FTA Tariff Applicability for Bonded Factory Products: Post-Acquisition of Certificate of Origin after Raw Material Taxation Declaration Released

Thank you for your inquiry regarding the application of FTA preferential tariff rates for raw materials under the Bonded Factory Raw Material Taxation system. We would like to provide a clear explanation regarding your situation where a Certificate of Origin (CO) was secured only after the raw materials were already declared under the basic tariff rate during the usage declaration stage.

To conclude, if the basic tariff rate was applied at the time of the usage declaration under the raw material taxation scheme, it is not possible to apply FTA preferential rates at the time of importing the finished product, even if the Certificate of Origin for the raw materials is secured later. This is due to the specific nature of the bonded factory raw material taxation system and the principles governing the application of FTA tariffs.

Understanding the Bonded Factory Raw Material Taxation System

According to Article 189 of the Customs Act, when products are manufactured in a bonded factory using foreign raw materials, the standard rule is "Product Taxation," where duties are levied based on the nature and quantity of the finished product at the time it is imported into the local market. However, for corporate convenience and predictability of tax burdens, companies may opt for "Raw Material Taxation." Under this option, duties are levied based on the nature and quantity of the raw materials at the time the "usage declaration" is made to the factory.

Once Raw Material Taxation is selected, the critical point for determining the tax liability is fixed at the time of the raw material usage declaration rather than the time of product import. Consequently, the tariff rate, HS Code classification, and origin status are all finalized at the moment of usage declaration.

Principles of FTA Application in Raw Material Taxation

This principle applies equally to FTA preferential tariffs. To benefit from FTA rates for goods under raw material taxation, the importer must clarify the origin and possess a valid Certificate of Origin at the time of the raw material usage declaration. The intent to apply the FTA tariff must be clearly stated by marking the possession of the CO (Y) and indicating the relevant FTA rate on the usage declaration form.

When the final manufactured product is later declared for import, the importer completes the application by submitting the previously filed usage declaration along with the Certificate of Origin that was attached at that time.

Why Retroactive FTA Application is Restricted

In your case, because the raw materials were declared under the basic tariff rate due to the absence of a CO at the usage declaration stage, the tariff rate for those materials was finalized as the basic rate at that specific moment. Once the rate is fixed as a non-preferential rate, it cannot be retroactively changed to an FTA rate even if a CO is obtained later.

While the Customs Act does allow for "Post-application" of FTA benefits, this typically applies to standard imports where an intent to claim FTA was indicated or where documents were missing at the time of import declaration. It does not apply to situations where the tax status was already finalized under the specific Raw Material Taxation rules of a bonded factory.

Professional Advice for Future Compliance

To benefit from FTA preferential rates under the raw material taxation system, it is crucial to secure the Certificate of Origin before the raw material usage declaration is filed. We recommend the following:

• Coordinate with suppliers well in advance, considering the time required for CO issuance.
• Establish a lead-time management system for usage declarations to ensure all FTA documentation is ready.
• Maintain thorough records of usage declarations as they serve as the basis for the final product's tax assessment.

The current regulations are designed to ensure the predictability and stability of customs administration. Therefore, we advise a meticulous planning process regarding the acquisition of origin documentation when utilizing the bonded factory raw material taxation scheme.