Jan K., a literature enthusiast with an extraordinary fondness for Polish children’s poetry, finally managed to find a very rare book after a long search – an edition of Julian Tuwim’s “Locomotive,” which he purchased without hesitation from a used bookstore in Maryland, USA, via the online platform AbeBooks. The ease and simplicity of the solution – clicking the “BUY NOW” button, which would soon bring his dream book to him – combined with the bargain price for such a sought-after rarity in the reading community, filled Jan K. with optimism. From that moment on, he simply waited for the Polish Post to knock on his door and deliver him the publication he considered the opportunity of a lifetime. Perhaps it would have been, had Jan K. considered the key issues surrounding importing goods from the USA and the associated costs.

In analyzing the above case, it is crucial to focus on the fundamental concepts related to consumer rights and obligations, which have legal implications – and which can be reduced to the following questions: who does Jan K. become and what does he do in this regard? Given the dynamic growth of global e-commerce between the European Union and the United States, current regulations impose on consumers the role of participants in trade in goods. Under the Union Customs Code, and as confirmed by the case law of the Court of Justice of the European Union (CJEU), goods mean any product that has a measurable monetary value and, as such, may constitute the subject of a commercial transaction. Therefore, every shipment of goods is subject to customs supervision upon crossing the EU border (Article 134, point 1 of Regulation 952/2013 establishing the Union Customs Code), which also includes customs control (Article 5, point 3 thereof), which refers to specific verification activities performed by customs and tax authorities, such as a search of the goods. This procedure may also involve the risk of a customs debt (Article 5, point 18, ibid.), which would impose on the debtor (Article 5, point 19, ibid.) the obligation to pay the applicable shipping charges. Furthermore, raising the issue of a customs representative – in the form of direct or indirect representation (Article 18, point 1, ibid.), Poczta Polska could potentially become this representative.

Returning to Jan K.’s case, since the book meets the definition of a commodity, the consumer effectively becomes an importer of non-EU goods. The American sales platform was therefore merely a tool enabling the transaction and payment, acting solely as an intermediary between the seller and the buyer. Therefore, the consumer bears all legal responsibility for the authenticity of the documents submitted to Poczta Polska for clearance. Returning to reality, Jan K. should pay attention to important legal aspects when purchasing a unique reading item. It’s worth starting by separating the price of the goods from the shipping costs.

Higher mathematics – calculating customs value

If additional fees related to importing goods from the US to Poland are not included in the price, you should calculate how much you will actually pay for shipping, as the final customs value is made up of several additional fees. Shipping to the EU must first be added to the product price. Customs duty, which varies depending on the product type, is added to this amount (this information is available, for example, in the Polish ISZTAR tariff system or the European TARIC). This amount becomes our VAT base, and the tax is calculated from it. Estimating the total cost of goods, including import, significantly helps in making rational consumer decisions and can save our wallets, sometimes unprepared for additional financial burdens.Play

When tariffs work and when they don’t

Is Jan K. rightly happy about his bargain, or will he first have to contend with the customs system? Until now, a fairly favorable rule existed, according to which shipments up to €150 worth were completely duty-free. However, July 1, 2026, introduces a revolution in this area – the duty exemption is replaced by a flat-rate duty mechanism of €3 for each item, representing a group of goods of the same type, and therefore classified under the same CN code. Although from a customs perspective, the seller would be the customs debtor, the Ministry of Finance emphasizes that how this cost is calculated depends on the business policy of the given platform. Many American platforms add the flat-rate duty to the final price in the basket or in the shipping costs. Additional fees may also be related to the seller’s shipping terms – the seller may declare that they will cover import duties (DDP), or the buyer may be responsible for this, and may be charged a surcharge (DAP). Failure to establish clear shipping terms often results in the buyer being required to pay, a fact that only becomes apparent upon delivery. For this reason, Jan K. should verify the terms he agrees to and what additional costs are included in the price.

