This way of tax optimization is quite simple, understandable and effective. It is used by companies that supply finished products for export but for production of export goods they use import raw materials. The use of such schemes, for example, for a long time was been very popular in the Russian aluminum complex: in the mid 90's years about 70% of all produced aluminum goods was made by tolling schemes. In Ukraine, such schemes are used in oil refining, textile and footwear industries, agro-industrial complex.
Tolling raw materials, products, transfers by their owners without payment to other organizations for the processing or refining. Processing operations used to call tolling operations. Tolling contract stipulates that the raw material that is imported into the country and is subject to further processing, is not subject to customs clearance and is not taxable. The company supplier of raw material takes all the output, while a producer receives monetary compensation for the processing services. The processing cost is set in a minimum amount, such as the minimum level of market prices. This fee is usually barely covers production costs (payment for utilities, salaries), which are almost completely fall in production costs. Manufacturing enterprise who is not involved in the sale of the final product, pays the minimum tax.
The main profit receives raw material supplier and it is logical to register it a jurisdiction with favorable tax treatment. If the manufacturer export raw materials by him self, all of received income fall under taxation in the territory of the country where it is located. In terms of optimization of tax payments tolling scheme is equally interesting as for manufacturing enterprisers and for owners of raw materials. Companies are reducing the tax base on profit tax, value added tax, turnover taxes. The owners of raw materials have even more significant benefits.
Worth to mention that in the 90's tolling schemes in countries such as Russia or Ukraine were widely used not because of tax optimization but due to given possibility to export capital from the CIS countries with unstable economies. Corruption in the highest echelons of power led to redundant advantages for the raw materials owners. From export duties released not only the tolling when the raw material is imported into the country from abroad by foreign companies and further exported in the form of finished product, but also so-called internal tolling, which meant that the raw materials purchased by foreign companies from resident vendors further were sold as export in the same country. But since then much has changed. In Russia, the customs preferential treatment for domestic tolling until the end of 1999 was repealed by the sensational «tolling war». However, schemes of work for external tolling have been successfully applied to the present day. And there is nothing unlawful in such scheme.
Let's go through the essence of the tolling scheme with participation of non-resident company on the example of the Ukrainian enterprises. During customs clearance of import to Ukraine on cargo customs declaration usually indicates «tolling raw materials». Payment of import duties, taxes and charges (except for payment of customs procedures) performs by Ukrainian producer simply by issuing a bill (or a written commitment) to the state tax inspection by the place of registration with a maturity of not more than 90 calendar days from the date of registration of import cargo customs declaration. The amount specified in promissory note is defined in the currency of the contract for processing of raw materials. When finished goods (products) which was produced with tolling materials from a foreign customer, transports outside the customs territory of Ukraine, the promissory bill has to be paid off, except import duties, taxes and charges (except for customs procedures). The finished (produced) goods are not subject to taxes and duties which are levied when exporting goods, and it is not subject to a licensing and quota. If the payment for processing of goods is made by raw materials or by finished products, Ukrainian producer shall to pay import duties, taxes and charges levied under barter transactions. The partner company in this case is better to form in Cyprus. The Agreement with Cyprus - is one of the best: it provides a zero rate of tax at source on payment of dividends, interest payments for international transportation. Similarly the tolling scheme will be work in Russia.