods and placing them under a subsequent Customs procedure, indicate the place where the processing will be carried out.
The declaration should incorporate a request that the relevant entry be regarded as an application for Processing under Customs Control and should include an undertaking to comply with conditions imposed by the Comptroller in connection with the arrangement. The declaration should be produced on headed company note-paper. It should be signed by the secretary/managing director or owner.
Because the Customs duty on the import goods is suspended at the time you import them, Customs require a guarantee against the potential loss of duty, which would arise if the goods went missing and you were unable to pay the duty involved. It should be noted, however, that you are always responsible for any duty outstanding until the finished goods have been cleared by Customs.
The guarantee normally takes the form of a bond entered into by you (the Principal) and a bank (the Surety) of your choice. If in doubt it is advisable to contact the Customs Economic Procedures Unit.
You are responsible for the duty on the goods while they are covered by your authorisation. Where the goods have been released for free circulation, i.e. put on the Maltese market, duty must be paid. If the goods are destroyed through accident, e.g. by fire or other loss and the Comptroller is satisfied that they cannot be put on the Maltese market, duty need not be paid.
Your PCC operation is completed when the goods you imported or the finished products made from those goods, are:
Put into free circulation, i.e. sold on the Maltese market; exported; placed in a Customs Warehouse, Free Port or under another Customs procedure; abandoned to the Government; destroyed under Customs supervision.
Duty liability is normally discharged when the duty is paid or when the operation of the scheme has been completed. You remain responsible for the duty on the imported goods however until such time as the Comptroller has accepted that your liability to this duty has been discharged.
Payment of duty
As already stated duty is payable on the goods at the time they leave PCC, therefore if the goods you imported are put on the Maltese market you must pay the duty at the rate applicable to those goods. If you have processed the goods you imported into a finished product, you must pay the duty at the rate applicable to the finished product. If the goods or finished products are exported, no duty is payable.
Where finished products are placed on the Maltese market their value for Customs purposes may be declared by you as any one of the following:
The Customs value of identical or similar goods produced in any other country; the selling price of the goods, provided this is not influenced by a relationship between buyer and seller; the selling price in Malta of identical or similar goods, provided this is not influenced by a relationship between buyer and seller; the Customs value of the import goods plus the processing costs.
If the goods are destroyed under Customs supervision the resulting waste or scrap may have a duty liability. The duty liability will be based on the value of the waste and scrap.
Goods entitled to preferential rates of duty
If the goods you import qualify for a preferential rate of duty at the time they are imported and the finished product also qualifies for a preferential rate of duty at the time it is placed on the Maltese market, then the finished products are chargeable with duty at a rate equivalent to the preferential rate, applicable to them at the time they are placed on the Maltese market.
Restrictions and prohibitions
PCC may not be granted where its use would circumvent the effect of rules concerning quantitative restrictions or origin. However, in the case of any other commercial policy measures in force for the import goods at the time the finished products are released on the Maltese market, such measures will not apply to the finished product unless these measures are also in force for such products imported directly.
Further information may be obtained from:
Department of Customs
Customs Economic Procedures Unit,
Valletta CMR 02
Telephone No. 232955/235571