What are Commercial Transactions in Trade Compliance

Released On 7th Nov 2018

I think we can all agree when we say that the world has changed since the global pandemic. No part of society was been unaffected. Aside from the devasting human impact, the fallout from COVID-19 to the world’s economy was unmeasureable. Businesses spanning every vertical and every size felt the impact from long lockdowns, job losses, and the consumption downturn and as a result countries have gone into recession quicker than at any other time in history. 

As a direct response to the loss in their GDP (Gross Domestic Product: the monetary measure of a country’s market value of all the final goods and services produced in a specific time period), governments have had to quickly look at ways to generate more income on a national level. One of those strategies is to control the movement of money out of the nation, and review import tariffs of goods coming into the country.

So, how does this reflect the sale of goods into a different country, and what difference does an importer of record make? Read our guide to commercial transactions when importing goods into third countries.

What is a commercial transaction? 

A commercial transaction describes the purchase of goods by the end-user from the shipper. For example, buying a handbag from Amazon and having them send it to you at your home is a commercial transaction. A business selling goods to another business is a commercial transaction.

This happens every second of every day, all over the world.

International commercial transactions

However, when a commercial transaction takes place between two businesses in different countries, the process is often not straightforward. If an Importer of Record is used (because the receiving company can’t or won’t handle the import process), it can become complex due to laws restricting the payment of money out of the country for goods received in, when the end-user is not shown as the importer. 

As an example, if an end-user in Brazil is buying IT goods from a reseller in the USA or the UK, Brazilian banks require the Nota Fiscal* to state that the Importer of Record is documented as the end-user in order to authorise the physical monetary payment. (*A Nota Fiscal is an official document that proves the existence of a commercial act, be it the purchase or sale of goods, or provision of services). 

Thus, the use of a third-party Importer of Record has to be handled carefully, and all parties must be aware of what each entity’s responsibilities are and the processes that are incorporated. This would not apply if the goods are being paid for outside of Brazil.

Rules governing international payments for goods

Many countries now have the same rules; their local banks will prevent an international transfer of the payment for the goods if the Importer of Record on the import document is not the end-user trying to make the payment. 

We have seen a number of examples where the supplier and shipper cannot be paid for the goods because they were not aware that the goods cannot be paid for if the import document does not contain the end-user’s name.

How to avoid problems with international payments

There are several ways to avoid this issue. They should be given serious consideration before the process is started, as once the goods have been imported, the customs paperwork cannot be changed.

1. Ask the end-user to check the regulations with their bank surrounding payment for goods outside of the country, before they go ahead
2. The goods are purchased with a centralised budget outside of the country the goods are being purchased in, and so payment comes from another source
3. The end-user acts as the importer of record and uses a customs clearance agent to assist (this is not as straightforward as it sounds, since many of the processes have to be done by the end-user themselves. Also, they may not want the assets on their taxable asset lists).

How can Mouse & Bear Solutions help?

Mouse & Bear Solutions are highly experienced and knowledgeable about international trade compliance, offering both importer and exporter of record services. We pride ourselves on our import solutions and deep knowledge of transactions where the buyer and seller are in different countries. 

To benefit from our flexible services please feel free to get in touch.

Email iorsolutions@mouseandbear.com, call 01935 848526 or send the enquiry form below.

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