Fortune Making AA AA AA

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1 AA AA A B C D AA AA AA

2 AA AA 10 3 AA AA 3 CGCC VISION JUL

3 Verification Inspection - Threshold to Become AA Enterprise With the Measures of the General Administration of Customs of the PRC on Classified Management of Enterprises ( the Measure ) in force, consignees, consigners and customs declaration companies are categorized into five classes - AA, A, B, C and D - for differentiated management by the Customs of the Mainland China. Under the Measure, AA enterprises are entitled to a number of customs clearance conveniences (See CGCC Vision, June 2011 for details). As the friendly treatment is supposed to be exclusively for legally compliant enterprises, the Customs has to conduct verification inspections to ensure that all AA enterprises are well-governed and law-abiding ones

4 Verification inspection is a form of customs check. The term customs check means the check on the accounting books, accounting documents, customs declaration documents and other information directly relating to the enterprise or unit concerned (i.e. the inspected party) and on the imports and exports concerned, with a view to ensuring the authenticity and legality of import and export (I/E) activities. The check is conducted by the Customs within three years from the date when imports or exports are passed, or during and within three years from the Customs supervision period for bonded goods or imports with deducted or exempted duties. There are three kinds of customs check: Verification inspection - to verify and assess an enterprise s compliance to the law and trade security Routine inspection - to regulate I/E activities Ad hoc inspection - to investigate into enterprise affairs to ensure customs regulation and tax revenue against smuggling and other illegal activities Only Applicable to Enterprises Applying for AA Class Verification inspection is an enforcement audit carried out by the Customs pursuant to the Customs Law, the Regulations on Customs Check and the Measure. In essence, it is an administrative act applicable only to enterprises applying to the Customs for Class AA status. The immediate purpose of verification inspection is to safeguard the enterprise classification management system by assessing an enterprise s compliance to the law and trade security performance and monitoring its I/E activities. Its ultimate purpose is to achieve a win-win situation, in which the Customs ensures trade security by regulating I/E activities while enterprises benefit from convenience measures in international trade. in four key areas: 1. Internal control: Whether sound and effective internal controls for I/E activities are in place. The establishment and implementation of internal controls in respect of organization structure, accounting system, IT system, I/E agent, customs declaration agent and internal audit are assessed. 2. Financial position: Whether the enterprise has stable and strong profitability and financial solvency. Matters of interest include any record of continuous loss in the last three years and tax payment levels. Customs acknowledgement of receipt of Contact Sheet for Verification Inspection issued by enterprise s management department Within 10 working days Delivery of Inspection Notice to enterprise 3 days Entry to enterprise s premises for inspection 3. I/E compliance: Whether the enterprise s I/E activities during the years for verification inspection were carried out in an authentic and lawful manner, and whether there were any alleged smuggling, non-compliance or other acts that violated customs requirements. 4. Trade security: Whether a trade security management system for major I/E aspects (e.g. premises, personnel, cargoes, IT and business partners) is in place and implemented effectively. A verification inspection can be conducted by the Customs or an intermediary - accounting Procedures of Verification Inspection Substantive checks against benchmarks on financial position and I/E compliance Request for enterprise s written opinion on inspection findings To pass the verification inspection, an enterprise is required to have satisfactory compliance records, an effective internal control with a sound management system for trade records, a healthy financial position, and adequate trade security measures. Benchmarks for Four Key Areas In practice, the period covered in verification inspection is within one year back from the receipt of an Inspection Notice, and it covers all I/E activities of an enterprise. Focus of the inspection is put on benchmark requirements Delivery of Inspection Conclusion to notify enterprise of whether it passes the inspection Within 3 working days Release of photocopies of Contact Note for Customs Verification Inspection and Inspection Conclusion to enterprise CGCC VISION JUL

5 firm for example. Such an intermediary, who may be appointed either by the Customs or by the company on a voluntary basis, is subject to approval or authorization by the Customs and has to carry out the inspection according to customs requirements. Upon completion of inspection, the intermediary should submit a report to the Customs for review, and then the Customs will draw a conclusion as to whether the enterprise can pass the verification inspection. The Customs is required to complete the verification inspection and issue the Inspection Conclusion within 60 days after delivery of the Inspection Notice, and report the inspection findings to the enterprise s management department. If rectification and improvement are needed, the whole verification inspection process should not exceed 90 days and the maximum period allowed for rectification and improvement is 30 days. Rectification and Improvement may be Required An enterprise meeting all the benchmark requirements for the four key areas will pass the inspection. If an enterprise fails only in internal control or trade security but shows potential for rectification and improvement, the Customs will suggest the enterprise do so. After the enterprise s rectification and improvement, the Customs will carry out a re-inspection, which has to be completed within a specific time limit. If the enterprise meets all benchmark requirements for the four key areas, the verification inspection will be passed. An enterprise having applied for Class AA status may withdraw its application by notification to the Customs. In such a case, verification inspection will cease if an Inspection Notice has already been served, or no verification inspection will commerce if an Inspection Notice has not been delivered. Win-Win Collaboration between Customs and Enterprises The ultimate goal of verification inspection is the win-win collaboration between the Customs and enterprises. To this end, enterprises are advised to first understand the customs requirements for the four key areas before applying for Class AA status. They are also expected to fully cooperate with the Customs during the inspection and complete the rectification and improvement, if any, within the specified time. Enterprises being granted Class AA status are recommended to carry out regular selfinspections to see if their internal controls are effective and if there is any non-compliance with customs regulations. Any irregularities spotted should be promptly reported to the Customs