5 quick customs lessons for Australian SMEs
A clear understanding of where GST and Import Duties apply can save Australian businesses a lot of time and money.
Certain shipments are exempt from GST payment and Import Duties – but the rules for some popular concessions, like the Low Value de minimis threshold, are changing.
Free Trade Agreements offer Australian enterprises significant cost savings if they can maintain proper documentation.
Despite being one of the most attractive export markets in Asia Pacific, Australia isn’t always the easiest place to do business. When it comes to cross-border trade, the country ranked 91st out of 190 countries in the World Bank’s Ease of Doing Business report for 2017 – well below other regional powerhouses like Singapore, Hong Kong, and Japan. To succeed in Australia, goods-based businesses need a solid understanding of how its numerous customs and trading rules apply to them.
“The best bet for most Australian businesses, particularly SMEs, is to work with a logistics provider who can handle the heavier complexities of the customs clearance process on their behalf,” says Ben Somerville, DHL Express’ Senior Manager of Customs & Regulatory Affairs for Oceania. “With a little effort though, anyone can learn enough of the basics to take their cross-border operations to the next level.” Here are five quick lessons to get any business started:
1. GST (and its deferral)
Most Australian businesses will face the 10% Goods and Services Tax, or GST, on the products they sell as well as the goods they import. Any GST that a business pays can be claimed back as a refund from Australian Tax Office (ATO). Certain importers, however, can simply avoid paying the tax rather than having to claim it back, under what the ATO refers to as “GST deferral”. However, your business must be registered not only for GST payment, but also for monthly Business Activity Statements (BAS) to be eligible for deferrals.
“You don’t reduce any costs by deferring your GST, but you do simplify and streamline your cash-flow,” advises Somerville. “That may prove worthwhile for businesses to switch over to monthly BAS reporting, particularly those who have stuck with the more common quarterly schedule until now.”
2. Changes to the LVT (Low Value Threshold)
Until recently, Australia had the highest Low-Value Threshold (LVT) for imported goods in the world, exempting most items of $1000 and below from GST. That’s set to change from 1 July 2018, as the Federal Government looks to scrap the LVT for all B2C (read: e-commerce) imports. B2B imports and B2C companies with less than AU$75,000 in turnover shouldn’t be affected by the changes.
“Now that the legislation has been passed through Parliament, Australian businesses should start preparing for the changes sooner rather than later,” counsels Somerville. “Work with your overseas suppliers on registering for a Vendor Registration Number (VRN) with the ATO, familiarize yourselves with how to remit GST after charging it, and prepare to incorporate it into your pricing models.”
The new legislation requires eligible businesses to register with the ATO for a Vendor Registration Number (VRN), used to track GST payable on any overseas supplier’s goods. Suppliers are responsible for GST payment to the consumer at the Point of Sale, then remitting it to the ATO on a regular basis.
3. Repairs and Returns
“Many businesses come to us with questions about whether they’re liable for import duty and tax when they send their goods abroad for repair, or receive items back from overseas customers for repair or replacement,” says Mike Attwood, Customs Duty Manager at DHL Express Australia. “The key question we need to ask them is: are you conducting the repairs under warranty?”
If your business repairs or replaces a product as part of its warranty obligations, you pay neither duties nor taxes on the product – as long as your documentation reflects this. Include the words “Warranty Replacement” or “Repair”, record the item’s value as “No Charge”, and make sure you still enter a “Value for Customs” – what you paid to produce the item originally – in your documents.
If you are charged by your supplier for the repairs or replacements, the cost of those repairs is dutiable. In your documentation, include lines for both “Value of Goods” and “Value of Repair”: the former incurs no duties or tax, while the latter will incur both.
In both instances, maintaining detailed records should be a priority. “Occasionally, Customs will ask to see evidence that you originally exported the item out of Australia, and that you’re now returning it to the country,” Attwood cautions. “Play it safe by keeping a ledger of all your imports and exports, and make sure you record a fair value of your items even if they aren’t taxable: undervaluing your goods will immediately attract Customs’ suspicion.”
This little-known policy gives importers upfront duty and GST exemptions on goods provided they’re exported out of Australia within a year. While they’re in Australia, you can process or treat those goods, or incorporate them into other products, without incurring any import duty or tax. And the policy still applies if another company exports the goods.
“Tradex eliminates many of the costs and hassles associated using Australia as a transshipment or assembly hub,” says Attwood. “It’s an especially powerful tool that most businesses aren’t aware of. Just make sure that you get your application for Tradex approved before your shipments arrive.”
5. Free Trade Agreements
The “free” in most Free Trade Agreements (FTAs) means duty-free, for both imports and exports. Businesses can take advantage of these agreements between Australia and a range of countries, but be warned: no two FTAs are the same.
“Most FTAs will require the manufacturer to furnish a certification of free trade, and some will prohibit you from transshipment of your goods through certain countries or at all,” Attwood says. “Check the full details of any FTA before you decide to apply it.”
The recently-signed China-Australia Free Trade Agreement (ChAFTA), for example, requires certifications from not manufacturers, but one of two Chinese government agencies – and will only permit goods to be transshipped through Hong Kong. On the other side of the spectrum, the US-Australia Free Trade Agreement demands no certification per shipment, allows transshipping through any country, and will accept documentation of the shipment issued by anyone. Regardless of the FTA’s strictness (or lack thereof), Attwood advises businesses to always establish a paper trail in case authorities do pose questions.
“Get some form of signed documentation from your suppliers saying that your business plans to utilize the FTA, keep the originals of all forms that you fill in, and include in your invoices as much detail about your goods as possible,” says Attwood. “Doing so will insure your business against potential future queries and the disruption they can cause.”