Selling overseas is a lot easier when you’re aware of the legal and administrative issues relating to export. Knowing the ground rules for legal fees, documentation, and custom regulations for specific markets will help you make informed decisions.
Legal issues to consider when exporting
If you’re new to export, starting with a modest export strategy and then gaining experience is often the best approach. From the start, you should consider three key issues to ensure your move into new markets abroad is a success.
1. Do you owe customs duties and need to complete customs procedures?
In many cases, a customs duty will be owed in the country that your goods are being imported into. This duty rate is determined based on the harmonised tariff system classification or commodity code that your goods are considered to fall under.
A harmonised tariff system is an internationally standardised system of names and numbers to classify traded products which applies to over 200 countries.
Commodity codes are used when filling out customs paperwork, and make this process easier. Eight-digit codes are applied to exports outside the EU or moving within the EU, and ten-digit codes for imports outside the EU.
If the country you are importing into has a trade agreement with the country you are selling from, or they are both part of a common customs union, exporting and importing may need less paperwork and be easier to do.
For example, if you are exporting from the UK and importing into Germany, or vice versa, your goods will not typically have to clear customs. This may change, however, after the UK leaves the European Union.
2. Do you need to register for VAT in the country you’re exporting to?
Value Added Tax (VAT) registration means more paperwork and keeping records, which is why companies exporting on a smaller scale sometimes take different approaches. If you export on a small scale, consider working through a distributor or employing a specialist to do your VAT administration.
3. Does the country that you are exporting from impose requirements?
Some goods may require an export license if the products implicate foreign policy or national security concerns. These could be commercial items that have possible military use or encryption products.
An export license involves getting pre-approval from the government of the exporting country. This would allow the goods to be sent to a particular destination country, end user or end use. Some countries may even apply an export duty, although this is unusual.
Government trade authorities have plenty of information and guidance on matters relating to customs duties, taxes, and export licenses, as well as other compliance responsibilities.
Issues relating to payment
Exporting also raises many issues relating to payment procedures and payment lead times. These can be more complicated when you are exporting and should be a part of your cash flow plans.
Consider these questions:
- Are your exports being paid for pre or post-delivery?
- Are you extending lines of credit to your purchaser?
- Is your company able to finance its exports from its working capital?
- Will your company have to use outside financing to finance its exports?
Exported goods also take time to be packed, transported, and cleared at the destination country. They often carry greater risks of potential damage or loss, which can affect your payment times, and even cause you not being paid.
To resolve this, there are specialist organisations that give insurance or arrange credit to ease the flow of trade.
International Commercial Terms (Incoterms) clarify and make consistent the terms used in contracts between importers and exporters. Understanding Incoterms is key to understanding the additional costs and shipping times cross border trade incurs. These costs are usually passed on to your customer.
Read more about Incoterms in our guide to international delivery.
Knowing the key legal and administrative issues surrounding your export market before you begin exporting will ensure you have a cohesive export strategy right from the start.