Customs clearance in Ukraine

An Expert's View about Customs Procedures in Ukraine

Last updated: 26 Jan 2011

Customs control and customs clearance general overview. All imported/exported goods and means of transportation (road, rail, maritime or air) crossing the customs border of Ukraine are subject to customs and border control, which is carried out by the customs authorities in order to ensure that the customs rules and other applicable provisions are observed.

There are around 80 customs points across Ukrainian border - all international air and sea ports, railway and road border crossing points. Every customs point covers a particular geographical area. For vehicles to avoid repeated customs checks when crossing borders, the TIR system is applied. The goods are only checked and sealed at the first customs office and the vehicle is then waived through by customs authorities until it reaches its final destination.

Goods entering the territory of Ukraine must go through three main customs procedures before they can be cleared: 1) customs control; 2) customs formalities; 3) payment of mandatory customs duties. Customs clearance can be a lengthy process, a speed of which depends mainly on the nature and quantity of the goods, completeness and correctness of the documents submitted by the importer. Customs clearance is a set of procedures with a view to acknowledging the compliance of goods with customs requirements and to obtaining permission for the free circulation of the goods within Ukraine. These customs procedures are carried out by the customs authorities and are regulated by the Customs Code of Ukraine, the International Convention on Simplification and Harmonization of Customs Procedures (Kyoto Convention), to which Ukraine acceded in October 2006, resolutions of the Cabinet of Ministers of Ukraine and orders of the State Customs Service of Ukraine. The goods are under customs control from the moment of their cross-over through the Ukrainian customs border until the fulfilment of all customs formalities.

The clearance process begins from the moment of delivery of the goods at the place of destination. The importer has 3 hours from the moment of arrival of the goods at the place of destination to declare the commodity to the customs authorities. Customs clearance is carried out by the customs authorities, to which the Cargo Custom Declaration was submitted. That is the in-house customs by place of the accreditation of the subject of foreign economic activity. Accreditation means an order of steps with a view to obtaining a record card, which authorises a business entity for customs clearance. A representative office has the right to be the importer of goods and carry out the customs clearance. Declaring commodities outside a customs office where a legal entity is registered requires formal approval from the customs authorities (approval letter). Customs clearance of goods imported into Ukraine by residents may be carried out by the customs authority where the buyer of the goods is located or by the customs authority in the point of entry at the customs border of Ukraine. For example, alcohol and tobacco goods imported into Ukraine can only be cleared through Sevastopol, Mariupol or Ilichevsk ports. Customs clearance is usually done by a broker acting on the importer’s behalf or by the importer himself. After documentation is submitted, necessary payments are made and the shipment/documentation is inspected, the shipment is cleared and can be released to consignee.

Main documents for customs clearance. The following documents are to be submitted to the customs authorities for customs clearance: 1) Cargo Custom Declaration, 2) a copy of license, if goods are subject to licensing, 3) all permits issued by a state authority, if the goods are subject to special customs control by a certain body, 4) Customs value declaration, 5) commercial and shipping documents. The importer must within a ten day period render to the customs authorities the full package of documents. Declaring of any export-import operation is performed by issuance and submission to the Customs authority a special form - Cargo Custom Declaration.

The Declaration is a unified document, which provides necessary description of the cargo, its price and customs value, information about exporter (importer), which is a party to the supply contract, broker (declarant), consignee, customs authority which performed the customs clearance, means of transportation, a list of all commercial and shipping documents related to the cargo, describes payment of all custom duties and charges related to the export-import of the commodity. The CCD must be completed and signed by the importer or his agent and is to be rendered together with the electronic copy. The CCD is not applicable if import is lower than a certain level (currently EUR 100), except for excisable goods. If the company imports on a regular basis from the same supplier under the same trading terms, it can use the Periodic Customs Declaration to save time completing individual customs forms. The duly executed CCD must contain the following stamps: "checked", "paid", "under customs control". All the pages of the CCD are to be affixed with a personalized number seal of the customs inspector; CCD is given a registration number consisting of 16 symbols. Upon performance of all these conditions, the CCD is deemed to be valid and duly executed.

Customs value declaration - if the value of imports is over 5000 euro, the importer has to present to the customs authorities a Customs Value Declaration. This document determines the amount of customs duty and import taxes payable. Certificates of control bodies - some goods are subject to control before they can be cleared. For example, the import of animals is controlled by the issue of animal health certificates and veterinary inspections; the import of plants is controlled by the issue of phytosanitary certificates and may be subject to phytosanitary inspection if the plants are an endangered species; the import of vehicles containing hazardous chemical compounds and agents is subject to ecological inspection; the import of precious and semi-precious stones is subject to gemological inspection, etc. Certificates of Origin and Certificates of Conformity - needed for some consignments such as fruit, vegetables, nuts, mineral oil, bicycles, cars, toys, etc., before they can pass through customs and into free circulation in Ukraine.

