Importers set up warehouses in free zones of a country to save customs duty levied by the government on the import of goods.
The general rule is that if the importer exports the goods to another country from the warehouse set-up in a duty-free zone, then there are no special cost implications on such a transaction. However, if the importer sells these goods within the country to companies that are outside the free zone, then the importer is liable to pay the customs duty on the products that are being sold. If the importer simply transfers the goods from the warehouse in the free zone to another warehouse of the company outside the free zone, then too the importer is liable to pay customs duty on the goods so transferred.
Most ERP systems do not handle either of these transactions seamlessly. Users have to input multiple transactions with manual calculations to ensure that the accounting entries are passed correctly.
Inecom has extended the scope of SAP Business One version for SAP HANA to manage both these transactions seamlessly, viz.-
- Warehouse Transfer with Cost Uplift
Sales with Cost Uplift
Imagine that you imported a product for $100 and stocked it in a warehouse in a free zone. The applicable customs duty on such a product is, say, 5%. Let’s say that the incoterms are FOB and $100 FOB cost that is mentioned on the supplier’s invoice.
Most governments levy customs duty on the CIF price. If the supplier’s incoterms are FOB, the government loads that by a certain % to arrive at the CIF price and calculates the customs duty.
While the supplier’s invoice is in $, the customs duty, however, is always levied in the local currency. Another variable to consider here is the exchange rate that the customs department assumes, which is often different from the one used by banks.
When a sale is made of this product, the COGS (Cost of Goods Sold) is computed at $100 plus 5% of the CIF value of this product, where $100 is converted into local currency.
Inecom’s Sales with Cost Uplift functionality does this seamlessly.
Inecom’s enhancement to SAP B1 version for SAP HANA also takes into consideration that if the buyer is a manufacturer, then some countries exempt application of customs duty even though the manufacturer is outside the free zone.
Warehouse Transfer with Cost Uplift
Imagine that the product imported for $100 is being transferred to another warehouse of the company outside the free zone.
The applicable customs duty on such a product is, say, 5% on the CIF value.
The cost of this product in the Receiving Warehouse needs to be increased by the amount of customs duty payable. This is done by following the warehouse transfer transaction by a Stock Revaluation in the receiving warehouse.
The exercise of Stock Revaluation must take into consideration the method of valuation of the item, i.e., Batch, FIFO, or Moving Average. Special care needs to be taken, especially in the case of Moving Average when the item has some stock in the Receiving Warehouse from before.
Inecom’s Warehouse Transfer with Cost Uplift functionality does this seamlessly.
The importer needs to maintain an audit trail of the imported consignment to prove that all customs duty wherever applicable was paid and has the necessary documentation to prove all obtained exemptions.
This entire functionality is embedded in Inecom’s Extended Inventory Add-on that is offered at no additional cost to customers that sign-up for Inecom’s Helpdesk in addition to SAP’s standard AMC.