Toll manufacturing, Raw materials processing in Ukraine

According to the Law of Ukraine "On toll manufacturing" (hereinafter the "Basic Law”) the toll raw materials are materials, the semi-finished products, completing products, the energy imported on customs territory of Ukraine by the foreign customer (or bought by the foreign customer for a foreign currency in Ukraine) for manufacturing of finished goods with the subsequent returning of all production or its part in the country of the foreign customer (or realisation in the country of the executor the customer or under its commission) or export in another country.

If toll raw materials are imported by the foreign customer on customs territory of Ukraine or bought by the foreign customer for a foreign currency in Ukraine (the property right on imported toll raw materials and the finished goods made of it belongs to the foreign customer), the finished goods in this case can be realised in Ukraine only through registered permanent establishment. Permanent establishment registration is carried out according to the Instruction of the Ministry of Economy of Ukraine on procedure for registration of representations of foreign subjects of economic activities in Ukraine.

Processing is an operation on processing of raw materials (irrespective of quantity of customers` and executors`), and also stages (operations on processing of these raw materials), imported on customs territory of Ukraine (or bought by the foreign customer for a foreign currency in Ukraine) or taken out for the purpose of finished goods reception for a corresponding payment. Operations in which the raw materials of the customer, at a concrete stage of its processing, make not less than 20 percent of a total cost of finished goods are considered operations as processing of toll raw materials. The Cabinet of Ministers of Ukraine can establish other criteria of raw materials processing in a total cost of finished goods. The Cabinet of Ministers of Ukraine can temporarily limit or forbid realisation on customs territory of Ukraine of separate kinds of the finished goods made from toll raw materials of the foreign customer if it can cause damage to a national economy.

According to article 7 of the Basic Law in case of need, on demand of customs bodies or the state tax inspection, the recognition of operations as toll manufacturing is carried out by the Ministry of Economy of Ukraine on the basis of the certificate of the examination which have been issued by chamber of commerce of Ukraine or regional chambers. Customs bodies have no right to demand from subjects of foreign trade activities registration of the expert judgment of chamber of commerce of Ukraine concerning finished goods from raw materials. The control over toll manufacturing is carried out by customs bodies.

Generally term of performance of toll manufacturing is 90 calendar days from the moment of registration of the import (export) cargo customs declaration. But, according to the Basic Law depending on technological features of manufacture, the Cabinet of Ministers of Ukraine can establish longer terms of performance of separate types of toll manufacturing.

Contract for toll manufacturing should correspond to requirements of Ministry of Economy of Ukraine.
In particular, in section "Subject of the contract" or in the appendix to the contract there should be a technological scheme of processing which displays:
• All basic stages of processing of raw materials and process of transformation of raw materials in finished goods;
• Raw materials quantity indicators at each stage of processing with a substantiation of technological losses of raw materials;
• Expenses of the executor of processing at each stage of processing.

Raw materials imported on customs territory of Ukraine by the foreign customer are subject to import customs duties under rates of Uniform custom duties of Ukraine and taxes which are paid in case of import of the goods. Payment of the import customs duties and taxes (except customs charges) is made by the Ukrainian executor by delivery of the promissory note to the state tax inspection with term of payment which is equal to term of realisation of raw materials processing. In case of finished goods export in full volume of customs territory of Ukraine the promissory note is repaid and the import customs duties and taxes (except custom charges) are not collected. The account of the promissory notes (written obligations) is conducted by the state tax inspection on a site of the executor.

To perform customs clearance it is necessary to present the following documents to customs authorities:
1. Cargo customs declaration;
2. Copies of promissory notes, registered by the state tax inspection on a site of the executor, for the sum of the customs duties and taxes (except custom charges);
3. Document of the pre-arrival control;
4. Shipping documents:
o CMR, railway waybill, air waybill;
o CARNET TIR;
o Invoice;
o Packing list;
5. The contract for processing of raw materials;
6. The certificate on declaring currency values, incomes and property which belong to the resident of Ukraine outside Ukraine;
7. The certificate of origin of the goods;
8. Payment documents.

Raw materials can be bought by the foreign customer in customs territory of Ukraine for foreign currency. The finished goods which are made from raw materials bought by the foreign customer in customs territory of Ukraine, and belong to it, are not assessed with export duties and other taxes.