ATA Carnet
Scenario
Two Canadian companies recently came to us looking for advice on how they could temporarily export goods to a foreign country without incurring duty and taxes. These goods were intended for demo purposes, and not for sale. Title and ownership belonged to the exporter.
You Asked Us
How do I avoid paying taxes and duty on tradeshow material for demo purposes?
Answer
The Canadian companies would need to obtain an ATA (Temporary Admission) Carnet, a bond that is issued by the Canadian national guarantor, the Canadian Chamber of Commerce.
In 1961, the World Customs Organization (WCO) established an internationally recognized process that would allow the temporary admission of goods in more than 66 countries worldwide. This process allows goods to be imported duty and tax free for a one year period in any of the participating countries. Why? The Carnet guarantees payment of duties and taxes to the custom authorities and territories if the goods are not returned to their country of origin before the bond’s expiry date.
The ATA Carnet helps Canadian companies manage the temporary flow of goods sent to foreign countries typically for trade shows, demonstrations, exhibitions or commercial samples. The ATA Carnet does not, however, cover the following:
- Controlled goods that require export or import permits,
- Consumables,
- Disposable goods; or
- Goods sent abroad for repair or rework
The Canadian Chamber of Commerce has published an ATA Carnet manual (PDF) to help Canadian businesses better understand the procedure and to guide them through the process.
For countries that do not actively participate in the ATA carnet program, the exporter can apply for a temporary import bond (TIB) through a local customs broker at the time of entry. Unlike the ATA Carnet, TIB deposits and payments are usually made in cash in the currency of the importing country rather than Canadian dollars. A TIB must be purchased every time a product is imported into a foreign country, and fees vary from country to country. Additionally, exporters should expect a long lead time before deposits are refunded.
Companies should contact a customs broker in the importing country to post TIBs. View list of countries that do not participate in the ATA carnet program.
CEPA – a free trade agreement to help Canadian exporters access
the Chinese market
Scenario
A buyer in China would buy as much Canadian product as the exporter could supply, however high tariffs and import restrictions limit the product’s entry. Another needs to employ foreign workers to install a temporary facility, but is faced with Chinese employment law and subcontracting provisions of the labor code. Yet another exporter is having difficulty obtaining regulatory approval for their medical equipment.
You Asked Us
How can I sell into Mainland China without having to deal with the country’s sometimes complicated import requirements?
Answer
Canadian exporters can access the Mainland market through Hong Kong and benefit from provisions of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA).
Implemented in 2004, this agreement is considered by many as a shortcut into the Mainland market and covers trade in goods and services between the two counterparties as well as trade and investment facilitation.
With the agreement, zero tariffs are applied to over 1600 products imported from Hong Kong into the Mainland. It also provides service companies, based in Hong Kong, privileged access to service sectors in the Mainland market (e.g. accounting, advertising, banking, distribution, etc).
Canadian manufacturers can sell to a Chinese affiliate in Hong Kong, or set up, invest in or outsource to manufacturing operations in Hong Kong to meet the CEPA rules of origin and enjoy the benefits of the agreement. Service companies can access the Mainland market by setting up a service company in Hong Kong, or partner with, invest in or acquire an existing service supplier in Hong Kong.
In addition to providing the exporter with insight into the local culture and business practices, being based in Hong Kong also provides advantages related to the recognition of intellectual property rights in the Mainland.
Other CEPA provisions relate to business regulations, the standardization of e-commerce and relaxing customs clearance requirements and processes.
More information on CEPA is available on the Hong Kong Trade and Industry Department website.
Helping Auto Sector Companies Invest in Mexico
Scenario
Three Canadian tool and die manufacturers (TDMs) for the automotive sector, considering an expansion into Mexico, recently came to us looking for advice about doing business in that country.
You Asked Us
What information can we provide automotive sector companies expanding into Mexico?
Answer
For all country-related requests, we suggest exporters register (at no cost) with Foreign Affairs and International Trade Canada’s Virtual Trade Commissioner to obtain country information, market potential assessments, in-country contacts and events, as well as the name of the relevant Trade Commissioner by sector and country. The Trade Commissioner website can also provide the name and coordinates for the local trade commissioner in Canada.
In addition to the above suggestions, we have developed online information available for download, which includes:
DFAIT has developed a podcast that describes three ways to manufacture in Mexico and another that provides information about mitigating risks related to security, trade and investment.
Our sector experts indicate that excellent opportunities exist in Mexico for qualified Canadian TDMs. They suggest contacting the Secretary of Economic Development in the state targeted for an investment as part of a company’s due diligence. As well, Canadian sector associations (e.g. Automotive Parts Manufacturers' Association (APMA) and Canadian Association of Mold Makers (CAMM)) are good sources of contacts.
Residency Certificates
Scenario
A Canadian company performs work in Indonesia. The Indonesian buyer wants to withhold a portion of the payment to satisfy taxation requirements in that country. The Canadian company, knowing that Canada has a tax treaty with Indonesia, approached us for advice about how to obtain a Residency Certificate in order to avoid having to pay taxes in both Canada and Indonesia on the same income.
You Asked Us
How do I obtain a tax reduction or exemption from income earned in a foreign country?
Answer
Generally, domestic companies are required to withhold a certain percentage of any payment that they make to a foreign company in order to cover taxes associated with the income earned by the foreign company.
Thankfully, Canada has tax conventions, commonly known as tax treaties, with many foreign countries, including the USA.
A tax treaty is designed to avoid double taxation for people or companies who otherwise would pay tax on the same income in two countries. Under these treaties, residents of Canada (both individuals and corporations) are taxed at a reduced rate, or are exempt from foreign taxes on certain types of income they receive from sources within those countries.
Typically, in order to receive the benefit of tax treaties, it is necessary to submit a document to the foreign company that will be making a payment to the Canadian company. These documents are often called Residency Certificates.
Residency certificates provide confirmation that the company is a resident of Canada and indicates that there is a tax treaty in place between Canada and the foreign country. Every country has different requirements for these certificates with some countries requiring certification by Canada Revenue Agency (CRA) as well as authentication by Foreign Affairs and International Trade Canada and their country’s consulate.
In the USA, residency certificates are actually forms that are to be completed by the foreign company. Although there are many forms depending on the type of income and individual circumstances, the most common is referred to as the W8-BEN form.