Can I Retroactively Apply FTA Rates for Raw Material Taxation in a Bonded Factory if the Certificate of Origin was Obtained After the Usage Declaration? Released

Thank you for your inquiry regarding the application of raw material taxation in a bonded factory. We understand your situation where the Usage Declaration was filed using the basic tariff rate due to the unavailability of a Certificate of Origin (C/O) at that time, and you now wish to apply the FTA preferential rate upon import of the manufactured product after obtaining the C/O. Please find the detailed customs explanation below.

Conclusion: Retroactive Application is Not Permitted

To provide a direct answer: If you applied the basic tariff rate during the usage declaration for raw material taxation, it is impossible to apply the FTA preferential rate later when importing the manufactured product, even if you secure the Certificate of Origin subsequently.

This restriction stems from the specific legal characteristics of the "Raw Material Taxation" system in bonded factories and the principles governing FTA application timing.

Understanding the Raw Material Taxation System

To understand why this is the case, it is essential to review the mechanism of the Bonded Factory Raw Material Taxation system:

• General Principle (Product Taxation): Under Article 189 of the Customs Act, when products manufactured in a bonded factory using foreign raw materials are imported into Korea, customs duties are typically assessed based on the nature and quantity of the final product.
• Exception (Raw Material Taxation): To enhance business predictability, companies can apply for raw material taxation. If selected, duties are assessed based on the nature and quantity of the raw materials at the time of the Usage Declaration.

Crucially, when raw material taxation is selected, the assessment point for customs duties is fixed at the Usage Declaration timestamp. This means the tariff rate, HS Code, and Country of Origin are legally determined and locked at that specific moment.

Prerequisites for FTA Application

The principle of fixing the assessment point extends to FTA preferential tariffs. To apply an FTA rate under the raw material taxation scheme, the following conditions must be met at the time of the Usage Declaration:

• The origin of the raw material must be clearly established.
• A valid Certificate of Origin must be in possession.
• The intent to apply for the FTA rate must be indicated on the usage declaration form (marking "Y" for C/O availability and stating the FTA rate).

The formal application for the preferential tariff is then finalized by submitting the usage declaration and the attached C/O when the finished product is eventually imported.

Analysis of the Specific Situation

In your case, the raw materials were declared at the Basic Tariff Rate because the C/O was unavailable at the time of the usage declaration. This action legally fixed the tariff rate for those materials as the basic rate.

Once the rate is fixed as "Basic" at the usage declaration stage, it cannot be retroactively changed to an FTA rate upon the arrival of the C/O. While the Customs Act allows for "Post-Application" of FTA rates, that provision generally applies to cases where an import declaration (not a usage declaration) was made, and the importer temporarily paid the basic rate while awaiting documents. The raw material taxation usage declaration is a distinct legal action that locks the tax attributes earlier in the process.

Strategic Recommendations for Future Operations

If you intend to utilize the raw material taxation system to benefit from FTA preferential rates in the future, please consider the following:

• Secure Documents Early: It is mandatory to obtain the Certificate of Origin before filing the usage declaration for the raw materials.
• Timeline Management: Account for the time required to issue the C/O and coordinate with suppliers well in advance.

The raw material taxation system is designed to provide administrative stability and predictability. Therefore, strictly adhering to the requirement of securing the C/O prior to the usage declaration is essential to avoid unnecessary tax burdens.