Duty Drawback Specialists
WHAT IS DUTY DRAWBACK?
Duty drawback is a refund of 99% of the duties paid on goods imported into the United States that are subsequently exported. The drawback claimant can either be an importer, manufacturer or exporter, provided the proper authorization and documentation is filed with the U.S. Customs Service.
Duty drawback was the second law passed by the first Congress of the United States in 1789. The purpose of duty drawback is to encourage U.S. manufacturing as well as foreign export sales.
THE FOUR MAIN TYPES OF DUTY DRAWBACK:
1. Manufacturing Direct Identification Drawback
When duty-paid imported material is manufactured into a product, which is subsequently exported from the United States, U.S. import duty may be recovered. It is, however, necessary to trace the duty-paid imported material through manufacture and export.
2. Manufacturing Substitution Drawback
When imported duty-paid, duty-free or domestic material of the same kind and quality as the imported duty-paid designated material is used to produce the exported product, U.S. import duty may be recovered even though none of the designated merchandise may have been used to produce the exported goods.
3. Unused Merchandise Direct Identification Drawback
When material is imported duty-paid and subsequently exported unused, U.S. import duty may be recovered. It is, however, necessary to trace the duty-paid imported material through to export.
4. Unused Merchandise Substitution Drawback
When unused material, which is commercially interchangeable with the imported duty-paid material, is exported, U.S. import duty may be recovered.
Claimants under manufacturing or unused merchandise drawback may, if approved, file retroactively, provided that the drawback claims are filed within three years of the date of export. For many companies, this initial recovery of duty can be quite substantial.
Unused merchandise drawback is subject to more stringent regulations than manufacturing drawback especially with respect to retroactive claims. Under unused merchandise drawback, certain incidental operations are allowed.
It is important to note that, under the substitution provision, the imported duty paid material does not have to be exported if the substituted merchandise is.
RECORD KEEPING REQUIREMENTS
Import Records
In order to benefit from drawback, your company must identify the duties paid on the imported material. The documentation needed here is the import entry summary and its corresponding import invoice. Three scenarios follow:
1. If your company imported duty paid merchandise. This scenario is the easiest to comply with, since you will have all of the appropriate documentation easily available.
2. If your supplier imported duty paid merchandise and delivered it to you.
3. If your supplier or his supplier imported duty paid merchandise and delivered it to you after further processing or assembly.
Manufacturing Records
Under manufacturing drawback, records verifying the processing of the imported material are required. A company should have documentation that will verify the following:
1. The withdrawal of imported duty-paid material from inventory for manufacture and the date it was used in a manufacturing process.
2. A record of the material, which is the same kind and quality as the imported duty-paid material, that was used to manufacture the export and the date the manufacture was completed.
Export Records
Drawback also requires the identification of the exports. The documentation needed here is the export bill of lading and its corresponding export invoice.