Outward processing

What it means

Outward processing is a customs procedure under which Union goods are temporarily exported outside the EU for repair, processing or assembly. On their return, customs duty is charged not on the full value of the product but only on the value added, meaning the cost of the work and materials supplied abroad.

It is the counterpart of inward processing, under which goods from third countries are brought into the EU for processing and re-export. Outward processing is typically used for machine repairs at a manufacturer outside the EU, contract sewing or assembly in a lower-cost country.

The procedure requires customs authorisation and proof that the returned product was made from the goods exported. Without it, duty and import VAT would be due on the full customs value on return, as if the goods were entirely new.

How it works in practice

On export, the customs declaration states the outward processing procedure and the goods are identified by serial numbers, photographs or samples. On re-import, identity is proven and the processing value is calculated from the foreign supplier's invoice.

Where a repair is carried out free of charge under warranty, the re-import can be fully exempt from duty if it is shown that a defect covered by the warranty was fixed. It is wise to attach the claim documents and warranty terms already at export.

Import VAT on re-import is generally calculated on the processing value including transport, not on the full value of the goods. A VAT payer can then deduct it under the normal rules, so when handled correctly it ties up cash temporarily rather than becoming a final cost.

What to watch out for

If the goods return in a different form than the authorisation envisages, or after the deadline, customs may charge duty on the full value. The authorisation's deadlines and conditions deserve the same attention as the supplier's delivery dates.

Processing can change the origin of the goods. If the work done in the third country was substantial, the product may lose its preferential EU origin and, on later export to countries with a trade agreement, lose the tariff preference. The effect on origin should be assessed in advance.