Financial Guarantees at Customs: How to Clear a Large Shipment Without Freezing Working Capital
Customs clearance does not always involve the immediate payment of all charges in full. In cases defined by the Customs Code of Ukraine ,in particular when goods are placed under the customs transit regime, temporary import, or subject to installment or deferred payment, the law requires that the obligation to pay customs charges be secured.
One such security instrument is a financial guarantee: an obligation of the guarantor to pay the customs authority a specified amount instead of the payer if the payer fails to fulfil its obligation within the set deadline.
In this article, we explain how this mechanism works, which types of guarantees are used in Ukraine, and when using them makes sense for business.
The Problem of Frozen Working Capital When Clearing Large Shipments
When importing large shipments, the amount of customs charges can be significant, so businesses look for mechanisms that properly secure customs obligations without excessively tying up working capital. This is exactly why the law provides several ways to secure the payment of customs charges, including individual and comprehensive financial guarantees. The specific mechanism depends on the customs regime and the grounds on which the customs authority requires security.
What Is a Customs Financial Guarantee and How Does It Work
A financial guarantee is a way of securing the payment of customs charges, under which the guarantor undertakes to pay the customs authority a specified amount in cases and within limits set by law and by the guarantee itself. In Ukraine, individual and comprehensive guarantees are used, among others. Importantly, a guarantee does not cancel the obligation to pay customs charges and is not an automatic deferral of payment, it secures the fulfilment of that obligation.
Types of Customs Guarantees: Bank, Insurance, and Customs Broker Guarantees
The Customs Code of Ukraine provides for several ways to secure the payment of customs charges, including a cash deposit, an individual guarantee, and a comprehensive guarantee. A comprehensive guarantee can be used within the relevant customs simplification and can secure obligations across several operations. The guarantor may be a legal entity authorized by the State Customs Service and included in the relevant register of guarantors.
Legal Grounds for Applying Guarantees in Customs Clearance
The core rules for applying financial guarantees are set out in Section X of the Customs Code of Ukraine. The Code establishes the ways of securing the payment of customs charges, the requirements for guarantors, the procedure for registering and using guarantees, and the rules for their release. In particular, the electronic guarantee management system records guarantees and allows security to be released once fulfilment of the relevant customs obligations is confirmed.
The rules of Section X of the Customs Code of Ukraine described above govern the application of individual and comprehensive guarantees within domestic legislation. A separate legal regime applies to the common transit procedure, established by the Convention on a Common Transit Procedure of 20 May 1987. Ukraine acceded to it on 31 August 2022, and the Convention entered into force for Ukraine on 1 October 2022. Under this separate regime, a transit guarantee applies, issued through the electronic NCTS system, allowing goods to move under T1 transit declarations without a cash deposit for each individual shipment, within the amount set by the guarantee.
How to Arrange a Guarantee: Step-by-Step Process
The procedure for applying a guarantee depends on the type of guarantee and the specific customs operation. In general, the process includes:
- determining the need to secure payment of customs charges;
- determining the amount of security;
- choosing an authorized guarantor;
- arranging and registering the guarantee in the established manner;
- applying the guarantee during the relevant customs operation;
- releasing the security once obligations are fulfilled or grounds set out in law arise.
The procedure and timelines depend on the specific situation, the type of guarantee, and the terms on which it is provided. Based on Daleth Group's practice, the speed of arrangement depends on the type of guarantee, document readiness, the amount of security, and the guarantor's workload. It is therefore advisable to start preparing a guarantee before filing the customs declaration, especially for a large or regular shipment.
Who Can Act as a Guarantor and What Requirements Apply
A guarantor can be a legal entity that has received the relevant authorization and is included by the State Customs Service in the register of guarantors. To obtain this status, the guarantor must meet the requirements set by the Customs Code and pass the authorization procedure. Before using a guarantee, it is therefore worth checking the status of the relevant legal entity in the official register.
"For companies with regular customs operations, a comprehensive guarantee can be a practical tool for managing customs obligations. Its advantage is the ability to use a single security mechanism for several operations within the established conditions," note Daleth Group specialists.
Comparison: Direct Payment of Charges vs. Using a Guarantee
| Parameter | Cash Deposit | Financial Guarantee |
|---|---|---|
| Form of security | Funds are deposited as a cash deposit | Obligation of the guarantor |
| Impact on working capital | Funds are reserved | Does not require depositing the full amount as a cash deposit |
| Main purpose | Securing the customs obligation | Securing the customs obligation |
| Types | Cash deposit | Individual or comprehensive guarantee |
| Release | After fulfilment of the relevant obligation | After confirmation that the release conditions are met |
Benefits of Guarantees for Businesses With Large Shipments
For businesses, the main benefit of a financial guarantee is the ability to use a legally provided mechanism to secure customs obligations without depositing the relevant amount as a cash deposit. This can reduce the burden on working capital and is particularly relevant for companies with regular or large-volume customs operations.
Risks and Limitations of Using Financial Guarantees
Using a guarantee does not release a company from its customs obligation. The guarantor secures the relevant amount before the customs authority, but if grounds arise for enforcing the guarantee, the company bears the corresponding financial consequences under the terms of the guarantee. In addition, arranging a guarantee may involve a fee and the guarantor's own assessment of the client. It is therefore worth comparing the cost and terms of the security mechanism with other available options before choosing.
Practical Advice for Companies Importing Large Volumes
Companies with regular customs operations should evaluate the possibility of using a comprehensive guarantee. Unlike an individual guarantee, it can secure customs obligations across several operations, within the established reference amount and the conditions of the relevant customs simplification. The State Customs Service also provides separate comprehensive guarantee mechanisms with a reduced security amount under conditions set by law. In Daleth Group's practice, there was a case where a client with regular equipment deliveries managed to reduce the time needed to release goods into free circulation and avoid freezing significant sums every month by switching to a comprehensive financial guarantee.
Conclusion
A financial guarantee is one of the legally provided ways to secure the payment of customs charges. For companies with large or regular customs operations, a correctly chosen type of guarantee can reduce the burden on working capital and optimize the customs clearance process. At the same time, the terms for applying a guarantee depend on the specific customs operation, so its feasibility should be assessed as early as the shipment planning stage.
You can learn more about financial guarantees on our website, and Daleth Group specialists can tell you about the full range of customs brokerage services.
