In recent years, Romania’s aviation industry has attracted a number of investments in the production or repair/maintenance of aircraft and components in both civil and military categories. Along with the expansion of this industry, the import of raw materials to Romania or spare parts to be processed or used in the repair of aircraft (including aviation parts) has also increased. A significant part of the finished products remained on the European market or was exported beyond its borders.

Implicitly, the importation of such raw materials also resulted in customs duty costs that had to be borne by the major players in the aviation market. Customs duties in the amount of 3-10% of the declared customs value are usually applied to the classic import of such raw materials (for example, titanium or aluminum alloys) and/or spare parts, unless special customs regimes apply. Can these costs be avoided so that companies in the industry can improve their competitiveness? The answer is as we will tell below.

In the case of raw materials from non-EU countries that are processed or intended for the repair of aircraft or aircraft parts, customs legislation gives manufacturers/importers access to the inward processing regime.

What is the mode of active improvement?

Raw materials intended for processing in Romania (for example, for the production/repair of civil/military aircraft and parts) may be imported with exemption or reduction of customs duties as follows:

• if the product obtained as a result of processing is exported outside the EU, the manufacturer/importer benefits from exemption from customs duties both for the raw materials used for processing and for the exported finished product;
• if the resulting product remains on the European market, the manufacturer/importer has the option of paying the lowest duty, i.e. that applicable to the raw material or that applicable to the processed finished product (whichever is lower).

Application of this customs regime requires prior permission of the customs authority (permission is obtained after a maximum of 3-4 months). The most difficult part that companies faced when they wanted to apply such a regime was the formalities of entering into the regime. To be more precise, showing to the customs authorities that the imported raw materials (under customs supervision) have indeed been processed and incorporated into the final products is a rather complex process that requires reconciliations, submission of closure reports and other time-consuming formalities. Can the closing process be simplified?

A simplified termination, specially designed for the processing of raw materials in the aviation industry

In order to simplify the process of entering into an inward processing regime in the case of the aviation industry, the European Commission has introduced a simplified termination procedure through customs legislation. In contrast to the classic termination procedure, the inward processing procedure is considered terminated when the goods placed under this procedure are used for the first time in the production of aircraft and aircraft parts in the territory of the European Union. The procedure is also directly applicable in Romania.

What added value does this simplification provide?

• only for the placement of non-EU goods for processing in the customs territory, a customs declaration is required to be submitted to the customs office;
• it is considered a re-export when non-EU goods are used for the first time in the production of aircraft and their parts in the EU (including Romania), provided that separate and accurate records are kept. At this point, the goods acquire Union status;
• it does not matter whether the processed products remain in the EU or are exported outside the EU;
• processed goods can be exported using the final export regime, the resulting secondary products (for example, scrap, waste, shavings) acquire, in turn, the status of the Union and do not require additional customs formalities;
• the manufacturer/importer may apply to the customs authority for an exemption from submitting a closure report.

In summary, unlike the classic import procedure (where customs duties paid cannot be refunded), the in-house recycling regime allows major players in the aircraft industry to save both money and time. Non-payment of customs payments will have an immediate positive impact on cash flow and clearance time (unless they are expected after processing the payment amount to the customs account). In addition, the application of the simplified closure procedure will significantly shorten the closure process both at the level of the companies and at the level of the customs authorities controlling the scheme.

The article was signed by Mihai Petre, International Trade Director of EY Romania and Cosmin Dinka, International Trade Manager of EY Romania

Article supported by EY Romania