The undertaking issued by an Insurance Company (the Guarantor), offers the Beneficiary (the Customs Office) the guarantee that the Insured (Importer / Customs Commissioner) will comply with the payment obligations related to the import duties. The guarantor undertakes to pay jointly with the debtor the amount of the due customs debt.
A Custom Bond issued by an Insurance Company covers an existing customs debt or a potential customs debt (susceptible of happening) during the use of one or more customs regimes/ procedures/ operations:
- Special regimes:
- temporary storage
- customs warehousing
- Inward processing
- temporary admission (with total/ partial import tax exemption)
- release for free circulation with End-Use
- union/ common transit;
- Simplified procedures:
- Simplified customs declaration (Article 166 of the Customs Union Code)
- Entry in the declarant’s records (Article 182 of the Customs Union Code;
- Payment postponement and other payment facilities for customs taxes:
- Deferment of payments (Articles 110 and 112 from the Customs Union Code)
- Release for free circulation in special situations (Article 195 (1) of the New Customs Union Code)
- Application of provisional anti-dumping duties
What type of Custom Bonds can be issued?
Customs bonds can be issued for one operation, in this case an individual guarantee being released, as well as for multiple import operations, in this case becoming a comprehensive (global) guarantee.
What are the benefits of using a custom bond issued by an Insurer?
- It releases/” relaxes” credit lines for working capital
- It increases the guaranteed aggregate limit;
- The Insurer analyzes the risk of default of the potential client not only on the financial figures but from operational, technical and commercial points of view
- The Insurer does not have a direct control over the company’s funds. The potential client has the chance to free up tangible collaterals and use them for other purposes to finance the company’s activity.
- It releases cash collateral which might be invested and generate profit
- It does not „weigh down” on the client’s financial situation
- It generates cost savings, especially in the case of guarantees issued over several years
- Simple logistics, minimum number of operations, ZERO administration fees
- Possibility to choose solutions from multiple insurers vs. a single-financing bank
- Multiple collateral options!
- Fast analysis – The bond can be issued by the Insurer in max 24 h,
- The insured is protected against the unfounded / erroneous claim requests of the Authority
- Eliminates issues related to the validity (because it doesn’t depend on the validity of the credit line)
How much does the bond cost?
Pricing depends on the bond value and type, such as whether it is a single-entry or a comprehensive bond.
Let’s take the example of a customs broker who has a bank guarantee covering comprehensive guarantee up to 200.000 RON. His average costs with the bank include a 0.4%/quarter administration fee (1.6% total annual cost or around 3.200 RON) and at least partial cash collateral blocked to secure the non-cash financing. If he were to apply for a custom bond, the Insurer would probably finance up to 400.000 RON (Insurers are usually more flexible on their financial analysis and less risk-adverse than banks), having as collateral an endorsed promissory note and an annual fee of around 2.5% (or around 10.000 RON). Without blocking cash in the bank, our client could develop and increase his business by acquiring 2 small vans to transport his clients’ merchandise to their location, improve the IT hardware, hire an additional person, move in a better location and attract new customers in the company portfolio, considering he now has twice the capacity to finance customs operations and a better-quality of the services provided for his clients
What documents are required?
In order to analyze a request for issuing a custom bond, the main documents required include: two previous annual balance sheets, the last balance sheet submitted, the last closed trial balance sheet, a presentation of the company if available and a standard questionnaire.
In most standard cases, a collateral will also be required, usually in the form of promissory notes. However, premium customers with a solid rating should be eligible for solutions without collaterals.
How can you buy a custom bond?
Otto Broker’s specialists can provide all the support needed. Our experience in setting up this type of bonds for clients in various industries will allow you to choose the best alternative in terms of price and coverage
For any additional information and quotations, please contact [email protected]