3 Trade Incentives That May Delight Your Finance Team
Trade agreements save companies money, but what about the other trade incentives that can reduce importing and carrying costs in cross-border trade for importers and manufacturers?
The Government of Canada recognizes the need for Canadian companies to be competitive in the global market. Special circumstances apply to some, and every importer has a unique profile based on their business model. Various companies participate in manufacturing activities, while others provide goods for sale in Canada and internationally that require trade compliance.
Administration costs and the rapid growth of small businesses can sometimes cause business owners to overlook opportunities for cost savings through government programs for minimizing duty and tax liability. Canada Border Services Agency (CBSA) and Canada Revenue Agency (CRA) offer several trade finance programs. They are not suited for every business, and certain conditions apply. Depending on the nature of your business, you can explore your options and take advantage of the tax and duty relief plans offered.
Three Trade Incentive Programs That Could Provide Relief From Duties:
1. Exporter Of Processing Services Program (EOPS)
This program allows companies who further manufacture goods for export to import goods without payment of the Goods and Services Tax (GST) at the time of import.
To qualify, participants in this program comply with the following import/export regulations:
- Must be a GST or HST Registrant.
- Must have no ownership interests in the imported goods coming into Canada for further manufacturing or the processed goods after production.
- Must not be closely related to the supplier outside of Canada for whom you are processing the goods.
A consultation with the Canada Revenue Agency (CRA) is required to get approved for this program. Participants must keep detailed records for goods imported under this program and proof of export for the processed goods post-manufacture. Goods imported under the EOPS program must be exported within four years from the date of accounting. Once approved for this program, Canada Customs assigns an Order in Council (OIC) number that must be shown on your import entries to allow for the GST exemption on imports entering Canada under this program.
2. Duties Relief Program
This program allows importers to bring in goods duty-free if they will eventually be exported. The goods must be exported in the same condition or after using or consuming them in manufacturing. This program is best suited to companies that import goods attached to tariffs with high rates of duty. It is a proactive approach because it allows for duty relief at the time of accounting, prior to payment of the customs duties on import. The prescribed timeline for export is a maximum of four years. This program requires detailed record-keeping to ensure compliance in case of a customs audit. Your customs broker can assist with the application.
For more information on the Duties Relief Program, please consult the Canada Border Services Agency's D Memorandum D7-4-1: Duties Relief Program.
3. Duty Drawback Program
This program is similar to the Duty Relief Program but pertains to companies that have already paid customs duties on imported goods. Detailed records are required for compliance purposes. This program allows for duty recovery for importers, producers, and manufacturers. Goods that have been further processed are eligible for duty drawback. However, it is important to note that goods in the same condition when imported and exported are easier to claim. CBSA provided the procedures to be respected when filing a claim for a drawback of duties paid. The conditions for eligibility for imported goods that are exported from Canada consist of the following:
- Goods that have been further processed.
- Goods that have been displayed or demonstrated in Canada.
- Goods used for development or production in Canada that will be exported.
- Goods that have been exported without being used in Canada for any purpose other than the ones mentioned above.
Additional conditions apply for goods exported to a Canada-United States-Mexico Agreement (CUSMA) country that has been further processed. These tariff refunds provide importers with increased revenue by eliminating and recovering the costs of duties, taxes, and fees on goods sold.
Good advice can save you money. When it comes to customs compliance, our Trade Advisory Services can assist in identifying your exposure to risk in your supply chain and help navigate the most complex trade issues. This often translates into a competitive advantage in the marketplace and a positive relationship with customs. Our Trade Advisors can help explore the strategies that fit your organization.