The IOSS and OSS procedures may provide some stability in terms of fees. IOSS, which applies to purchases of physical goods, including those from the US, is aimed at non-EU entities that conduct distance selling of imported goods (SOTI) and have established an intermediary that is an active VAT payer in Poland. Currently, this system is used by the vast majority of large platforms in the US, such as Amazon, eBay, Etsy, and Shopify, although additional verification is always helpful. EU and non-EU OSS, on the other hand, are primarily useful for digital services (e-books, games), telecommunications and broadcasting services (internet-based television signal delivery), and other intangible services (e.g., educational services). However, a key aspect of the IOSS system, which we will discuss in more detail in the context of purchases on US platforms, is the value threshold – if the actual value of a physical book is within €150, the platform will collect Polish VAT directly during the payment transaction. However, if this value were higher than EUR 150, IOSS cannot be used and the parcel is subject to the standard customs procedure requiring declaration on the SAD H1 document in the AIS-IMPORT system (i.e. use of the VAT E-Commerce system).

Where is the Polish Post Office in all this?

Article 19 of the Customs Law is a treasure trove of knowledge on the proper conduct of customs procedures – it regulates, among other things, the procedure for presenting goods and filing customs declarations in postal traffic handled by a designated operator. This is where Poczta Polska SA comes in, fulfilling this role, thus acting as a link between the e-consumer and the foreign operator. As mentioned earlier, anyone can appoint a customs representative, acting directly or indirectly. However, in the case of shipments imported from countries such as the USA, there is a certain institutional facility known as tacit (implicit) customs representation.

This mechanism works simply: if the actual value does not exceed €150, the designated operator, i.e., Poczta Polska, will be authorized by law to file a customs declaration on behalf of and for the benefit of the recipient (unless the consumer objects to the notification of arrival). What does this mean in practice? The platform simply adds Polish VAT at the time of purchase. If it uses the IOSS system, the customs declaration in the e-commerce system is submitted using the simplified H7 customs declaration, and the consumer receives the parcel from the Poczta Polska postman at no additional charge upon delivery. If the platform is not equipped with IOSS, VAT must be calculated and collected upon the goods’ arrival in the EU, which means the consumer pays VAT under the general rules upon delivery.

What if the shipment value exceeds €150? The problem of verifying whether the platform uses IOSS resolves itself somewhat. In this case, the platform loses its customs supplier status and assumes only accounting obligations, and therefore, customs and tax duties are settled within the scope of full customs declarations in the national AIS-IMPORT system in the importing country. Poczta Polska does not have an implied power of attorney in this case – the recipient receives a notification and must submit the required documents within 14 days, grant Poczta Polska a customs power of attorney, or otherwise perform customs clearance on their own.

Cooperation with Poczta Polska – proper documents for conscientious service

Courier companies are becoming increasingly popular, ensuring efficient delivery and clear communication. However, when importing goods from a non-EU country, additional fees may be charged. Poczta Polska often proves to be a more cost-effective alternative, but it requires a complete set of documents. This list includes: confirmation of the type and value of the goods; proof of payment: shipping costs, insurance, and any discount information; recipient details and additional documents such as certificates and permits (in transactions between private parties, a “declaration regarding the goods contained in the shipment” in the case of gifts). Importantly, the better the description of the parcel, the less chance of additional complications, such as the need to clarify the contents, prepare corrections, or delays.

Polish Post’s negative dictionary

Since we’ve touched on customs situations that can prove particularly problematic, we should mention Poczta Polska’s blacklist of goods – or rather, its negative vocabulary. This list lists goods for which Poczta Polska does not perform customs clearance under the VAT E-commerce package; customs clearance is handled independently. These primarily include: goods shipped as commercial samples, medicines and medical devices (high risk of shipment detention), food (possible additional inspections), plant and animal products (often subject to separate sanitary regulations), weapons, collectibles and counterfeits (intellectual property rights), electronics with batteries (frequent transport requirements), alcohol and tobacco products (tax regime and quantity restrictions). These goods therefore require special care and adherence to formal requirements, not to mention the need for full customs clearance using the SAD H1 import document.

Other (this time favorable) exceptions

Goods that deviate from the rule regarding proper customs clearance can also have a positive impact on the consumer. These special situations include, among other things, customs duty exemption. Under Article 203(3) of Implementing Regulation 2015/2447, non-Union goods that originally had EU status are exempt from import duties as a result of being exported from outside the EU and then re-imported within three years and released for free circulation. Another example, although going beyond sales on foreign sales platforms, are gifts with an actual value of up to €45 – they are completely exempt from customs duty if they are a private-to-private, occasional, free-of-charge, and appropriately marked package (excise goods do not apply here).

