MARCH 15, 1999 AMERICAN CHAMBER OF COMMERCE CUSTOMS COMMITTEE MEETING ON TEMPORARY IMPORTS REGULATIONS IN RUSSIA

POST OF ORIGIN: MOSCOW
DATE OF REPORT (YYMMDD): 990421

AUTHOR: YEVGENY SCHUKIN

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U.S. & Foreign Commercial Service Moscow
Bolshaya Molchanovka, 23/38
121069, Moscow Russia
Tel: 7-095-737-50-21
Fax: 7-095-737-50-33
E-mail: Yevgeny.Schukin@mail.doc.gov

Summary: In March, the American Chamber of Commerce in Russia held a workshop on the State Customs Committee's decree that abolishes full exemptions for Temporary Import for Representative Offices. Special guest speaker Marina Volkova, a Tax Manager of PricewaterhouseCoopers, who is a former Deputy Head of Currency Control Department of the State Customs Committee, analyzed the possible consequences of the move. The temporary import exemption was granted in November 1994, giving substantial tax breaks to foreign companies wishing to set up an office in Russia. However, many companies realized that it was much easier to pay all the duties and taxes and declare Release for Free Circulation, than to be fined for improper declaration of Temporary Import Regime. End summary.

NEW REGULATION DESCRIPTION

1. Instructive regulation #01-14/223 of the State Customs Committee of the Russian Federation of February 19, 1999 abolishes Temporary Import (TIR) privileges for representative offices previously authorized by the resolution #01-12/1276 of November 10, 1994. The new regulation repeals the full exemptions for temporary importation starting April 1, 1999.

2. The regulation provides that customs duties and taxes as well as foreign currency exchange rates will be determined by the date when customs authorities accept the new declaration claiming another customs regime. Customs will not charge interest or fine companies for duties that were previously deferred (however, see #7 below). Companies will be subject to general regulations and clearance procedures after the expiration of TIR period, and will be required to pay customs duties and VAT. This provision applies only to applications submitted before the actual expiration of the temporary importation period.

3. Under the new regulation, since the TIR period has expired, rep offices have either to re-export items or declare other customs regimes, such as TIR with partial exemptions, Free Circulation regime (FCR), Customs Warehouse (CWR), Refusal of goods in favor of the state, or Destruction of goods under state control.

4. As of April 1, 1999, all goods and transport vehicles temporary imported by rep offices are subject to customs payments. Companies declaring goods under TIR will make monthly payments equal to 3% of the amount of taxes and duties which would have been paid if the goods were declared under FCR. Temporary import permits are usually not feasible for heavy equipment or furniture, since TIR requires re-exportation.

HISTORICAL OVERVIEW

5. The duty-free TIR privilege was first granted to offices in November, 1989. At that time many foreign companies were entering the Russian market, but could not find office equipment and supplies. The resolution provided that foreign companies could bring in office equipment and cars for their own use without having to pay customs duties. The exemption was granted for the term of a company's accreditation (usually two to three years).

DECLARATION OF FCR

6. Companies usually declare goods under FCR, rather than under other customs regimes. They pay clearance fees, customs duties, VAT and applicable excise taxes. Customs value refers to the value declared when the goods were imported under TIR. It is important to note, that customs values of these past shipments will not be recalculated in terms of dollars. In other words, if goods were declared in rubles, the duties will apply to that actual ruble value (this is potentially very beneficial).

7. Companies that have failed to declare FCR before the TIR deadline are subject to be fined for the interest for deferment of customs payments since the date of temporary importation. The interest fee can be four to five times more than the value of the equipment being declared.

Customs duties, VAT, excise and interest rates are set by the Government of the Russian Federation, while the clearance fee is normally set by the Customs, and is currently 0.15 percent.

DECLARATION OF GOODS SUBJECT TO CERTIFICATION

8. According to Customs regulations, the majority of goods entering Russia require certification. The list of such goods includes some office equipment, furniture and computers. When the equipment is switched to FCR from TIR, customs authorities will only require an official letter from representative offices certifying that the equipment will not be sold. If such equipment is declared for the first time, however, it is subject to certification by Customs authorities.

NOTIFICATION

9. Customs authorities formerly notified representative offices when TIR permit was about to expire, as Soviet regulations required customs to send out the reminders. Russian customs regulations do not do so, therefore, it is the responsibility of representative offices to maintain the information.

A company is subject to being fined if it has lost or sold the equipment declared under TIR. Similarly, if a rep office fails to declare another regime on time, it is subject to fines of up to 200% of the customs value or confiscation at the latest. The speaker outlined that dealing with a freight forwarder who has authorized access to Russian Customs Committee's archives may facilitate compliance with customs regulations.

RE-DECLARATION OF CARS IMPORTED UNDER TIR

10. Cars were among the goods allowed importation with full exemption from customs duties under order #01-12/1276. Most companies declared as much equipment as possible to benefit from privileges previously given by TIR. Since August 1996, Customs authorities have required payment in full, as an advance deposit, of all duties and taxes on road vehicles imported temporarily. Under this procedure, the relevant sum must be deposited into customs bank account before clearance can be completed. Provided a car is actually exported from Russia later, the deposit is supposed to be refunded. Mrs. Volkova doubted that such deposit will be reimbursed easily, since all customs payments are transferred directly to Federal budget account.

The new regulation does not provide instructions for re-declaration of cars, but the speaker presumed that the Customs will require a 3 percent payment together with the deposit made when car was declared under TIR. When declaring a car for FCR the value is to be determined at car's disposable value.

11. The speaker explained that abolishment of exemptions has caused a lot of problems for her clients. She admitted, that, although it was expected, the regulation surprised most of the foreign offices. Fortunately, the act allowed some time for companies to take effective measures to avoid extra payments and penalties while declaring their equipment under other regimes. Most companies declare their equipment and other goods for offices' needs under FCR, which supposes paying all obligations to customs and will result in fewer legal problems in the future.

CONTACTS
12.

Marina Volkova
A Tax Manager of PriceWaterhouseCoopers
13, Nikoloyamskaya Str.,
Moscow, 109240, Russia
tel. 7 (095) 967 6000
fax. 7 (095) 967 6001

Art Franczek, AIBEC
Co-Chair, Customs Committee of
the American Chamber of Commerce
Tel./Fax: 7 (095) 373-6241
e-mail: artf@online.ru

Russian State Customs Committee
Press-center
1, Komsomolskaya Sq.
Moscow, 107842, Russia
tel. 7 (095) 244 4528 /4508

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)