Outward Processing in the EU: Maximising Cost Efficiency While Staying Compliant with Customs Law

By Katona & Partners Law Firm

1. Introduction – Why Outward Processing Matters for EU Businesses

For internationally active companies, manufacturing no longer follows purely domestic or regional boundaries. Businesses seek cost efficiency, access to specialised expertise, and the ability to respond quickly to market demands.
However, cross-border production raises complex questions about tariffs, customs compliance, and trade law.

One of the most powerful but under-utilised tools in the EU customs framework is the Outward Processing procedure, regulated under the Union Customs Code (UCC). It allows EU goods to be temporarily exported outside the customs territory of the Union for processing operations and subsequently re-imported with total or partial relief from import duty.

In practical terms, it can mean sending semi-finished goods to a non-EU country for finishing work, then bringing them back into the EU without paying duty on the entire value — only on the processing costs, or sometimes nothing at all. This offers a clear financial advantage while maintaining compliance with EU customs law.

Outward Processing is not just a cost-saving tool; it is a strategic instrument for companies balancing supply chain efficiency and regulatory compliance. This article will explore its legal basis, practical uses, and implementation from an EU-wide perspective, supported by case studies and compliance tips.

2. Legal Framework under the Union Customs Code

2.1 Article 259 and Related Provisions

The legal foundation for Outward Processing is found in Article 259 of the UCC and its implementing acts.
Key elements include:

Temporary export of Union goods for processing outside the customs territory.
Possibility to re-import processed products with full or partial duty relief.
Requirement to demonstrate the identity and incorporation of the exported goods in the returned products.

The rules are further detailed in Commission Delegated Regulation (EU) 2015/2446 and Commission Implementing Regulation (EU) 2015/2447, which address procedural requirements, authorisation, and record-keeping.

2.2 Relationship with Free Trade Agreements

Outward Processing can apply whether or not the EU has a preferential trade agreement with the processing country.

If there is an FTA, origin rules may affect whether duty is owed upon re-import.
If there is not an FTA, duty relief is still possible under UCC rules, but without preferential origin benefits.

2.3 Distinction from Inward Processing

Outward Processing: Goods leave the EU for processing and come back.
Inward Processing: Goods enter the EU for processing and are then re-exported without paying duty.

Choosing between the two depends on whether the processing stage occurs inside or outside the Union.

3. When to Consider Outward Processing

3.1 Cost Optimisation

Labour-intensive tasks can be performed in lower-cost jurisdictions, reducing production expenses without losing EU market access.

3.2 Access to Specialised Expertise

Some processing capabilities — advanced machining, specialist finishing — may only be available in certain third countries.

3.3 Managing Capacity Constraints

Outward Processing can relieve production bottlenecks when EU facilities are at full capacity.

4. Eligibility Requirements

4.1 Status of the Goods

The goods must be Union goods, meaning in free circulation within the EU.

4.2 Applicant Requirements

Must be established in the EU.
Must keep detailed records of goods sent abroad and processing performed.

4.3 Customs Verification

Must provide proof (identity guarantee) that the goods exported are incorporated in the returned products.

5. Authorisation Process

5.1 Pre-Application Planning

Assess financial benefits, ensure operational capacity for compliance, and choose processing partners carefully.

5.2 Filing with the Competent Customs Authority

Application is submitted to the main customs office where the applicant’s customs accounts are held.

5.3 Documentation

Includes goods description, processing details, timelines, and record-keeping systems.

6. Operational Steps

Declare goods for Outward Processing when exporting.
Process goods outside the EU.
Re-import finished products with customs declaration for free circulation.
Pay duty (if any) on processing cost only.

7. Customs Duty Relief – Scope and Limitations

Relief can be total or partial, depending on the nature of the processing and applicable agreements.
The customs value for duty purposes often excludes the value of the goods originally exported.

Example Calculation:
Semi-finished goods value: €100,000 (exported)
Processing cost abroad: €20,000
Upon re-import, duty applies only to €20,000, potentially saving tens of thousands of euros.

8. Interaction with Free Trade Agreements

FTAs can further reduce or eliminate duty, provided origin rules are met.
Companies must assess whether processing abroad affects the EU origin of the final goods.

9. Case Studies

Steel Industry (Greece–North Macedonia)

A Greek producer exports semi-finished steel, processes it in North Macedonia, and re-imports finished bars duty-free.

Textiles (Italy–Tunisia)

Italian apparel maker sends fabric to Tunisia for stitching, benefiting from both cost savings and quick turnaround.

Electronics (Germany–Switzerland)

German manufacturer sends components to Switzerland for precision calibration, re-importing with minimal duty.

10. Risk Management

Misdeclaration Risks — Incorrect HS codes or values can lead to penalties.
Proof Requirements — Lack of evidence of incorporation may disqualify relief.
Record-Keeping — Missing records can trigger audits and back-duties.

11. Comparison with Inward Processing

Outward Processing	Inward Processing
Processing abroad	Processing in the EU
Duty relief on re-import	Duty suspension on import
Used for EU-made goods	Used for non-EU goods

12. Brexit and Non-EU Partners

The UK is now a third country. Outward Processing applies, but with separate customs processes.
Similar approaches are taken with Switzerland, Turkey (customs union), and others.

13. Best Practices

Develop an internal customs compliance programme.
Use customs brokers for declarations.
Train staff on UCC requirements.
Review FTA rules before choosing processing locations.

14. Conclusion

Outward Processing offers EU businesses a valuable tool for reducing costs, optimising supply chains, and accessing specialist capabilities outside the Union. With proper planning, accurate documentation, and compliance with UCC rules, companies can achieve significant duty savings without compromising legal certainty.

Dr. Katona Géza, LL.M. ügyvéd (Rechtsanwalt / attorney at law)

___________________________________