Turnkey equipment is bought to obtain a working production facility: the supplier will deliver the line, assemble it, help put it into operation, and train the staff. The contract may state one total price for everything. If customs payments are calculated on that entire amount, the calculation may also include work that will be performed later in Russia.
The price of the equipment itself and the work at the Russian site can be agreed with the supplier separately. For customs purposes, this breakdown matters even if the entire contract is paid by a single transfer. The next step is to check the conditions under which the cost of the work may be excluded from the customs value.
Under method 1, paragraphs 1 and 3 of Article 39 of the Customs Code of the Eurasian Economic Union (EAEU Customs Code) cover payments for the imported goods that are paid or payable to the seller or to another person for the seller's benefit. An invoice - the seller's commercial bill - may combine equipment and services, so the composition of the total amount has to be shown through the contract and its annexes.
An exclusion is provided by subparagraph 1 of paragraph 2 of Article 40 of the EAEU Customs Code: the costs of construction, erection, assembly, installation, maintenance, and technical assistance relating to industrial plants, machinery, and equipment may be excluded from the customs value if that work is performed after importation. The date the work is paid for and the date it is performed do not have to be the same.
Three conditions apply together. The amount must be separately identified from the price, the declarant - the person in whose name the declaration is filed - must claim the exclusion, and the expenses must be supported by documents. A separate line for 'services' in an invoice therefore helps only when it is clear exactly what work is included in it.
The timing of payment and the timing of the work are different matters. A supplier may assemble the line at its own factory before shipment, while the buyer pays for that assembly only after importation. Deferred payment does not turn factory assembly into post-import work. The opposite is also possible: installation at the Russian site may be prepaid together with the equipment even though the engineers will arrive later. For Article 40, the main question is the work itself - where and when it was performed.
The contract and its annexes describe the line: the models, configuration, and serial numbers if they have already been assigned. They also define the work to be done after delivery. The supplier may assemble units, connect the line, and carry out commissioning - adjusting the equipment, testing its operation, and preparing it for start-up. Training and maintenance also have their own content and price.
For each item of work, it is useful to know where it will be performed, what it includes, and how much it costs. If installation is included in the total contract price, the agreed documents should show the amount attributable specifically to installation. This may be a specification, estimate, annex to the contract, or another calculation. If a separate invoice has been issued, check that the same amount is not also included in the overall price. The same amount cannot be excluded twice.
After the work is completed, an acceptance certificate may show what equipment was installed, where the engineers worked, and what they did. But Article 40 does not make an acceptance certificate the only possible form of evidence. A technical assignment, an engineer's report, correspondence about start-up, and other documents may also matter depending on the transaction.
For staff training, the content of the sessions matters. If, after a particular line has been imported, an engineer explains to operators how to adjust it, start it, and operate the equipment, the service may in substance qualify as technical assistance. The documents should then link the training to the specific line, the time it took place, and its price.
A general management course or training conducted abroad before the equipment is shipped is a different situation. Paragraph 2 of Article 40 concerns the listed work performed after importation. The label 'staff training' therefore does not by itself answer whether the expense may be excluded. If different types of training are combined in one price, their content and cost should be separated.
Maintenance is checked in the same way. The price of annual maintenance may include engineers' work and separate goods - spare parts, consumables, and replacement units. They cannot be mixed together for customs value purposes. The cost of goods and the cost of work are considered separately.
Sometimes the declaration has to be filed before installation has actually begun. The absence of an acceptance certificate at that point is natural: the work is still ahead. The amount may then be supported by the contract, specification, agreed estimate, and other documents showing the scope of work, where it will be performed after importation, and its price.
If the contract says only 'installation included' and nowhere states the installation price, there is a problem with the amount of the exclusion. An arbitrary percentage of the line price does not provide a documented amount. A calculation is needed that was actually agreed by the parties and shows what part of the total payment relates to the work.
Documents may also appear after release. They must be compared with what was declared. If the new materials show that the declared information needs to be corrected, paragraphs 3 and 4 of Article 112 of the EAEU Customs Code apply: after release, information is amended by a decision of the customs authority or with its permission in the cases provided for, and an adjustment to the goods declaration is used to amend the information. The later appearance of an acceptance certificate or invoice does not itself trigger an automatic recalculation. It is necessary to show what previously declared circumstance is being clarified and how it affects the amount.
A separate issue is design and other work needed to manufacture the line itself. Suppose the buyer commissioned drawings outside the EAEU and provided them free of charge to the foreign manufacturer. In that situation, subparagraph (d) of subparagraph 2 of paragraph 1 of Article 40 of the EAEU Customs Code applies.
This rule covers design, development, engineering and detailed design work, industrial design, sketches, and drawings performed outside the customs territory of the Union. They must be necessary for the production of the imported goods.
There is another condition concerning the buyer. The buyer must directly or indirectly provide such work to the seller free of charge or at a reduced cost for use in connection with the production and sale of the imported goods for export to the EAEU.
When these conditions are met, the appropriately allocated value is added to the price only to the extent that it has not already been included. This means first determining the value of the design work provided, which goods it relates to, and whether that amount is already included in the equipment price.
If the seller paid for the design work and its cost is already included in the line price, the same amount is not added again. The buyer's separate installation expenses that were not payable to the seller and were not included in the price of the goods also cannot first be added to that price and then deducted as post-import work.
Now consider a hypothetical example. Suppose the total contract price is EUR 130,000. It includes EUR 15,000 for installation after importation and EUR 5,000 for subsequent maintenance. The content of this work and its price are documented, the declarant claims the exclusion, the costs to the place of arrival are already included in the total price, and there are no other additions or exclusions.
The customs value will then be EUR 130,000 - EUR 15,000 - EUR 5,000 = EUR 110,000.
| Contract | 130,000 |
|---|---|
| After import | Installation 15,000 + service 5,000 |
| After exclusions | 110,000 |
Add a separate assumption. The buyer provided the manufacturer free of charge with design work performed outside the EAEU worth EUR 8,000. It is necessary to manufacture this line, is connected with the production and sale of the goods for export to the EAEU, relates entirely to this shipment, and was not previously included in the price. Under these conditions, EUR 110,000 has EUR 8,000 added to it, making the customs value EUR 118,000.
EUR 110,000 and EUR 118,000 are customs value figures under the assumptions of the example. Duties and taxes are calculated separately using the applicable rates and currency conversion.
In the example, the documented installation and maintenance reduced the value by EUR 20,000, while the design work provided to the foreign manufacturer increased it by EUR 8,000. These expenses are treated on different legal grounds even though the buyer purchased one turnkey line. Breaking down the price in the contract makes it possible to explain each of these amounts.
Andrey Bernev, customs lawyer.