What is the inward processing regime? Conditional relief and the export undertaking

What the regime provides

The inward processing regime (Türkiye’s customs relief scheme that lets manufacturing inputs destined for re-export be imported free of duty) allows inputs to be used in manufacturing a product for export to be imported without paying customs duty.

The logic is this: if the final product is going abroad anyway, charging import duty on its inputs unnecessarily reduces the exporter’s competitiveness. The regime removes that burden.

The difference from a bonded warehouse is decisive: no manufacturing can be carried out in a bonded warehouse. If an operation that would change the goods’ tariff classification (GTİP, Türkiye’s tariff code) is required, this regime is used instead of a warehouse.

Two methods

Conditional relief. Duty is never paid and is instead secured against a guarantee. Once the export takes place, the guarantee is released. It is advantageous for cash flow because no money ever leaves the business.

Drawback (repayment). Duty is paid normally at import; it is refunded once the export has taken place. The application and follow-up are simpler, but capital is tied up for a period.

The choice is made according to the company’s cash position and how regular the operation is.

Authorisation and the export undertaking

The regime is tied to an authorisation. The authorisation states:

• The inputs to be imported and their quantities
• The product to be manufactured
• The export undertaking — how much export must be made within what period
• The validity period of the authorisation

The undertaking is the core of the regime. If it is not fulfilled within its period, the suspended duties are claimed back together with penalties and late-payment interest.

The undertaking must therefore be calculated realistically. An authorisation obtained on an optimistic export projection creates a direct financial burden if sales fall short of expectations.

Equivalent goods and yield loss

Equivalent goods means that domestic input of the same quality can be used in place of the imported input. This gives flexibility to the production plan: manufacturing can start with domestic input before the imported input arrives.

Yield (loss) is the amount of input lost during manufacturing. When the file is closed, the input-to-output balance is calculated, and the yield rate enters that calculation.

If an unrealistic yield rate is declared, the balance will not reconcile at closing and the difference is taxed. The rate must be based on actual production data.

Secondary processed products — by-products or scrap arising from manufacturing — must also be separately declared and assessed.

Closing the file

This is the most neglected stage of the regime. Once the export has taken place, an application to close the file is made; the input-to-output balance, the yield, and the export declarations are submitted.

If closing is not carried out, the undertaking is deemed unfulfilled — even if the export actually took place. The process should be scheduled and assigned an owner.

Do not confuse it with outward processing

The outward processing regime is its mirror image: goods in free circulation are sent abroad to be processed and then return. Duty is calculated only on the value added abroad.

One brings input in; the other sends the product out.

Common mistakes

Not tracking the undertaking deadline. The most common and most costly mistake.

Not calculating the yield rate realistically. The balance will not reconcile at closing.

Neglecting to close the file. The undertaking remains open even though the export has taken place.

Entering this regime when a bonded warehouse would suffice. If there is no manufacturing, a bonded warehouse is far simpler.