How will all this work in practice? The case of Jan K.

To this end, let’s consider two scenarios: in the first, Jan K. managed to snag his dream book for only €50, as it didn’t stand out from the catalog of books available at the second-hand bookstore. In the second, Jan K. paid €300 for “Lokomotywa” (The Locomotive), as it was a collector’s edition, practically unavailable in the current reading market. The AbeBooks platform, like most major American platforms, uses the IOSS system. What path will a consumer of the American sales platform have to take to enjoy their desired book?

Scenario 1: Locomotive below €150

The customs value is immediately apparent – Polish VAT was added to the price of the goods, and payment was made via the AbeBooks platform, while imports at the border are VAT-exempt. Although the flat-rate customs duty of €3 per item should have been paid through the platform, Jan K. should be aware that this amount could have been included in the price of the book itself or in the shipping costs. The parcel was shipped from the USA, and the seller marked it with the platform’s IOSS identification number. Jan K. did not object, so Poczta Polska became the tacit customs representative and processed the clearance automatically, using a simplified H7 customs declaration in the e-commerce system. The parcel was not classified as a collector’s item, which was due to the seller’s precise and detailed descriptions. A Poczta Polska postman delivered the parcel to Jan K., and from that moment on, he was able to immerse himself in Tuwim’s poetry.

Scenario 2: “Locomotive” above €150

Now let’s analyze a slightly less favorable option for Jan K.: Here, customs duty and VAT are not included in the book’s price, which initially pleased Jan K. The seller shipped the package, but because it was shipped from the United States, the carrier must submit an Entry Summary Declaration (ENS) and lodge it with the appropriate customs office before the goods arrive. An ENS would not be necessary only if the sale was made from common transit countries that have concluded agreements with the EU on the recognition of security and safety inspections conducted in these exporting countries, namely Norway, Liechtenstein, and Switzerland. When the package reaches Poland, customs and tax systems block its further route, and it is placed under customs supervision. Poczta Polska sent the importer, Jan K., a paper notification (although electronic notification is also possible) about the shipment being held for customs clearance. A terrified Jan K. tried to find out what was happening with his parcel and why it had been detained. He finally discovered that Poczta Polska was not his customs representative. After controlling his emotions, he gathered the necessary documentation, which included proof of purchase, payment confirmation with a breakdown of the price of the goods themselves, shipping fees, and item description, as well as a signed power of attorney, and sent it to Paczka Polska. Poczta Polska, which had become Jan K.’s active representative, processed customs clearance using the AIS-IMPORT system, using full import customs declarations on the SAD H1 document. The customs and tax office then assessed fees: customs duty based on the CN customs classification and VAT based on the tax base, which is the combined price of the goods, transportation fees, and customs duties. This process was successful, the parcel was returned to postal service, and the postman knocked on Jan K.’s door – the importer’s enthusiasm was somewhat lower than in Scenario 1, as he had already incurred customs and VAT costs before beginning the reading.

What if the package arrives damaged?

The complications continue: the package was damaged, and we don’t know who to contact. Since the introduction of the Tax Explanations on July 1, 2021, autonomous tax law creates a legal fiction under which the electronic interface operator is considered a B2C supplier, the platform is therefore obligated to tax and settle the transaction. This solution is primarily beneficial to officials, who find it more convenient to collect VAT from a large platform than from hundreds of smaller sellers. On the other hand, it creates a certain ambiguity – as we established above, the platform is still merely an intermediary under civil law. Why do we see a discrepancy here? Because of the issue of tortious liability.

If the “Locomotive” purchased by Jan K. were lost or destroyed before delivery, from July 2021, the consumer would have to direct warranty or non-performance claims to the Maryland antiquarian bookstore, not the AbeBooks platform (if the damage occurred during transport, i.e., before formal release by customs). It should undergo a qualification process as defective goods, and if approved, the American seller is to make a price adjustment, which will reduce the overall customs value, automatically including the costs of customs duty and VAT. For goods over €150 or of collector’s value, the loss or destruction of a package in the warehouse results in a customs debt, and Poczta Polska becomes the debtor. If damage to goods worth less than €150 occurred during transport by Poczta Polska, after legal qualification and removal of the goods from customs supervision, the postal operator is obligated to pay the VAT, along with default interest.

