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Duty Drawback Types and Process

Posted by Anne Jordanek on Apr 5, 2023 8:54:10 AM

Duty Drawback Types and Process

Duty drawback can benefit companies when a drawback claimant adheres to all requirements. This means the claimant pays careful attention to detail, keeps accurate records, and follows procedural standards set by U.S. Customs and Border Protection (CBP). 

This is easier said than done. Duty drawback represents one of the most complex commercial programs managed by Customs. It’s vital for companies to understand how the program works and to partner with a reputable drawback broker to navigate the rules and international laws correctly.

What is Duty Drawback?

Obtaining drawback requires an understanding of the drawback process and regulations. Unfortunately, it is among the least understood and most underutilized Customs programs available to exporters.

Here, knowledge is power. The first step to better utilization of this valuable program is to know the definition of duty drawback.

Duty drawback is a refund of certain duties, taxes, and fees collected against the importation of goods once the merchandise is exported or destroyed. Drawback is an export incentive program. Customs reimburses the import duties and fees to qualified exporters, who can receive up to a 99% refund of duties in certain conditions. 

Let’s say ABC Inc. pays a 5% duty fee to import a widget to manufacture a new machine, then later exports the completed machine to another country. That company can file a drawback claim to have import duties refunded for the widget. 

Types of Duty Drawback

Customs provides three major types of drawback returns. 

  • Unused Merchandise Drawback: This return applies when companies import a good and then export the same good without changing it. For instance, the company imports bicycle seats and then exports them without changing them. The company can apply for and receive a refund for duties paid when they export the seats.
  • Manufacturing Drawback: When a company imports an item, then manufactures it into a different item, it can apply for drawback. This applies if the company, for example, imports bicycle seats, then exports completed bicycles using the seats. Here, the importer can apply for a refund of the duty paid for the seats.
  • Rejected Merchandise Drawback: Companies can request drawback when merchandise does not conform to samples or specifications, ships to them without consent, or is defective at the time of import. For instance, if the company receives defective bicycle seats, they can apply for drawback upon exportation or destruction of the defective bicycle seats.

Duty Drawback Process

The duty drawback program has transformed over the years, with the most recent update under the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA).

TFTEA massively changed U.S. duty drawback rules and enhanced the laws, expanding refund opportunities on imported goods that were later exported. In 2018, a new drawback statute attempted to simplify the claim process, making it electronic to decrease program costs. And as of February 24, 2019, the program required claimants to file all drawback claims, according to TFTEA.

Companies must now apply for duty drawback within five years of the date of import to the filing date. They must also provide proof of export and other documents to claim the benefit. 

Accelerated drawback payments are possible, but only if companies file an accelerated payment special privilege application and have a valid bond with Customs. Approval can take 3-6 months. 

Manufacturing Drawback projects will require submission of a drawback ruling in order to gain permission to participate in the drawback program offered by Customs. General rulings may be used, but if the manufacturing process falls outside of one of the General Rulings offered, a specific ruling may be required to be filed with CBP headquarters.

Unused Merchandise Drawback requires notification prior to exportation for possible inspection. Waiver of Prior Notice may be requested in a special privilege application.

Companies ensure success when they do the following for duty drawback claims:

  • Keep Accurate Records: Maintain import documentation, invoices, shipment receipts, cash receipts, merchandise transfer documents, inventory and production records, and exportation records for at least three years following the liquidation of a drawback claim.
  • File Within the Timeline: File for duty drawback within five years of the date of importing the goods.
  • File Online: TFTEA requires claimants to apply for duty drawback electronically. 

Final Thoughts

Submitting special privilege applications, drawback rulings, and navigating the duty drawback claims process demands the help of a qualified expert. A Licensed Customs Broker with drawback knowledge and experience can assist in this process and ensure compliance with regulations. Duty drawback is a complex program. Companies that understand the program and partner with a reputable drawback broker can successfully navigate the nuances and add dollars to their bottom line.

Updates Importers and Exporters Need to Know


Topics: Customs Consulting, Brokerage

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