Terms of Price
When a business agreement is signed by contracting parties, the most important element is the price factor. Especially, for ① Import and Export price profitability ② Setting up sales price ③ Types of currency settlement.
Opening bank(issuing bank)
As per the account opener’s request, a letter of credit is sent to the exporting party, therefore it is also known as credit writing bank, grantor. Even though there is a negotiating bank, paying and accepting one under UCP 500, the opening bank on the letter of credit and confirming bank’s payment obligation is strongly emphasized.
The purchaser or main party under a negotiating agreement, would have his regular transaction bank opening a letter of credit. The applicant or account opener, as a rule, would fall into the purchaser category, at times it can be a third party who’s under negotiations with the purchaser. The account opener is at the same time, the consignee of the cargo, will be the payer of the bill of change. Depending on how the role of the account opener is seen, he can be known as importer, opener, buyer, accountee, drawee, consignee, accredited Buyer
If the currency on the letter of credit, isn’t from the any of the negotiating parties, but a third-party currency, then the depository correspondent bank of the settling bank becomes the main bank for transaction, and is known as the reimbursing bank for being the bank that repays the promissory note to the main negotiating bank.
Performance Guarantee(performance bond)
Performance guarantee makes sure that depending on the contract regulations, the letter of intent is delivered and performed, in other words the performance guarantee is a warrant, requesting the other party to respond to all of his responsibilities, in case it is not fulfilled. If a deposit contract is not fulfilled, the deposit shall be paid.
Customs refund, is when importing raw materials, taxes are paid and cleared; the materials are used for manufacturing items, when the process is finished, among all paid taxes, a refund can be requested on those taxes. These types of tax refunds were first applied back in July 1st, 1975. The purposes of implementing this refund policy instead of continuing, the prior non-dutiable charges on raw materials were: ① Simplify the process of following up ② Expedite locally made raw materials.
Customs refund system, is an exemption law that covers taxes on export raw material and refund policy , that is clearly differentiated from other tax related legislation and others. When we say others, it makes reference to the fact that when we mention tariffs, we refer to apart from the tariff, the inland duty (special consumption law and state taxes are also paid, and after export related payments are finalized, the taxes are to be refunded. So, when we mention tariffs, it includes, special consumption law, and state taxes. And the customs refund system, covers the previously mentioned types of tariffs. But also the defense tax, which is paid along with the above mentioned taxes, it is in accordance to the defense taxes. Therefore, it is included in the refund process. In reality, when we import raw materials, there could be a period of deferring collection, or based on the offset system, the notification on tax can be postponed, being cleared from customs. The materials are then authorized to be used and depending on specific cases, after the exports have been made, the taxes are paid or refunded, and even without any process for payment, it can be set off. It really depends on each case but what we refer to normal exports, we refer to a less than a 60,000 USD worth of goods, and it includes the selling of foreign currency, or construction work overseas, a free export zones, specific (licensed) areas that at the end can be summarized as anything that can bring about foreign-exchange earning method/action.
The notion of refund, can refer to the total net amount that was paid on taxes, and that is indeed the principle, yet but it isn’t the exact amount in some cases.
Letter of purchase approval
The party that is willing to purchase a material or item with foreign-exchange purposes, can request to a foreign exchange bank, in accordance to the foreign trade financing policies, an opening of local credit, letter of purchase approval or the letter of purchase approval of imported materials costs.
A letter of purchase approval does not depend on local credit, but when locally produced items are purchased for foreign exchange purposes, as raw material or item, the president from a foreign exchange back issues a certificate based on the local credit. The foreign exchange bank can issue this letter of purchase depending on the export credit, export agreement, foreign currency deposit
Certificate, local credit etc.
The letter of purchase approval has the purpose to offer a chance to those that fail local credit, to obtain the foreign exchange purposed items. On the other hand, when mid-size companies (Exporting mid-size companies included) are trying to purchase raw materials or machinery for obtaining foreign currencies from public procurements, Small and Medium Enterprise Cooperatives, and general trading company, the purchase request can be requested. Imported materials cost’s purchase approval is based on obtaining the raw materials or machinery for obtaining foreign currencies before it goes through a production process, therefore the foreign exchange back will refer to the local credit to issue the certification.
Commonalities and Differences between, Letter of credit & Letter of purchase approval
① When tax exemption & return of raw materials for export or complete product are purchased for local use.
② Considered as actual exports to the supplier.
③ Considered as raw materials for obtaining foreign currencies’ performance record.
④ VAT’s zero tax rate
① The letter of credit does guarantee the payment, but the letter of purchase approval only applies to involved parties , meaning that it doesn’t concern the bank, therefore the latter doesn’t guarantee the payment.
② Under the letter of credit, export financing is viable as a loan, yet under the letter of purchase it’s not.
Tariff concession is applied to the GATT member countries and it removes the duty for certain goods that an importer would otherwise pay under the tariff. At times can be a reduction or an increase.
The tariff concessions are clearly shown under the custom tariff, where the items on the list, are called tariff item. The tariff concession can be as follows:
① The Tariff that is reduce.
② The term where the current custom tariff is not increased.
③ Is limiting the amount of custom tariff increase, in case that it has to be done.
Usance bill or after sight bill
When after a promissory note has been suggested to the payer, and a certain period of time has elapsed, a bill of exchange can be drafter. After sight buying rate promissory note, is based on selling off the imported goods and with the obtained funds, the promissory note can be cleared. The sight buying rate promissory note, involves the acceptance of the promissory note (taking over), the take over of the promissory note entails, that when the sight buying rate promissory note is suggested, it means a promise to make the payment before due date but most people, wait until the actual duet date.
① After sight : After the promissory note has been delivered to the importer, 30 days or 60 days the payment shall be made, and it is shown as => 30days after sight(30d/s), 60days after sight(60d/s)
② After date : After the promissory note has been issued, and a certain period of time has passed the payment is made, for example, 30days after date(30d/d), 60days after date(60d/d), and “date” refers to the date in which the promissory note was issued. In other words, even though it is an afterdate promissory note, the after sight one, gets delayed for standard postal mail days.
Usance credit & Sight credit
The promissory note that is based on the letter of credit, if it’s a time draft (bill payable at a long or short sight) it’s called a sight credit. And the Usance credit is the letter of credit that demands the usance credit. The sight Letter of credit, should be payable to the opening bank, and the irrevocable letter of credit, means that the opening bank had promised the payment, therefore when the documents proving the content of the letter of credit, the opening bank should make the payment.
The usance letter of credit’s beneficiary, after the time draft, can receive the total amount from the promissory note or deduct the reduce taxes prior to the usance period of time and receive the payment. In the case of the importer, after receiving the shipment, during the active promissory note period, should sell the imported items, to clear the promissory note.