Despite the many scenarios, one important rule stands out – the platform itself very rarely pays compensation. Based on US court decisions (such as the Bolger vs. Amazon.com, LLC case, in which Angela Bolger suffered serious bodily injury after a laptop battery purchased through Amazon exploded), it can be assumed that the chance of obtaining compensation increases essentially only if the platform controlled the physical delivery process. Or rather, if this can be proven in court. Platform uniqueness, as Janger and Twerski called it in their renowned 2023 analysis, is increasingly being raised as a serious problem for consumer protection and rational risk management. American sales platforms hide behind formal definitions of “sale” and “title,” but in practice, these explanations have little application. This absurdity is particularly evident in models such as FBA (Fulfillment by Amazon), where the platform stores, packages, and ships the goods, and claims the right to substitute without consulting the consumer. The fiction of a “recognized supplier” exists under VAT law, yet remains free from civil liability.

Cost-related catches – what to watch out for so as not to overpay

As the example above shows, the issues of cost and financial responsibility are often ambiguous, so it’s important to understand what additional fees we might be exposed to. Distinguishing the price of the goods from transportation fees, customs duties, and VAT is the first, but not the last, point at which we should consider how much importing goods purchased on an American marketplace will actually cost us. In addition to the components of the customs value, we must also consider other possible fees, such as the cost of insuring the imported goods, loading and handling fees associated with their transport to the national border or a Polish port.

The principle that “determinations of charges for transport costs must be unambiguous, precise, and separate for domestic and international sections” is one of the key aspects of EU customs law. Why is this so important? According to Articles 71 and 72 of the UCC, foreign and domestic sections are treated differently – the customs value of goods increases upon entry into the customs union, whereas within the EU, costs are not included in this value. However, the Act introduces a condition here, specifically a clear separation of goods and transport costs (which is why this had to be clearly stated in Scenario 2 of Jan K. in Jan K.’s documents for Poczta Polska). If only one transport amount appears on the invoice, the customs authority has the right to include 100% of the transport costs in the customs value. This trap, known as the cascading effect, is likely to occur in transactions on online marketplaces, as confirmed by the Supreme Administrative Court’s rulings in this case.

The customs authorities’ reasoning can be traced to the Supreme Administrative Court’s judgment of March 17, 1999 (SA/ Sz 1731/98). In this case, the Spanish wine seller failed to divide costs and sections into foreign and domestic, and the transaction itself resulted in two sets of invoices for different amounts (the second set of invoices had a significantly higher value). The Supreme Administrative Court dismissed the importer’s complaint regarding alleged violations of customs and administrative law by the customs authorities, and in its justification, cited the obligation to determine the amount due in a clear and precise manner, using objective and measurable data. The judgment is a reprimand for the company’s arbitrariness.

Separating costs is also important in so-called simplified procedures. As mentioned earlier, the simplified H7 declaration applies to products whose actual value, i.e., the price of the goods themselves, does not exceed €150. If the seller fails to separate the costs on the invoice, shipping costs will be included in the actual value – if this amount exceeds €150, the seller will have to go through the full customs procedure. Failure to clearly present the cost breakdown could also impact the efficiency of the entire import procedure. Because the simplified H7 declaration is processed automatically by the National Tax Administration, the algorithm may detect irregularities in the declared data, which may result in document revisions or a physical inspection of the package. This, in turn, can generate potential delays and other problems.

There are also minor and often overlooked issues, such as different CN codes for goods in the same package. A separate flat-rate customs duty must be paid for each item from a different line item. Let’s not forget the mundane, yet utterly human, issue: if the item we ordered doesn’t meet our expectations and we want to return it, the customs and VAT costs will not be refunded. With this in mind, it’s important to weigh the pros and cons before making a final decision.

Summary

The purchase of Tuwim’s “Locomotive,” besides its aesthetic appeal, undoubtedly provided Jan K. with insight into the EU customs system for goods imported from outside the European Union, specifically the USA. The most important lessons learned from this lesson include an awareness of the consumer’s role when importing goods from outside the EU and their customs and tax obligations, as well as the operating principles and powers of the Polish Post, along with its requirements for importers. The potential costs incurred by both consumers and sellers in transactions made via the online marketplace were also analyzed. A study of regulations and specific examples demonstrated the importance of a properly conducted procedure for both parties, so as to avoid unnecessary financial burdens on either side.

