All countries try to monitor and control import-export flows that pass through their borders. While some European countries have significant experience in these activities, contemporary Ukraine is continually developing its customs control systems (and supporting legislation). Ukraine's new Customs Code, which came into force on January 1, 2013, completely overhauled the prior legislation governing customs bonded warehouses.
As elsewhere, the Customs Service of Ukraine ("Customs Service") plays the key function in monitoring goods during their voyage through Ukrainian border points and transit through Ukraine. Due to the importance of controlling the flow of goods into and out of the country, the Ukrainian legislators have constantly revised specific regulations governing customs warehouses. Most recently, Decree No. 835 of the Ministry of Finance of Ukraine "On Approval of the Procedure of Granting Warehouse Objects the Status of "Customs Warehouse" and Revocation of Such Status" ("Decree No. 835"), dated July 16, 2012, was passed and is based on the special annex concerning customs warehouses of the 1973 International Convention on the Simplification and Harmonization of Customs Procedures.
Customs warehouses are defined as duly equipped premises, storage facilities, refrigerator and freezer compartments, and open or closed storage areas designated for the storage of goods under customs control. Customs bonded warehouses may store any goods declared into the regular customs regime, as well as those intended for transit, temporary import, processing inside or outside of Ukraine, export, and temporary export. The Customs Code distinguishes between closed (private) and open (public) customs warehouses. Closed customs warehouses are used for the storage of goods under customs control which cross the customs border pursuant to foreign economic agreements concluded solely by the warehouse owner or user. Open customs warehouses are used for the storage of goods under customs control which cross the customs border pursuant to import-export sale-purchase agreements concluded either by the warehouse owner/user or any other parties.
The legal relations between owners/users of open customs warehouses and parties which store goods at such warehouses are governed by civil agreements. The legal relations between an owner/user of a customs warehouse and the customs authorities are governed by the operation procedure of the warehouse as approved by the head of the relevant customs body and agreed upon by the warehouse owner/user. The operation procedure must set forth, at a minimum, the list of officials with the right to access the warehouse, the head of the warehouse, the minimum amount of customs officials who will be hired to undertake customs control and clearance of goods, the warehouse working hours, the warehouse reporting requirements, and any other special functions.
Certain "simple" warehousing operations involving goods stored in customs warehouses may be undertaken without permission from the customs authorities. Such simple operations are those necessary to ensure safe storage of goods, including the movement of goods to achieve rational storage, cleaning, ventilation, temperature regulation, drying, inventorying, etc. Anything above and beyond such simple operations requires permission from the customs authorities to grant the warehouse "customs warehouse" status, including preparation of goods for sale, consolidation and separation of consignments, packaging and re-packaging, sorting, marking, loading/unloading, etc.
Prior to 2013, warehouse owners/users had to obtain licenses in order to operate customs bonded warehouses, which entailed a cost of 2,500 USD for the initial license and 1,500 USD for each renewal or re-execution. The new legislation simply requires warehouse owners/users to receive permission for "customs warehouse" status from the local customs authority in the zone where the warehouse premises are located. Moreover, such permission (and prolongation or re-execution) is free of charge and is granted for an indefinite period. Permission is granted on the basis of an application and accompanying documents and is executed by including the warehouse owner and its premises into the Register of Customs Warehouses (the "Register"). Note, however, that such status may only be granted to Ukrainian residents. Business entities or individuals with customs broker licenses may become owners/users of open customs warehouses.
As customs warehouses are customs control zones, they must be especially equipped to receive the status of "customs warehouse". The requirements regarding the construction and layout and the arrangements for customs control are quite strict and extensively set forth in Decree No. 835. For example, duly authorized customs warehouses must have proper parking facilities, admission control and registration systems, 24-hour security and/or functional security and fire safety alarms, lighting, certified weighing equipment, ramps, observation areas, loading equipment, double-locking systems, etc. All customs warehouses must meet rather strict standards of video surveillance in all storage and loading areas. Customs officials must be granted access to all video files and communication lines to other state controlling bodies. In order to store hazardous goods or goods which require special storage conditions, the warehouse will be subject to even more rigorous construction and layout requirements.
