Monday, December 9, 2024
Monday, December 9, 2024

AEO Package for MSMEs: All You Need to Know

by Aishwarya Agrawal
AEO Package for MSMEs

AEO stands for Authorised Economic Operator, a program established by the World Customs Organisation to enhance global trade standards. It aims to strengthen security within the global supply chain while simplifying the movement of legitimate goods. The package has come to be a major aid for the MSME sector in India as well along with other small business enterprises engaged in exporting activities. In this blog, we shall provide insights into the AEO package for MSMEs in India.

Understanding AEO Package for MSMEs

AEO, or Authorised Economic Operator, is a program that establishes a collaborative partnership between customs authorities and businesses. This unique status is granted to economic operators and serves as an indicator of their trustworthiness and reliability. AEO plays a crucial role in simplifying international trade procedures and enhancing cargo security.

The AEO package for MSMEs is voluntary and involves various participants in the global supply chain. It empowers the Indian Customs by fostering close cooperation with key stakeholders in the international supply chain, which includes importers, exporters, and custodians.

Determining Operator’s Reliability

AEO status is granted based on a comprehensive evaluation of various factors to ensure the operator’s reliability. The following grounds are examined during this assessment:

1. Accounting System: The integrity and effectiveness of the operator’s accounting system are assessed.

2. Compliance with Customs Legislation: The operator’s adherence to customs laws and regulations is thoroughly reviewed.

3. Appropriate Security Standards: The operator’s security measures and standards are evaluated to ensure they meet the required criteria.

4. Solvency Standards: The financial stability and solvency of the operator are considered in the assessment.

Types of AEO Certificates

AEO certificates come in various authorisations, including:

1. AEO Authorisation “Customs Simplifications” (AEOC): This authorisation focuses on customs simplification.

2. AEO Grant “Security” (AEOS): This authorisation emphasises security measures.

3. AEO Authorisation “Customs Simplifications & Security” (AEOC & AEOS): This is a combined authorisation that covers both customs simplification and security aspects.

Establishing the Foundation of AEO Package for MSMEs

The foundation of AEO packages is rooted in a World Customs Organisation initiative aimed at providing a secure framework for international trade. This initiative, recognised for its safety standards, was established in 2005. In India, authorities took significant steps to adopt this WCO framework, resulting in the simplification of customs compliance. In 2011, the Central Board of Indirect Taxes & Customs (CBIC) introduced the AEO program in India. This initiative signifies a commitment to secure and streamline international trade within the country.

Benefits of AEO Package for MSMEs

Entities that hold Authorised Economic Operator (AEO) status enjoy several significant advantages, making them stand out as reliable and compliant business partners in global trade. These benefits include:

1. Recognition as Safe, Secure, & Compliant Business Partners: AEO status is a clear recognition of an entity’s commitment to safety and compliance in international trade, enhancing its reputation as a trustworthy partner.

2. Prompt Clearance: AEOs experience faster and more streamlined customs clearance procedures, reducing delays and improving operational efficiency.

3. Delayed Payment of Duty: AEOs are afforded the flexibility of deferred payment of duties, which can be advantageous for cash flow management.

4. MRA Recognition: Mutual Recognition Arrangements (MRA) between countries recognise AEO status, facilitating smoother international trade and customs cooperation.

5. Direct Port Entry (DPE)/ Direct Port Delivery (DPD): AEOs have access to direct port entry and delivery options, which simplifies logistics and reduces transit times.

6. Abandonment of Bank Guarantee Requirements: AEOs may be eligible to waive part or all of the bank guarantee requirements, reducing financial burdens.

7. Relinquishment of Merchant Overtime Fees (MOT): AEOs are often exempt from merchant overtime fees, leading to cost savings.

8. Swift Disbursal of Drawback Amount: AEOs experience quicker disbursal of drawback amounts, which can be crucial for financial planning.

9. Prompt-Tracking of Refunds & Adjudications: AEOs have efficient systems for tracking refunds and adjudications, minimising administrative hassles.

10. Access to Client Relationship Manager: AEOs receive dedicated support through a client relationship manager, ensuring a personalised and responsive service experience.

Eligible Candidates for AEO Package for MSMEs

The AEO (Authorised Economic Operator) package is open for application to any entity involved in international supply chain activities that involve customs-based operations. The following list comprises individuals and entities eligible to apply for AEO certification:

1. Importers & Exporters: MSMEs engaged in the import and export of goods across borders are eligible candidates for AEO certification.

2. Warehouse Operators: Entities responsible for operating warehouses that store goods related to international trade can apply for AEO certification.

3. Customs Bankers: Financial institutions and banks involved in customs-related transactions and services are eligible to seek AEO certification.

4. Logistic Service Providers: This category includes carriers, airlines, and other logistics service providers that play a crucial role in the international supply chain.

5. Custom House Agents: Agents and intermediaries who facilitate customs and trade-related processes can apply for AEO certification.