In the current era of globalization and the development of global export giants, purchasing products and services online is inevitable. American platforms such as Amazon, eBay , Wayfair, Target, and Walmart, having established a stable and strong position in the global market, conduct sales primarily focused on protecting their structures and generating profits. Therefore, as Polish consumers of American products, we should, above all, protect our own interests and financial security, be aware of the dangers and risks associated with ignorance of appropriate customs procedures and our obligations as a party to the transaction. In other words, let’s follow the example of Jan K., who fulfilled his desire for a unique book by studying his consumer rights and responsibilities on the American platform AbeBooks.

Bibliography:

Legal acts:

Act of 11 March 2004 on tax on goods and services (consolidated text: Journal of Laws of 2025, item 775, as amended). https://sip.lex.pl/#/act/17086198/444640770/podatek-od-towarow-i-uslug?keyword=podatek%20od%20towar%C3%B3w%20i%20us%C5%82ug%20&searchPit=2026-07-15

Act of 19 March 2004 – Customs Law (consolidated text: Journal of Laws of 2024, item 1373). https://sip.lex.pl/#/act/17088507/441956979/prawo-celne?keyword=ustawa%20prawo%20celne%20&searchPit=2026-07-15

Council Regulation (EC) No 1186/2009 of 16 November 2009 setting up a Community system of reliefs from customs duty (codified version) (OJ L 324, 2009, p. 23, as amended). https://sip.lex.pl/#/act/67914249/3571055/rozporzadzenie-1186-2009-ustanawiajace-wspolnotowy-system-zwolnien-celnych-wersja-ujednolicona?keyword=Rozporzadzenie%C4%85dzenie%201186%2F2009%20ustanawiaj%C4%85ce%20ws%C3%B3lnotowy%20system%20zwolnie%C5%84%20celnych%20(wersja%20ujednolicona)&searchPit=2026-07-15

Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code (OJ L 269, 2013, p. 1, as amended). https://sip.lex.pl/#/act/68359246/176766672/rozporzadzenie-952-2013-ustanawiajace-unijny-kodeks-celny?keyword=Rozporz%C4%85dzenie%20952%2F2013%20ustanawiaj%C4%85ce%20unijny%20kodeks%20celny%20z%201%20maja%202016%20&searchPit=2026-07-15

Commission Implementing Regulation (EU) 2015/2447 of 24 November 2015 laying down detailed rules for implementing certain provisions of Regulation (EU) No 952/2013 of the European Parliament and of the Council laying down the Union Customs Code (OJ L 343, 2015, p. 558, as amended). https://sip.lex.pl/#/act/68591768/181445989/rozporzadzenie-wykonawcze-2015-2447-ustanawiajace-szczegolowe-zasady-wykonania-niektorych…?keyword=Rozporzadzenie%20wykonawcze%202015%2F2447%20z%201%20maja%202016%20&searchPit=2026-07-15

Ministry of Finance. (2021, September 1). Tax clarifications regarding the so-called VAT e-commerce package introduced by the Act of May 20, 2021, amending the Act on Value Added Tax and certain other acts (Journal of Laws, item 1163) . https://www.podatki.gov.pl

Judgment of the Supreme Administrative Court in Szczecin of 17 March 1999, SA/ Sz 1731/98, M.Podat. 2000, no. 5, item 29.

https://sip.lex.pl/#/jurisprudence/520132316/1?directHit=true&directHitQuery=SA%2FSZ%201731%2F98

Artykuł A well-aimed shot at American e-commerce. A practical guide to customs clearance of US shipments through the Polish Post. pochodzi z serwisu KIELTYKA GLADKOWSKI LEGAL | CROSS BORDER POLISH LAW FIRM RANKED IN THE LEGAL 500 EMEA SINCE 2019.

1. Reports only via e-Sanepid

Every dietary supplement introduced to the market for the first time must be reported to the Chief Sanitary Inspector (GIS). Until now, various forms were acceptable – paper or electronic, with a handwritten or electronic signature. After the amendment comes into effect, the only acceptable method will be the e-Sanepid platform.

What does this mean in practice?

