On 23 June 2023, a new regulation on deforestation, the EUDR, entered into force. Intended to end deforestation and forest degradation worldwide, the regulation contains rules applying to all wood harvested from 23 June 2023 and placed on the market as of 30 December 2024 (30 June 2025 for micro and small enterprises).
The regulation aims to ban the production, import into and export out of Europe of products that contribute to deforestation and/or have been illegally produced. It covers the following products: wood, rubber, cattle, cacao, coffee, oil palm and soya. Derived products may also fall under the ban if they are (partly) made from these commodities. Examples of these are leather, chocolate, furniture, tyres, pallets, paper, packaging, cosmetics, clothing made from rubber (such as slippers), kitchen materials made from wood (such as wooden spoons and chopping boards), etc.
How does it work?
The EUDR requires companies that place the products concerned on the European market to make every effort to ensure that the risk of deforestation due to these products is negligible. That means that they must adopt a so-called Due Diligence System, which broadly consists of the following steps:
- Establish procedures
- Gather information
- Conduct risk assessment
- Implement risk mitigation measures
- Submit due diligence declarations
Who does the new regulation apply to?
The EUDR applies to all operators and traders who import, export or produce relevant products or commodities within the EU, with the aim of placing them back on the market. The EUDR applies to both large and small businesses, as well as sole traders.
All operators (i.e. companies that are the first to place relevant goods on the European market or export them outside the EU) and non-SME traders (i.e. companies that trade in goods that have already been placed on the European market) must implement the due diligence requirements and submit a due diligence declaration to the European Information System, whereby they declare that there is a negligible risk of deforestation or forest degradation and illegal production associated with their products. They must also appoint a compliance officer at management level and select an independent auditor charged with verifying the strategies, controls and procedures used to manage the risks.
SME operators are not required to carry out the due diligence procedure for products and commodities for which the procedure has already been carried out. In this case, they should obtain the reference numbers of the due diligence declarations from their suppliers and share them with other traders. If a due diligence procedure has not yet been carried out on their products, the SMEs must do it themselves.
SME traders do not have to carry out the due diligence procedure, but are required to obtain the following information and keep it for five years:
- The contact details of their suppliers and the reference numbers of their due diligence declarations
- The contact details of the companies they supply.
Does EUDR apply regardless of the volume or value?
There is no threshold volume or value for any relevant commodity or product. Operators and traders who place the products concerned on the market or trade them or export them are subject to the EUDR regardless of volume.
Are there penalties?
Yes. First of all, fines of up to four percent of a company’s turnover in the previous year may be imposed. The possibility of going over the four percent limit is also left open to ensure that the fine exceeds the potential economic benefit.
In addition, goods for either import or export may be rejected at the border and seized by the customs authorities, followed by possible heavy fines. It is also possible that a temporary ban is put on trading, marketing or exporting the goods in question.
Finally, the European Commission has announced that offenders and the penalties imposed will be published on their website.
Our PKF BOFIDI experts will be pleased to help you
Use the time until the end of this year to find out what the EUDR means for your business. Would you like help with this? Send us the HS code (customs commodity code) of all the products bought and sold by your company and we will map out the obligations, if any. Do you have any questions? Then do not hesitate to contact our experts.
This article was written by Gladys Cristiaensen, VAT expert at PKF BOFIDI.