Most common commercial and shipping documents: 1) Contract; 2) Invoices; 3) Packing Lists; 4) Certificates of Origin; 5) Receipts for payment of customs duties and charges. 6) Necessary certificates (conformity; safety; veterinary; etc.); 7) Transport documents (bill of lading, airway bill, railway consignment note, CMR, etc). The goods may be placed at ? bonded warehouse to wait for some documents, e.g. licenses or certificates, thus suspending import procedure. The importer should only submit the documents, which identify the goods and vehicles and confirm legal grounds for them.

Mandatory customs payments. Importers must pay an import duty, value added tax and, if applicable, excise tax and customs charges: a) Import Duty – rates on every import product is defined by the Customs Tariff of Ukraine, according to which the import duty is charged as a percentage of the value of goods and is known as "ad valorum" duty.

There are 3 rates of import duty under the Customs Tariff: 1) privileged rates of duty - applicable to all WTO members; 2) preferential rates of duty - applicable to all countries, which together with Ukraine are members of free trade zones; and 3) full rates - applicable to goods originating from other countries, or where the country of origin is not determined.

On July 1, 2001 the Law of Ukraine "On Customs Tariff of Ukraine" came into effect under which only the Parliament can introduce or change tariffs. The import tariff system of Ukraine has 21 sections, encompasses 97 groups of goods, and lists over 10,000 import duty rates. Import duty rates for most goods, except for farming goods, food and excisable goods, are established at levels accepted by the GATT/WTO.

The classification and origin of the goods will affect the amount of customs duty payable. If the invoice is in a foreign currency the value of the invoice has to be converted into UAH. The declared customs value is generally used as the basis for determining customs duties. The customs value should be determined in accordance with 6 WTO valuation methods. However, the most common and main one is the "transaction method". This is based on the price paid or payable by a buyer to a seller for the imported goods. The importer should provide evidence of the price paid with import entry, e.g. a copy of the seller's invoice. Though this method cannot be used if the goods are imported on consignment (i.e. there has been no sale) or they have been supplied free of charge or on a commodity credit. b) VAT - rate is 20%, as levied against taxable turnover, which does not include VAT. Taxable turnover for import VAT is calculated as customs value of the goods, including customs duties and any applicable excise taxes. Import VAT is due and payable at the same time AS customs duties are being assessed (with a potential thirty-day extension made at the discretion of the customs office). c) Excise Tax - Parliament of Ukraine establishes the list of goods (products), which are subject to the excise tax. The list of excisable goods includes caviar, shrimp, chocolate, coffee, alcoholic beverages, beer, tobacco products, cars, automobile tires, petrol and diesel fuel, weapon, jewellery, home electronics (microwaves, CD players, TV-sets, Video- and audio devices), clothing (fur coats and leather jackets), office furniture. Excise duty rates range from 10 to 200 percent of the declared customs value. Excise duty rates are expressed as a percentage of the declared customs value, plus customs duties and customs charges paid for imported products. Payment should be made in Ukrainian currency at the Ukrainian National Bank exchange rate effective on the day of payment. d) Customs Charges - there are only 2 customs charges in Ukraine: for storing a cargo at the customs warehouse and for work of customs inspector in non-working time (18 p.m. – 9 a.m.), during weekend or official state holidays.

Customs regimes in Ukraine. According to the Customs Code of Ukraine, there are 13 customs regimes as follows

1) Import (IM40 or “Free Circulation”)

2) Export (EK10)

3) Transit (TR80). Upon crossing an international border point, goods will be classified in one of two ways: transit or customs cleared. If marked transit, the container or vehicle will be sealed by customs authorities and then customs cleared at its final destination. Additionally, vehicles transporting goods marked for transit, which are subject to excise taxes, are required to be wrapped in a transit band all the way through Ukrainian territory. This band is obtained at the customs checkpoint and has an assigned number, which is designated on the customs declaration.

4) Temporary Import (IM31, ATA CARNET)/ Export (EK32). Imported items are classified as designated for demonstration at exhibitions, fairs and trade shows, as the temporary import of a foreign company's property, which is to be returned to that country afterwards. The temporary import of demonstration samples, excluding goods not allowed for importation, can be undertaken without registering the importer as a subject of foreign economic activity in Ukraine. This bypasses a burdensome bureaucratic process. Prior to return samples are inspected by customs authorities to ensure that the quantity and description of goods match those registered at the time of importation. Temporarily imported goods can remain in Ukraine for one year from the date a cargo customs declaration is executed. If warranted, local customs authorities can extend this term for the duration of an economic, scientific, humanitarian, or other event in which the temporarily imported goods are required. The term of temporarily imported goods should be reflected in the customs declaration. Samples may be shipped out of the country after usage via any customs point. Prior to their customs declaration expiration, temporarily imported goods should be: - returned outside the Ukrainian customs border; - declared at customs for further use; - passed to customs for storage in a bonded warehouse; or demolished under customs control if these items cannot be used as goods, products, or equipment.

