Processing raw materials in Ukraine: what needs to be taken into account in the tolling agreement in order to take advantage of customs privileges

Yulia Stusenko, associate partner of Skliarenko, Sydorenko and Partners, especially for "Law and Business"

Cheap labor in Ukraine has made popular the scheme of import from abroad of raw material, then the production of finished products with our subsequent transfer to the ownership of a foreign customer. Moreover, with such transnational processing, neither raw materials nor products are subject to customs duties and VAT. How to properly organize the process so as not to disrupt the contractual deadlines and take advantage of all the benefits due?

In the Ukrainian commercial turnover, this scheme is widely used in light industry, as well as by oil refineries. In these industries, according to foreigners, we have an adequate technological base for manufacturing high-quality products. For the processing of raw materials (which is imported in the “preferential” customs regime), Ukrainian factories, as well as their subcontractors, receive a fixed income.

The whole mechanism is based on the provisions of the complex agreement on the processing of raw materials supplied by the customer. In fact, this is a contract, but with separate elements of delivery, barter and sale. In international turnover term "tolling" is used to refer to such agreement.

The placement of goods in the customs regime of processing in Ukraine is carried out on the basis of a written permission of the customs authority at the request of the owner of such goods or his authorized representative. The application must be accompanied by a foreign economic contract, on the basis of which raw materials are imported for processing, technological processing schemes, processing contracts with other enterprises, if they are also involved in the processing process.

That is why for the participants involved in tolling, it is important to carefully consider the drafting of such contracts and to detail the procedures and technological schemes for processing raw materials, the rights and obligations of the parties, processing time, the procedure for exporting finished products, as well as customs clearance and customs procedures. And the right decision here is to attract a legal expert. Otherwise, you may face delays in customs clearance, inability to use tax breaks, which ultimately will result in non-fulfillment of contractual obligations.

In addition to the generally accepted terms of contracts, for tolling, you should take into account the requirements of Ukrainian legislation on operations for the import of raw materials into the customs territory of Ukraine for processing. After all, the goods placed in the customs regime of processing, during the entire period of staying in this mode in the customs territory of Ukraine, are under customs control.

In particular, the parties are advised to describe in detail the characteristics of the customer-supplied raw materials and goods produced during the processing of raw materials. This is necessary for the correct declaration of goods to the customs authorities of Ukraine and the definition of the classification of such goods and raw materials according to the Ukrainian classification of goods of foreign economic activity (Ukrainian Classification of Goods of Foreign Economic Activity).

In addition, the detailed regulation and description of the technological scheme of production is mandatory. Such a scheme, as a rule, is executed in a separate annex to the contract for the processing of raw material supplied by the customer. The number of processing operations is not limited, and the processing itself may also include the repair of goods, modernization, calibration, restoration and regulation.

A tolling contract must contain data on the mandatory output of finished products. Since the customs authorities control this, they can turn to other authorities or expert institutions to confirm the data. In certain cases, an enterprise that receives a processing permit may also need expert opinion.

To plan operations on the territory of Ukraine, it should be borne in mind that, as a general rule, the period for processing raw materials supplied by the customer cannot exceed 365 days.

Export of finished products obtained from raw materials imported for processing is carried out by a non-resident customer in the mode of re-export. However, if the customer plans to sell finished products in the customs territory of Ukraine, then this option is possible through his representative office registered in Ukraine. In this case, the duty of customs declaration of finished products for free circulation is imposed on the representation of the non-resident customer.