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Management of bonded materials in enterprises 1. What are bonded materials? The general definition of bonded materials is \"materials that enter a country’s customs territory, are not subject to import duties under customs supervision, and are stored there before being shipped out again.\" Bonded materials vs. regular materials: Do they require payment of value-added tax and import duties? Is their use and inventory status subject to customs supervision? Generally, the two types of materials are stored in separate warehouses. 2. There are two types of business activities related to the management of bonded materials: processing with supplied materials. In this case, the imported raw materials are provided by overseas companies; domestic companies do not need to pay foreign exchange to purchase them. They process or assemble these materials according to the requirements of the overseas companies and receive corresponding processing fees. The finished products are then handed over to the overseas companies, which are responsible for their sale. In simple terms, in processing with supplied materials, domestic companies are only responsible for processing or assembling, while the sales aspect is handled by the overseas commissioning company. Another type is processing under commission, where the domestic companies pay foreign exchange to purchase the imported raw materials, process or assemble them into finished products, and then sell those products. It is a process of processing imported raw materials before selling them abroad. Regarding taxes, processing under contract is considered a tax-exempt activity: there is no value-added tax on imports, no value-added tax on exports, and the processing fees charged are also exempt from value-added tax. Since it is tax-exempt income, the input tax paid on the domestic goods associated with it cannot be deducted, and there is no issue of export tax rebates. Processing with imported materials is an export tax rebate service. However, the input tax on duty-free materials cannot be refunded either; both require the use of a customs manual. 3. Enterprise ERP systems handle the basic data related to the management of duty-free materials: Companies that use ERP systems for customs-related purposes generally assign a material code to imported materials in accordance with the principles of material coding, afin of facilitating internal management and identification. For duty-free materials, in order to enable proper supervision by the customs authorities and to ensure compatibility with the customs system, it is also necessary to record the corresponding customs code (some companies refer to this as a customs reference or HS code). This code is determined based on the customs regulations and the relevant item numbers; its main purpose is to provide the necessary customs code information when filing customs declarations and printing packing lists. Therefore, it is necessary to establish a mapping relationship in the basic data stage. It is necessary to distinguish between duty-free work orders and non-duty-free work orders. In the production order process, these two types of work orders must be separated, as duty-free work orders involve duty-free materials. During the raw material procurement stage, control is required over the distribution of such materials. For example: • Non-duty-free materials associated with duty-free work orders can be procured together; • Duty-free materials cannot be procured together; • A duty-free work order cannot be completed if no duty-free materials have been acquired. If a non-duty-free work order involves the use of duty-free materials, the system should issue a warning or prevent such action. When export goods are converted for domestic sales, additional taxes need to be paid, and customs documentation must be prepared accordingly. For companies that engage in processing imported materials for re-export, it is generally not allowed to misuse duty-free materials, due to requirements related to contract fulfillment and product quality. When entering finished products into inventory, it is necessary to fill in the relevant customs manual information; this is done mainly to facilitate product tracking, and usually management is carried out in conjunction with batch numbers. As an attribute of the product, the customs manual is involved in all stages of the product’s lifecycle: product warehousing, sales allocation, product shipment, sales returns, etc. Maintenance of manual change information: Companies engaged in import and export activities apply to the customs for such manuals on an annual basis; these manuals specify the materials that can be imported and the quantities allowed. Additionally, companies are required to verify these manuals at the end of each year. When settling the processing trade manual, there are often remaining materials, and in such cases it is possible to transfer those remaining materials to another manual for further use. Here lies the management of manual changes, which requires updating the manual information for bonded materials. 4. The significance of managing bonded materials: Ø It affects the company’s tax rebates, which in turn impacts its costs and thus its profits. Ø It is related to product quality as well as the fulfillment of contracts with customers. Ø It represents a fundamental requirement for companies to operate in compliance with customs regulations