In addition to the application for permission to obtain the status of a "customs warehouse", the owner or user of the warehouse premises must submit a number of supporting documents, including:
1) Certified copies of the documents confirming ownership rights or usage rights to the warehouse objects;
2) Certified copies of various safety-related documents, including fire alarm system approval, internal order on creation of a security department (alternatively, an agreement with a duly licensed security agency), permission to commence operations in all warehouse premises, a state sanitation and epidemiological conclusion in relation to all warehouse premises
3) The general territory plan with an indication of the location of all video surveillance objects, ingress and egress roadways, doors, windows, etc., a technological plan for means of control and reporting, operational procedure, etc.
Upon receipt of an application, the local customs authority must inspect the warehouse premises and all surrounding territory to ensure their correspondence with the submitted documents/information within 10 working days. If everything is in compliance with the requirements, the customs authority will issue an order within 3 working days to grant permission to open and operate a customs warehouse and to approve the operational procedures with the warehouse owner/user. On the next working day after the operational procedures are approved by the customs authority and agreed upon with the owner/user, the customs authority will send an electronic notice to the State Customs Service of Ukraine to include the warehouse into the Register. The notice will contain all relevant information about the warehouse premises, including registration and passport number of the applicant, name and location of the applicant, location of the warehouse premises, amount of warehouse objects, type of warehouse premises, area/volume, and the end date of the use of the warehouse premises if they are leased.
The State Customs Service has one working day to process the information and enter it into the Register. The customs authority will send to the successful applicant an extract from the Register within three working days from the date of its decision to grant permission to open and operate a customs warehouse. Much like a license, this extract serves as proof to all authorities of the authorization to open and operate the warehouse.
All goods stored in a customs bonded warehouse must be separated according to their respective customs regime (temporary import, import for sale, processing, etc.). Goods may be stored in a customs bonded warehouse without unloading from transportation. For this purpose, the consent of the warehouse owner/user and an agreement between the owner of the goods and the responsible transportation company is required.
As is common in most countries, customs warehouses are subject to stringent accounting and recordkeeping requirements. Customs warehouse owners/users must keep strict accounts of goods stored in their warehouses and submit quarterly reports to the customs authorities regarding the movement of goods to/from the warehouse. The customs authorities may, at any time, request extraordinary reports, but no more than once per year.
In addition to customs bonded warehouses, free customs zones may also be opened and operated with either a commercial or servicing nature. Free customs zones are duly equipped territories or warehouses intended for the storage of goods under customs control and their processing and/or the production of new goods. Commercial free customs zones are created for the free storage of goods without any restriction on length of storage. Service free customs zones are intended to allow the free activity of companies which repair, modernize or construct aircrafts and sea/river vessels and their parts. Industrial free customs zones are created for the purpose of processing (producing) goods on the territory of related special (free) economic zones. It remains to be seen how such free customs zones will be regulated in practice and whether the government will create special economic zones for industrial customs zones. Free customs zones are also subject to special rules related to their construction, layout, reporting and admission systems.
The Customs Code also permits the operation of temporary storage warehouses and customs cargo complexes. Temporary storage warehouses must be duly equipped and are intended for the temporary storage of goods under customs control until their release into a specific customs regime. Customs cargo complexes are territories with the duly equipped set of buildings, structures and technical and communication means necessary for conducting customs control and customs clearance of goods and commercial transportation means which cross the Ukrainian customs border. Both temporary storage warehouses and customs cargo complexes are also subject to strict construction, layout, safety and reporting requirements. Customs cargo complexes must also provide intermediary services related to the declaration of goods crossing the border, storage services, and loading/unloading services. Additional services may also be offered under the proper conditions.
The provisions of the Customs Code concerning customs bonded warehouses are rather straightforward, although proponents of economic reforms constantly offer amendments to the legislation governing this topic. Instead, what is sorely needed is a concentrated effort to implement in a transparent manner this otherwise well-developed and comprehensive legislation. Hopefully, Ukraine's effort to move towards the simplification and harmonization of customs procedures will also lead to less complex and expensive import/export operations and a decrease of corruption at the border.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.