5, 6) Re-import (IM41) /re-export (EK11)

7) Bonded Warehouse (IM74). The bonded warehouse is a device frequently employed by non-resident companies that do not directly do business in Ukraine. Such warehouses can be either state customs points or privately owned warehouses for the use of clients. Most foreign investors simply lease space in warehouses. Opening a bonded warehouse is a complicated affair involving the State Customs Service and a great deal of paperwork. To establish a bonded warehouse as an importer, one must first obtain a license from the Ukrainian Customs Service office nearest to where the warehouse will be established. To obtain such a license, an applicant must file the following documents to Customs officials: - an application stating that the enterprise wishes to establish a Customs bonded warehouse (solely for the storage of that enterprise's goods); - a record card of the entity opening a warehouse; - a scheme of the warehouse premises, indicating location of alarm systems and customs areas; - an approximate list of goods to be stored in the warehouse. Upon submission of the application and supporting documents, the warehouse must be ready for operation and equipped as a bonded warehouse. To open a warehouse, an applicant must pay a one-time fee in Ukrainian hryvnas equivalent of US$1500 (at the National Bank of Ukraine official exchange rate). Formal registration of the warehouse is normally done within 15 days after an application has been submitted. As a bonded warehouse licensee, an enterprise should also note that it will have to hire an official customs inspector on an as-needed basis to actually clear and approve shipments of goods. As a licensee, the enterprise can hire its own personnel to supervise the submission of customs declarations, but the customs official actually approves final clearance.

8,9) Processing on (outside, EK61) the customs territory of Ukraine (IM51)

10) Special customs zone (IM71). Since 1996, a total of 21 special economic zones (SEZ) or priority development territories (PDT) have been established, covering up to 10 percent of Ukrainian territory. The creation of free economic zones has been adopted as a method of regional industrial development.

11) Duty free shop (IM72)

12) Refusal for the benefit of the state (IM75)

13) Destruction or elimination (IM76).

Commodity classification and customs value Commodity Classification and Customs valuation in Ukraine conforms to world standards, where customs value is defined as the sum of the sales price, transportation costs, freight, insurance, storage fees and other costs not foreseen in the contract price. Receipts should be presented to document these costs and to allow customs officers to determine the proper customs value. In the event that receipts are not available, Ukrainian customs will assess the customs value using comparative pricing of similar goods and services in the country of origin.

Prohibited and restricted imports. While the number of goods requiring specific import licenses has been cut considerably, a large number of goods are still subject to import licensing. There are many other non-tariff formalities, including a range of technical and phytosanitary regulations and inspection procedures. The Ukrainian government strictly controls and restricts the import of weapons, narcotics, chemical and hazardous substances, and certain pharmaceutical and communications related products.

Membership in Free Trade Agreements. Ukraine has signed free trade agreements with all of the former Soviet republics and Macedonia. Ukraine is also a party to the 1995 CIS free trade agreement. However, this agreement has never been effectively implemented. Ukraine also signed a Partnership and Co-operation Agreement with the European Union (PCA). Under the terms of the agreement, Ukraine enjoys most favoured nation status with the EU, but is not required to bind its own tariffs. Ukraine participates in the Black Sea Cooperation Council, along with Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, the Russian Federation, Macedonia and Turkey. It is envisaged that the organization be developed into a free trade area. Ukraine has furthermore concluded trade agreements with 12 countries (Austria, Argentina, Armenia, Bulgaria, Canada, Estonia, Finland, Krygzstan, Latvia, Moldova, Russia and Switzerland). These agreements grant on a reciprocal basis most favored nation status to export-import operations with the countries concerned. As in the case of the PCA, Ukraine benefits via these agreements from the tariff concessions made by its partner countries who are the WTO members without binding its own tariffs. On 16 May 208 Ukraine became a member of the WTO, so Ukraine enjoys most favoured nation treatment with all WTO member states.

Applicable legislation. A new Customs Code came into effect January 1, 2004. It codified uniform customs procedures for all goods, specified elements of customs procedures, and created a mechanism for submitting a preliminary declaration for customs clearance for those who declare items on a regular basis. The Code widens the powers of the State Customs Service of Ukraine (SCS), granting its staff free access to the companies' premises where commodities subject to customs clearing are stored. It gives the SCS the power to check foreign trade companies' financial and economic performance. In October 2006 Ukraine acceded to the International Convention on Simplification and Harmonization of Customs Procedures (Kyoto Convention), so in order to harmonize domestic legislation with the Convention, a new Customs Code of Ukraine is pending.

Main transportation modes. The least expensive and most reliable means of transportation is by sea, through 18 marine ports in Ukraine, including Odessa, Illichevsk and Mariupol. Rail is another cheap, but less reliable, method of shipping products throughout the country. Rail traffic has fallen substantially since Ukrainian independence and minimal backups at crossing points make rail transport a competitive alternative to other forms of transport. The most popular, efficient and costly means of transporting goods within Ukraine is by trucks.

Conclusion. Foreign exporters who intend to import goods into Ukraine should understand the system and may find Ukraine's import regime complicated, especially, for inexperienced traders. Knowing which documents are necessary for the clearance of goods will avoid delays and save money. There are many practical issues to consider before making import. Businesses have to think how much time, money and effort it will take to manage import activities. For more information or advice, go to www.kpl.net.ua

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Posted: 23 January 2011, last updated 26 January 2011

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