Compliant import — legal and “popular” schemes
Trade, including for small and medium businesses, is closely tied to the search for better offers and a constant review of ways to cut the cost of a shipment.
For better or worse, it is exactly this drive to cut costs endlessly, without understanding how import pricing works, that gives “shady operators” and fraudsters room for semi-legal and illegal activity. The entrepreneur suffers from the consequences too.
From our own cases
A client came to us for a preliminary calculation of a shipment from China to Russia. After seeing our result, the client said they had a better offer from another company, and when we asked to see the competitor’s math, they shared it right away.
Going through the competitor’s figures, we saw that their import price did not even cover the cost: if you correctly calculate, as the law requires, VAT, duty, the customs fee and other expenses of bringing goods into Russia, the total comes out higher than what the competitor was asking.
In short, the competitor’s offer was lower than even the legally mandated costs of the shipment. So how do they do it?
How the “cheap” compliant-import scheme works
From conversations with well-informed people we pieced together one of the popular schemes:
- The “shady operator” — most often a cargo agent or intermediary, or a person running illegal financial schemes — registers an LLC or sole proprietorship in their own or someone else’s name, so as to issue invoices, including ones with VAT, and even give the client a transfer document (UPD).
- Behind the scenes, the agent receives the client’s money, cashes it out and simply ships the goods as ordinary cargo. That is where the big drop in price comes from. A more resourceful agent may also find ways to buy a customs declaration, a Kyrgyz certificate and the like.
- The goods are handed over with a UPD. The client is happy to have received goods at a bargain price.
Consequences
- Sooner or later the agent who cashes out funds through the LLC will be held liable. An audit of their activity will pull in all their agents and every client who ever used their import services. Each client who imported goods through that agent faces administrative liability: heavy fines and confiscation of the goods.
- An agent working through a sole proprietorship is a similar story. No VAT on the invoice is not a mitigating factor. The very absence of official customs payments, or inaccurate declaring, is a serious threat to the client.
We have several more interesting cases from our experience. We will cover them in upcoming posts and turn import safety into a whole series.
A little about us and our work
All of the import mechanics at MATE run strictly by the law. That is why we sometimes ask the client for additional data and sometimes take time to look up information and run the numbers — all of it is needed for a comfortable, safe delivery with no “surprises”.
We also have legal ways to cut the cost of a shipment. For example, deducting domestic and customs VAT is an excellent lawful way to save the client’s money.
For consultations and to place a shipment order, our managers are here — Ada and Rail