How To Qualify and Get Duty Drawbacks For Your Business

A duty drawback is a refund on taxes, duties, and fees paid on imported goods, later exported as finished or unused products. It can also include merchandise that the U.S. Customs supervision destroyed. The U.S. Customs and Border Protection (CBP) introduced drawbacks to reduce incentives and the cost of exports to spur the economy.

You might be entitled to get such reimbursement if you export goods previously imported with their duties paid. However, a significant intention of drawback is to reduce the burden of duties on imports when goods are destroyed or otherwise exported.

This is done with the hope that the perks given would encourage domestic production of articles for export which will, in turn, help stimulate both the U.S. labor in the manufacturing sector and foreign trade.

How To Qualify For A Duty Drawback

Drawbacks are of different types, each with its qualification process.

Manufacturing merchandise drawback

Manufacturing Merchandise Drawback is also known as Direct Identification Manufacturing drawback. The manufacturing process is the most common type of duty drawback. You can think of it as when items are shipped to one country that is not for end-use.

When these items are shipped to America from another country, then subsequently shipped to another country again, the importer who paid the taxes and duties can be eligible for a waiver or reimbursement. This is more common when goods are shipped to one country and are used in the manufacturing or assembly hub.

For example, the goods would be remodeled, refitted, and finished by a company in that country. Then the final product would be shipped to a different country elsewhere in the world. If the entire process seems challenging, you can employ a professional duty drawback service to help you out.

Substitution manufacturing drawback

Substitution is usually applied to manufacturers that make products using a mix of domestic items and imported items of the same quality and type. When the final product is destroyed or exported, they would be able to claim duty drawback regardless of if the exported item was made from domestic or foreign components.

This scenario is usually intended to help manufacturers cut down their inventory management, relieving them from maintaining two separate inventory counts for domestic and foreign parts.

Unused merchandise drawback

When a company imports goods into the United States, then subsequently exports a portion back to the country of origin in its unused or original condition, a part of the import fees will be returned to the business.

Rejected merchandise drawback

Here, either you were accidentally sent the wrong item or goods, or when you received them, they were not in good condition for use or sale. The items get either destroyed or rejected in such situations, based on the industry.

Since you could not use the items, the importer would not have to pay any duties on them. Additionally, the business is also eligible for a duty paid reimbursement.

Duty Drawback Process

Over the years, the duty drawback process has undergone several changes. As a result, the processes and requirements for applying have been modified. Companies should now electronically file duty drawbacks from the latest update, as seen in the Trade Facilitation and Trade Enforcement Act (TFTEA) of 2015.

Additionally, every duty drawback within five years from import date to filing date must provide export proof and other proofs to claim the profit. You can now file a drawback claim with an accelerated payment request indicator, but you must have a valid bond with the U.S. Customs and Border Protection (CBP).

If your bond is insufficient, your claim will not be rejected. Instead, the CBP  will remove your accelerated payment request indicator. Therefore, you must work with a professional to rectify the bond issue and add it again.

Also, you should ensure accurate recordkeeping of every data, including transfers of merchandise, exportation documents, cash receipts, shipments receipts, and invoices. Additionally, you should maintain the above records for an additional three years from the date of export.

That’s A Wrap

If you are an exporter and importer of goods into the U.S., you might qualify for a duty drawback. However, even when you do not do both, import and export can still happen along your business supply chain, thus qualifying you for the process.

Navigating the process might be difficult and grueling and seem like a waste of effort. However, experienced drawback professionals would be able to take care of the duty drawback process by removing the barriers that might stand in your way of getting your money back.