6. Custodians or Terminal Operators: Entities responsible for the custody and operation of terminals and storage facilities within the international supply chain are eligible candidates.

7. Port Operators and Stevedores: Individuals or companies involved in port operations, including loading and unloading cargo, are eligible to seek AEO certification.

The AEO package for MSMEs is a versatile program that welcomes a broad range of participants within the international supply chain, fostering a culture of security, compliance, and efficiency in customs operations.

Eligibility Criteria for AEO Package for MSMEs

Individuals or entities seeking AEO (Authorised Economic Operator) certification are required to adhere to the following eligibility criteria:

1. Engagement in Customs-Related Activities: The individual or entity must be actively involved in activities related to customs, which may include import or export operations.

2. Handling a Minimum of 25 Customs Documents: The individual or entity should have processed a minimum of 25 customs documents, such as bills of entry or shipping bills. This requirement demonstrates a significant level of involvement in customs-related activities.

3. Active Operation for Three Financial Years: The individual or entity must have been actively operating for a continuous period of three financial years leading up to the application date. This criterion indicates a track record of sustained engagement in customs-related activities.

While the standard eligibility criteria specify the need for three years of active operation, there are scenarios where newly established businesses may also access AEO certification. In such cases, eligibility is determined based on the verification of internal controls, considering the following factors:

– Financial Standing: The financial stability and solvency of the newly established business are evaluated to assess its suitability for AEO certification.

– Maintenance of Approved Safety and Security Standards: Compliance with safety and security standards is a key consideration in the evaluation process.

– Commercial Management System: The effectiveness of the business’s commercial management system is examined to ensure it aligns with AEO requirements.

– Transport Record (if necessary): In cases where transportation is a part of the business’s operations, the entity’s transportation record is assessed.

These eligibility criteria are designed to ensure that AEO package for MSMEs is granted to such entities that demonstrate a commitment to customs compliance, safety, and security, whether they have a track record of several years or are newly established businesses meeting the necessary standards.

Validity and Renewal of AEO Package for MSMEs

AEO package for MSMEs are issued for a specified duration, and upon expiration, renewal is necessary to maintain active status. The following table outlines the different AEO statuses, their applicability, validity periods, and the renewal timelines:

AEO StatusApplicabilityValidityRenewal
AEO – T1Conferred to importers or exporters without on-site inspection of premises3 years30 days
AEO – T2Conferred to importers or exporters after on-site inspection of premises3 years60 days
AEO – T3Granted to importers or exporters who have held AEO T2 status for two years before the application date, or importers/exporters with AEO T2 or AEO LO certificates, and their partners holding equivalent licences from foreign customs5 years90 days
AEO – LOGranted to economic operators (other than importers or exporters) after on-site inspection of premises5 years90 days

The validity periods for each AEO status vary, and renewal deadlines are essential to ensure continuous AEO status and its associated benefits. Renewal applications must be submitted within the specified renewal timeframe to maintain the active status of the AEO certificate.

Relaxation Available to MSMEs Under the AEO Package for MSMEs

MSME registrations play a vital role in the Indian economy, particularly during challenging times like the Covid-19 pandemic. Recognising their significant contributions, the Central Board of Indirect Taxes & Customs (CBIC) has introduced the ‘Liberalised MSME AEO Package for MSMEs’ to provide relaxation and simplify the trade procedures for MSMEs. Mentioned below is a comparison of the procedural requirements between AEO T-1/T-2 and MSMEs AEO T-1/T-2 under this package:

Procedural RequirementsAEO T-1/T-2MSMEs AEO T-1/T-2
Eligibility RequirementHandling a minimum of 25 Customs documents during the last financial yearHandling a minimum of 10 Customs documents, with a minimum of 5 documents in each half-year period of the previous financial year
Business ActivitiesAt least three financial years prior to the application dateAt least two financial years prior to the application date
Qualifying Period for Legal and Financial ComplianceThe last three financial yearsOnly the last two financial years
Time Limit for Processing of ApplicationAEO T1 application – one month, AEO T2 application – six monthsFifteen working days
Documents/AnnexuresAEO T1 – Annexure A, B, C, D, E.1-E.4; AEO T2 – Annexure A, B, C, D, E.1-E.4, E.5.1-E.5.7MSME AEO T1 – Annexure 1 & 2 only; MSME AEO T2 – Annexure 1, 2, & 3 only

Final Thoughts

The AEO package for MSMEs is a vital framework that fosters trust, compliance, and efficiency in international trade. AEO status offers numerous benefits, including streamlined customs procedures, secure business partnerships, and financial advantages. Eligibility criteria ensure that AEO certification is granted to entities with a proven track record in customs-related activities, while renewal procedures maintain the status over time. Notably, MSMEs receive special consideration through the ‘Liberalised MSME AEO Package for MSMEs’ simplifying compliance requirements and expediting processing. This initiative acknowledges the pivotal role of MSMEs in the Indian economy and aims to provide them with the necessary tools to deal with international trade with ease.

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