The East African Community Customs Management Act (“EACCMA”) requires importers and exporters to execute a customs bond in numerous instances of cross-border trade.
The bond secures customs duties that importers or exporters may need to pay to the Commissioner, Customs and Border Control Department (“Commissioner”), Kenya Revenue Authority (“KRA”).
Customs bonds act as a financial guarantee to the KRA ensuring the payment of applicable duties and taxes.
They are required in various scenarios, including:
- Goods in Transit: When goods are transported through Kenya to another EAC country, a bond guarantees duties will be paid if the goods don’t reach their final destination.
- Expedited Clearance of Perishables: To facilitate the quick release of perishable goods, bonds can be used to expedite clearance while ensuring duties are paid.
- Temporary Imports: Goods imported for exhibitions or other temporary purposes require bonds to cover potential duties if they aren’t re-exported as declared.
- Imports under Customs Incentives: Businesses benefiting from duty exemptions or other incentives often need bonds to guarantee compliance with program requirements.
There are two main types of customs bonds:
-
- General Bonds: These cover multiple transactions over a specified period, simplifying compliance for businesses with frequent cross-border activities.
- Particular Bonds: These are issued for single, specific transactions.
Parties to A Customs Bond
There are typically three parties to a bond:
- The Commissioner who requires security to ensure due compliance with the law by importers or exporters and their customs agents, as well as to protect customs revenue.
- The importer or exporter who is the person giving the bond (the principal) and is bound to the Commissioner for the due performance of its conditions.
A customs agent may also execute a bond, and in such instances the customs agent shall be considered the principal.
- The surety, typically an insurance company or bank which provides a guarantee to the Commissioner and undertakes to pay the bond if the principal fails to fulfil its conditions.
Also Read: KRA Unveils New Clearance Certificate for Select Imports
Bond Cancellation and Enforcement for Non-Compliance
Once an importer or exporter has complied with the conditions of a bond, or upon expiration of the validity period, whichever is earlier, then they are required by law to apply for cancellation (or retirement) of the bond by the Commissioner.
Where the bonds are not cancelled, the Commissioner is empowered by the law to issue written notices to the defaulting importer/exporter requiring them to pay the amount of the bond or otherwise account for the affected goods.
Where such notices are not complied with, the Commissioner may enforce payment through the issuance of agency notices.
Notably, the Commissioner may, under the provisions of the law, deem the surety to be the principal debtor and hold them liable for the outstanding bonds especially when the importer/exporter is non-responsive.
Interest and penalties will apply in addition to the bond in force amount in cases of non-compliance.
Leading professional services consulting firm, PwC, advises that, “exporters and their customs agents should ensure that they seek cancellation of bonds in time as the expiry of the validity period is not a guarantee that the liability will cease.”
“Importers and exporters need to keep adequate records such as the customs entries, the bonds, exemption letters, exit notes, etc. as these are typically required in accounting for the goods prior to bond cancellation,” said PwC in its tax alert of January 2025.
Also Read: KRA Issues Update on Revised Calculation of Monthly Taxes
KRA Message to Bond Parties
KRA has urged importers, exporters and their customs agents to ensure that they seek cancellation of bonds in time as the expiry of the validity period does not guarantee that the liability will cease.
Additionally, the Authority has advised importers and exporters to keep adequate records such as customs entries, the bonds, exemption letters, and exit notes.
These documents are required in accounting for the goods prior to bond cancellation.
“Financial institutions which act as surety or guarantors should proactively monitor the compliance of their principals as the law deems the financial institutions the principal debtors who have the ultimate responsibility when the Customs authorities cannot reach their clients in cases of default,” KRA said.
Follow our WhatsApp Channel and join our WhatsApp Group for real-time news updates.
