The Duty Drawback Process: Explained

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From fledgling startups to Fortune 500s, all proactive companies are looking for ways to save resources and streamline workflows. Finding ways to boost efficiency is especially critical for industries engaging in global trade. 


Managing imports and exports while ensuring compliance and clearance through customs can be overwhelming. Beyond that, there’s one crucial piece of the import management puzzle that is often left out – duty drawbacks. What are duty drawbacks? Does your company qualify for duty drawbacks? What is the duty drawback claiming process like for global traders? Is filing for duty drawbacks worth it? Let’s take a closer look.


Explaining Duty Drawbacks


Duty drawbacks are a governmental provision that prevents importing and exporting industries from paying double taxes on goods. In the U.S., duty drawbacks have been available to global traders since 1789, with periodic rounds of major regulation updates.


“A duty drawback is a refund of duty paid on imported merchandise when it is exported later, whether in the same or a different form,” explains SCM (Supply Chain Management) EDU. “This type of drawback allows companies to recover some or all of the duties they paid on imported goods that are used in products they export.”


In short, duty drawbacks can save companies involved in global trade – especially manufacturers – a lot of money. Still, companies do not receive an automatic reimbursement for doubly paid import and export taxes. To receive a refund on import tariffs, a company must keep careful records and submit to a rigorous application process. 


What Qualifies for Duty Drawbacks?


Many different industries with varying circumstances can qualify for duty drawbacks. Big global players such as aerospace, automotive, electronics, pharmaceuticals, and petroleum companies can all qualify for drawbacks. 


For example, an electric car company in the U.S. may import several different components of their vehicles, assemble them domestically, and then export the completed vehicle overseas. Tariffs paid on imported components may qualify for duty drawbacks.


Recouping tariffs on imported materials or components that are subsequently used to make a new product and then exported is called a manufacturing duty drawback and is the most common drawback. 


Beyond manufacturing drawbacks, companies can claim duty drawbacks on:

  • Unused goods – If imported goods are returned without being used, they can be sent back, and the taxes refunded. 
  • Damaged goods – If imported goods arrive in a damaged or unusable condition, they may be returned, and the tariffs may be reimbursed. 
  • Industry-specific drawbacks – Some industries enjoy special drawback provisions, such as the petrochemical and alcoholic beverage industries. 


When imports qualify for a duty drawback, the maximum refund will be 99% of the original tariff, as the US Customs and Border Protection Agency (CBP) retains the remaining one percent to cover administration fees.


Note: For a more specific look into other drawback scenarios, read our article Benefits of Duty Drawbacks.


How to Claim Duty Drawbacks


Since duty drawbacks are a privilege, not a right, companies are required to do their part to obtain these tax breaks. Let’s break down the duty drawback claiming process into three main steps. 


3 Steps to claiming duty drawbacks:


  1. Keep detailed records. – Maximizing duty drawbacks starts with careful record keeping. Before a company can file a drawback claim, it will need to organize a secure and efficient way of retaining all data on imports, inventory, tariffs paid, customs cleared, and more.  
  2. Understand drawback regulations. – The CBP last updated drawback regulations in 2018. It’s essential for companies involved in importing and exporting to stay up-to-date with global trade compliance. That way, they can avoid fees and benefit from all available drawbacks.
  3. Submit an electronic application. – As of 2019, companies may only submit drawback claims electronically. On the form, companies must furnish all required documentation to qualify. Remember, companies can file a claim up to five years from the import date. That means that even if a company has not had a drawback program in place until now, they have the potential to recover doubly paid tariffs from the past five years. 


Note: Check out the CBP’s guide for first-time drawback filers for more detailed information on getting started. 


Are Duty Drawbacks Worth the Effort?


Every year, billions of dollars in potential drawbacks go unclaimed by global trade companies. Why are companies allowing the opportunity for significant potential savings to pass them by? Perhaps they assume that filing a customs drawback claim is not worth the time. 


True, claiming duty drawbacks does require a bit of leg work. Still, the benefits of duty drawbacks outweigh the effort involved. 


“Duty drawback and duty deferral programs directly benefit U.S. manufacturers and exporters, and encourage and support growth in U.S. manufacturing and jobs for the export market,” says The Duty Drawback Coalition.  “U.S. companies that rely on duty paid foreign inputs to manufacture or produce finished goods for export significantly benefit from drawback through either reduced costs of production and/or price advantages when selling into the global market.”


Thankfully, scores of companies file for duty drawbacks every day. The process does not need to be overly complicated, especially if you have help from duty drawback experts to guide you through the process.


Duty Drawback Software Solution


At OCR Global Trade Management, we can help you create a drawback program that maximizes return potential, taking full advantage of these tax breaks. We can even assist you in recovering the drawbacks your company may have missed over the past five years. 


With help from our automated compliance and Global Trade Management software solutions, you’ll be able to organize your data securely, prepare refund claims, calculate accurate duty, and integrate with third-party apps like Oracle, SAP, and other enterprise systems. 


Our duty drawback tools take the hassle out of claiming your drawbacks. This fully automated software grants you easy access to the data needed to file claims and make the most of your drawback potential. Use this cutting-edge tool to increase profits, create meaningful reports, and analyze import transactions to find opportunities for recovery. 


To get started, get in touch with our sales team. We’ll work with you to create a custom solution for streamlining your duty drawback process.


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