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Ukrainian customs regime of inward processing: Is there a need of “crush-test” for the applied business model?

18 May, 2017 Exclusive

Why are we talking about the risks?

Ukrainian customs regime of inward processing is widely used in business today. It is not surprising, because this regime has obvious advantages. It allows importing raw materials for processing with relief from the customs duties and VAT on condition that the finished products are exported from the customs territory of Ukraine within established terms.

Yet, as is usual in economics, the benefits go hand-in-hand with the risks. Thus, regime of inward processing, if canceled, would result in significant tax charges – actually all customs payments on raw materials, brought under relief. Moreover, the fiscal authorities may cancel this regime during the post clearance audit.

The fact that such risks actually exist in practice has been recently confirmed in practice. Thus, in 2016, the fiscal authority applied record assessments as per results of post-clearance audit of Ukrainian company of the renowned manufacturer of tobacco products. Based on public statements of representatives of the State Fiscal Service (hereinafter — "the SFS"), the overall amount of additional charges, expressed by ten-digit number, was caused by the alleged violation of conditions of application of Ukrainian customs regime of inward processing.

Is this a call for business about the need to check existing models of production in Ukraine using the customs regime of inward processing? What features of the model would require special attention?

Let us try to find out.

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