f you import goods that are subject to duties and want to defer paying duties and taxes, you may want to consider using a Bonded Warehouse. Bonded Warehouses are specially designated premises where commercial goods – including dutiable items – can be stored deferring duty for a certain period of time.
Bonded Warehouses are designed to make the movement of goods within Canada as easy and efficient as possible. As an importer, exporter, or wholesaler, you have the potential to benefit from using a Bonded Warehouse. This article will help you understand what Bonded Warehouses are, their uses, advantages, and regulations.
What is a Bonded Warehouse?
Also known as a Customs Bonded Warehouse, a Bonded Warehouse is a privately run facility approved, licensed, and regulated by the Canada Border Services Agency (CBSA) that provides a secure storage area for importers and exporters to maintain inventory and manage the timing of payments.
Bonded Warehouses allow importers to defer customs duties and taxes until they are sold within the Canadian market or exported, thus alleviating paying a large sum to CBSA all at once. This includes deferral of customs duties, anti-dumping and countervailing duties, excise duties, and other taxes, including the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST).
Private Bonded Warehouses VS Public Bonded Warehouses
There are 2 types of Bonded Warehouses that you can use to store your goods:
- Private bonded warehouses that are operated by individuals or companies for the storage of their own imported goods; or
- Public bonded warehouses that are operated by entrepreneurs for the storage of goods imported by various importers.
What is the Customs Bonded Warehouse (CBW) Program?
The Customs Bonded Warehouse (CBW) Program is one of CBSA’s Trade Incentives Programs that keep Canadian companies competitive by providing relief from duties under special circumstances. The goal of the CBW Program is to facilitate trade by reducing the costs associated with importing and exporting.
Who can benefit from using a Bonded Warehouse?
Almost everyone involved in trade activities can benefit from using a Bonded Warehouse. Whether you are a business owner shipping goods within Canada or an executive at a company that imports goods, exports goods, or manages trade logistics, chances are that you will have to keep your inventory somewhere. Here is a list of everyone who can benefit from using a Bonded Warehouse:
- Trade show or exhibition presenters
- Businesses that import items for trade shows and exhibitions and then export them after the event to recoup costs
- Companies that import goods into Canada and want to store them or perform minor manipulation to them
- Companies that import goods and then prepare them for export out of Canada
The advantages of using a Bonded Warehouse
Deferred import duty and taxes. Once you operate or use a bonded warehouse in Canada, you can defer duty and taxes that you would normally pay at time of importation until you eventually sell or export the goods. Having the ability to defer taxes until you sell or export your goods may help to dramatically improve your cash position and avoid cash flow issues.
Long-term storage of imported goods. Bonded Warehouses offer long term storage, thus allowing importers to ship their goods in advance and ensure availability upon demand.
Better security and insurance. Many bonded warehouses provide heightened security employing the use of security personnel, surveillance cameras, and fences to ensure your goods are safe for the duration of the time they are in storage. Some insurance companies offer lower premiums for goods stored in secure warehouses.
Reduced shipping and processing costs. Inventory management can be time consuming and expensive but using a Bonded Warehouse may help decrease shipping logistics and processing costs.
Who regulates Customs Bonded Warehouses?
Both the CBSA and Participating Government Agencies are involved in regulating Customs Bonded Warehouses.
The Role of CBSA
Under the CBW Program, CBSA’s role is to oversee Bonded Warehouses in Canada, ensuring compliance with the Customs Bonded Warehouses Regulations. Moreover, CBSA:
- Provides legislation and policy to importers and exporters on the importation, transfer, and exporting of goods relating to Customs Bonded Warehouses.
- Reserves the right to grant, suspend, and terminate licenses. Should a company not comply with regulations, it will be notified in writing of the change to its license status.
The role of Participating Government Agencies (PGAs)
Participating Government Agencies (PGAs) are government agencies, besides CBSA, that regulate commodities entering Canada. All goods entering a Customs Bonded Warehouse must meet the requirements and conditions of PGAs as if the goods were being imported. This includes goods subject to Tariff Rate Quotas (TRQs), where documentation must be presented upon entry. Goods without permits or authorization may not be allowed to enter a Customs Bonded Warehouse.
Using a Customs Bonded Warehouse
If you would like to use a Customs Bonded Warehouse, you need to follow certain rules and regulations set forth by CBSA. The CBSA policy on Bonded Warehouses is outlined in Memorandum D7-4-4 and includes allowable activities when using a Customs Bonded Warehouse.
Allowable Activities within Customs Bonded Warehouse (CBW) Regulations
In the Customs Bonded Warehouse Regulations, CBSA defines Allowable Activities as actions performed in a Bonded Warehouse that do not change the condition of the goods. While the goods cannot be further manufactured, CBSA allows for:
- Disassembling or reassembling goods that have been assembled or disassembled for packing, handling, or transportation
- Marking, labelling, tagging, or ticketing
- Packing, unpacking, packaging, or repackaging
- Removing from the warehouse, for the sole purpose of soliciting orders for goods or services, a small quantity of material, or a portion, a piece, or an individual object, that represents the goods
Allowable activities also include actions that do not materially alter the characteristic of the goods or add value to the goods, such as:
- Complying with any applicable law of Canada or of a province
- Regular maintenance and servicing
- Separating defective goods from prime quality goods
- Sorting or grading
- Trimming, filing, slitting, or cutting
How long can you store goods at a Bonded Warehouse?
Section 19 of the Custom Bonded Regulations lists four groups of goods, all with varying storage time limits. Generally, you are allowed to keep goods in storage for 4 years from the date of entry into the warehouse. There are a few exceptions to this general rule, such as:
- Non-consumer goods: 15 years
- Beer and wine: 5 years
- Trade show and exhibition goods: 90 days
What are the fees for using a Bonded Warehouse?
There are several fees you will need to consider when using a Bonded Warehouse. These include:
- Storage fees. Different warehouses have different rates. The cost is usually proportionate to the space required to store your goods and the length of time the goods will be held for.
- Insurance. Premiums will vary dependent upon the provider, the value of goods, level of security at the warehouse, etc.
- Brokerage CBSA requires entries for importing, transferring, and/or exporting the goods from the warehouse.
- Duties and Taxes. These are payable at the time of transfer or export.
Operating a Customs Bonded Warehouse
If you would like to operate your own Bonded Warehouse, you can apply to participate in CBSA’s CBW program.
Applying to operate a Customs Bonded Warehouse
You can apply to participate in the Customs Bonded Warehouse (CBW) Program by completing an E401-Application for a Licence to Operate a Customs Bonded Warehouse Form. Your application must:
- Be submitted to the CBSA office closest to the Bonded Warehouse location,
- Include a detailed site plan of the warehouse, and
- Provide details on the record-keeping system used to record the movement of goods in the warehouse.
CBSA will likely want to visit the warehouse to ensure the space is compliant with regulations. Once approved, you will receive a unique license number for your Bonded Warehouse.
If you are interested in using or operating a Customs Bonded Warehouse, our Global Services Team would be happy to help you go through the application process.