Why customs compliance is so important for managing directors

Customs compliance during import and export is often a complex matter. Companies usually use specialized customs service providers for import and export. But experience shows that even there, mistakes are often made.

Then the management of the company comes to the fore – because it must also carefully select and control external service providers. As managing director of an importing or exporting company, it is your responsibility to ensure that all relevant trade and customs regulations are observed.

Management is usually not very aware of customs risks (compliance aspect). Only when criminal proceedings or fine proceedings for compliance violations against the management itself occur, increased attention is paid to customs compliance.

Customs compliance must not, however, be seen as a necessary evil. Rather, it also offers considerable opportunities in the form of cost savings. Customs compliance should therefore not be missing in any company’s overall organisation.

Incidentally, it is a widespread misconception that compliance is only an important building block in the organization for large companies. Of course, a multinational company has completely different requirements for a functioning compliance than a medium-sized company. An entire compliance department will often not be able to be set up with SMEs. But even for SMEs, a compliance structure can be created in a few easy steps that minimizes risks for the management and is not cost-intensive. It is important that managing directors and board members deal with the topic at all. Because”a little” compliance is still better than not taking any precautions at all against violations and then being caught ice-cold in an audit.

What does compliance mean?

Compliance means nothing else than that there is a laid down concept that ensures that all official requirements of customs law are complied with. Compliance with these regulations is monitored by customs within the framework of customs and foreign trade audits. It is about a company ensuring that customs duties and taxes are paid correctly and that, for example, preferential tariffs are applied correctly.

Why do we need a compliance concept for customs?

Many entrepreneurs are not sufficiently concerned with a compliance concept with regard to customs. However, the risks accepted can be considerable for the continued existence of the company and in the worst case even threaten its very existence.

A robust approach to customs compliance is important because goods may be subject to certain prohibitions, restrictions or product requirements. If the regulations are not adhered to, the consequences for your company can be expensive and detrimental. For example, the threat of

  • Fines and criminal proceedings against the management personally
  • Increased controls, more frequent inspections of goods
  • Delays for incoming shipments
  • Unintentional overpayment of duties
  • Suspension of import rights on certain goods

Furthermore, insufficiently paid import duties can be demanded subsequently by the customs administration. Since no provisions have naturally been set up for such transactions due to a lack of awareness of imminent subsequent payments, companies are not prepared for a subsequent survey. If the customs authorities require justified additional payments, these can have a significant adverse effect on the company’s liquidity. In the worst case even the insolvency threatens.

Which departments benefit from improved customs compliance?

Customs compliance covers many more areas than you might think at first glance. The product development, manufacturing, purchasing, sales and distribution departments are all affected by compliance with customs regulations.

Typically, the following issues need to be addressed in the context of customs compliance:

  • Classification of goods in the customs tariff (import and export)
  • Payment of import duties, calculation of customs value, terms of delivery and INCOTERMS
  • Tariff preferences, origin of goods
  • Export Compliance
  • Management of export licences and export control
  • Customs declarations and applications for simplified customs procedures for easier processing
  • Reporting obligations for import and export, INTRASTAT declarations
  • Selection and instruction of external service providers, e.g. forwarding agents

Opportunities of a compliance concept

Improved customs compliance and the creation of a dedicated customs department, in addition to minimising the risk for managing directors, also lead to other benefits, particularly in terms of cost savings, faster import clearance, savings in import duties, predictable costs and a competitive advantage are all reasons why it is worth investing in better customs knowledge.

What is the key to a successful compliance structure?

There are ultimately two keys to establishing successful customs compliance.

Firstly, the concept must be adequately promoted internally at all levels and awaken an understanding of the need for improved compliance. In addition, a customs officer should be appointed to take responsibility internally and externally for the creation of the relevant processes. The customs officer should be given appropriate authority within the internal organisation so that he can carry out his duties properly. When it comes to assessing the performance of middle-level managers, customs compliance should also be included as an evaluation criterion. This ensures that middle management is also aware of the importance and acts accordingly.

Second, work instructions and organizational structures must be developed to bring compliance to life. Even if trained personnel are deployed, deficits in internal information transfer, for example, can lead to new business being generated without the compliance department having examined the customs and foreign trade aspects of this business. In this case, a business area may have to be closed again if it causes problems from a customs law perspective. This is the case, for example, if a new business opportunity arises after considerable efforts in sales and the compliance department has to be consulted later to determine that financial sanctions exist against the company so that delivery is not possible. It is therefore imperative that those responsible for customs regularly exchange information with all other departments in order to keep abreast of current developments. An exchange with sales, purchasing, logistics, financing and accounting, but also with the IT department is absolutely essential.

Individual concept is necessary

It is also important that when setting up a customs compliance department, tailor-made solutions often do not fit, if they are offered at all. A customs compliance programme must be tailored to the individual company in order to function effectively.

For example, it may make sense for the respective departments to be coordinated with the assistance of the customs officer. For example, the accounting department reports retroactive price adjustments to the customs officer so that he can make any necessary corrections to the customs declarations. The purchasing department should consult with the customs officer so that he can confirm the customs tariff numbers and thus the expected duties.

You want to improve your customs compliance and reduce financial and criminal risks?

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Lawyer Dr. Tristan Wegner

Your consultant

ABC-Straße 21
20354 Hamburg
T +49 (0) 40 / 36 96 15 0
F +49 (0) 40 / 36 96 15 15
E ow@owlaw.com