What is FEA
A company’s foreign economic activity is an international transaction with foreign partners. Most often it is trading in goods and services, but there are also other options.
Foreign economic activity is divided into trade and non-trade operations.
Trade types of FEA operations: import, export, re-import, and re-export.
Non-trade operations include capital transactions.
Exporting is the carrying of goods, works, and services outside of Georgia to sell goods to a foreign counterparty. In this case, you do not intend to return the exported goods. Such operations are very common. The exported goods are subject to the export customs regime. Export operations are not subject to VAT.
Tolling is operations with raw materials, one of the forms of export. The content of the tolling is as follows: a foreign company imports raw materials in Georgia and a local processor produces finished goods from the raw materials. After that, goods are exported from Georgia to a foreign contractor. This is an example of external tolling.
If a foreign contractor purchased raw materials in Georgia, then transferred them also to a domestic processor and finally took back the finished product, it would be domestic tolling.
In its essence, tolling is the processing of raw materials. Tolling schemes are not taxed in the processing country. Raw materials imported from abroad are placed under the processing customs regime. Under the processing, regime products can be directly processed, and treated, components and spare parts can be replaced, and assets received from a foreign partner can be repaired, assembled, and dismantled. In this case, they are exempted from duties.
Importation is the introduction of foreign goods into the territory of Georgia for further use. Imported goods are subject to the customs regime of import. Delivery of goods is subject to VAT at the time of delivery of goods.
Re-export means the exportation of goods that were earlier imported to the territory of Georgia. Such operations are not subject to customs duties and if payments have already been made, they will be reimbursed.
Only minor processing is allowed for re-exported goods in the country of re-exportation: repackaging and sorting. The customs procedure is re-export.
A distinction is made between direct and indirect re-exports.
Indirect re-export is a concept accepted in international trade but has no relation to customs business. This is since, in indirect re-export, goods purchased from a foreign seller do not cross the customs border of the buyer’s country, but are immediately resold to third countries. For example, if a Georgian entrepreneur acts as an “intermediary” in such a transaction, goods will not enter the territory of Georgia, that is, the so-called sale to arrive will take place.
Goods under such a transaction are not subject to VAT, since goods will not be located / imported / exported from Georgia, and therefore the documents should indicate that the value of goods is “without VAT”.
Advantages of such a transaction over other options: no need for importing and exporting goods across the border of Georgia, saving on such procedures, and reducing transportation costs.
Disadvantages: Banks, through which payments will go from the final buyer to the re-exporter and from the re-exporter to the supplier of goods, are required to classify such transactions as “questionable” and they may be checked by competent authorities, a Regulator; therefore it is very important to provide all documents proving the legality and transparency of the transaction – contract, declarations, shipment documents, documents confirming transportation cost.
Reimportation is the importation of goods into the territory of Georgia which had previously been exported from it. Reimport operations are usually unintentional and involve the return of goods. The customs regime – reimport.
A separate group includes credit and financial transactions. For example, loans in foreign banks, and purchases of shares and stocks of foreign companies. These operations can also have a reciprocal character, for example, a foreign company can take a loan from a Georgian bank.
Intermediate trade operation
Intermediate trade operation is a type of service in the sphere of purchase and sale during export-import transactions.
Intermediary operations include market analysis, marketing, negotiations with a supplier or a buyer, conclusion of contracts, insurance, delivery, and so on.
The “producer-consumer” chain includes one more link – an “intermediary”.
An intermediary can carry out resale operations, i.e. he can conclude a contract with the exporter and importer in his name. After payment for goods, he becomes its owner, and only after it, he sells goods to another person.
An intermediary may also work under a commission contract. An intermediary-commissioner in this case acts in his name, but at the expense of the product owner.
The commissioner’s remuneration is the difference between the product price indicated by its owner and the price at which he sold it.
Mediation is also possible as an agent.
The agency contract is similar to the commission contract, with one difference – the agent does not act in his name, but on behalf of the owner of the goods and at his expense.
Barter is possible not only in the domestic market. You can also exchange goods with foreign partners. For this purpose, the contract specifies the obligations of the importer and exporter to make an equal exchange or exchange with an additional payment. The exchange of goods is now widespread on the international market thanks to the method of countertrade.
Operations on trade in achievements of science and technology
The achievements of science and technology do not have an “embodied” expression. These are scientific and technical knowledge, research results, and scientific developments, know-how that have scientific and commercial value. In this case, the commodity is a product of intellectual labour: patents, licences, trademarks, production prototypes, experience, and so on.
Trade in scientific and technical achievements can be carried out under contracts of sale, for example, the sale of a patent. But more often there is applied licence trade, i.e. the owner of the technology, patent, or know-how – the licensor transfers the right to use the invention, research results or know-how to the licensee.
Operations upon services provision
Most international transactions are the buying and selling of goods. But you can also provide services to foreign partners, and they can provide services to you. The difference between exports and imports is that the importer and exporter have no contact with customs authorities when services trade. Often services are provided in combination with the sale or purchase of goods.
Transportation services are particularly common. Usually, the exporter rarely can transport goods through a foreign country independently. Goods can be delivered to the border and then use the services of a foreign carrier.