• It is necessary for each person submitting notifications to have a qualified electronic signature or a trusted profile.
• All communication with sanitary inspection bodies – letters, decisions, and confirmations – will be handled through the platform account. The moment of notification submission will be clearly confirmed with an official receipt, eliminating disputes over the deadline.
• Companies that have previously used paper forms or traditional correspondence must immediately switch to the new channel and ensure appropriate employee training.

The change also concerns the timing of the notification obligation: the previous option to notify the Chief Sanitary Inspectorate (GIS) at the stage of intended product introduction is no longer available. The obligation now arises at the time of actual introduction to the market.

2. Strict deadlines and automatic presumption of irregularities

The amendment introduces a completely new mechanism for conducting investigations. This change has the greatest potential to surprise companies without effective internal compliance procedures.

How does the new mechanism work?

If the Chief Sanitary Inspectorate initiates an investigation and requests the entity to submit a scientific opinion, the company has exactly 14 days to submit an application to an accredited scientific unit – at the same time forwarding a copy of it to the Chief Sanitary Inspectorate.

The mechanism for presuming irregularities is a significant innovation. Previously, a company’s inaction during the proceedings did not automatically result in any legal consequences – the proceedings could drag on for years. Following the amendment, any failure to meet the 14-day deadline will lead to direct negative consequences, regardless of whether the product is safe.

3. Advertising without reporting? A fine of nearly one million zlotys

This change directly impacts brands engaging in active digital marketing. Previously, advertising or presenting a dietary supplement without prior notification to the Chief Sanitary Inspectorate (GIS) was punishable by a fine (a misdemeanor). Following the amendment, this becomes grounds for imposing an administrative fine – with new, significantly higher penalties.

What exactly is prohibited?

The amendment penalizes not only the sale of a supplement without reporting it to the Chief Sanitary Inspectorate (GIS), but also the mere advertising or presentation of it if the notification has not been effectively submitted. In other words:

• Sponsored post on Instagram or Facebook promoting a new supplement before notification = grounds for an administrative penalty.
• Product page in the online store visible to the public before successful reporting to GIS = risk of infringement.
• Promotional materials sent to wholesalers or distributors before GIS is notified = potential infringement.
• Influencer marketing initiated before the date of effective notification = liability on the part of the entity commissioning the campaign.

Prohibition on suggesting medicinal properties – wider scope

The amendment expands liability for violations of advertising requirements from labeling to the entire marketing message. Previously, sanctions primarily covered incorrect packaging labeling. Following the amendment, a company is responsible for every communication channel – online advertising, point-of-sale materials, newsletters, or YouTube videos – if the message suggests that a varied diet does not provide sufficient nutrients, or if a supplement is presented as a medicinal product.

4. Public register – the company’s reputation under public scrutiny

The Chief Sanitary Inspectorate (GIS) has maintained a register of dietary supplements before, but the amendment will significantly expand its scope and availability. The data will be published on the e-Sanepid platform and will include:

• the name of the product and its qualitative composition (without quantitative data – the recipe remains protected),
• product qualification proposed by the entity,
• information about the initiation or ongoing investigation,
• data on the detection of a prohibited ingredient.

5. Fines – increase by over 330%

The maximum administrative fine for violating food safety regulations is increasing from 30 to 100 times the average monthly salary. At the current salary level, this means:

The new penalties are imposed administratively (not as fiscal or misdemeanor offenses), which means faster proceedings and no need to prove intentional guilt. A mere finding of a violation is sufficient. The increased level of sanctions has a real deterrent effect, especially for companies with turnover in the tens of millions of zlotys.

The biggest risks – a practical overview

Artykuł CLIENT ALERT Dietary supplements market in Poland Amendments to food safety regulations | May 2026 pochodzi z serwisu KIELTYKA GLADKOWSKI LEGAL | CROSS BORDER POLISH LAW FIRM RANKED IN THE LEGAL 500 EMEA SINCE 2019.

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Artykuł Letter of credit as a form of security for payments in international transactions pochodzi z serwisu KIELTYKA GLADKOWSKI LEGAL | CROSS BORDER POLISH LAW FIRM RANKED IN THE LEGAL 500 EMEA SINCE 2019.

The essence of international trade

Progressive globalization has imposed on domestic companies – even on local ones – relationships with other international companies. Examples of such a connection, which may be either direct or indirect, include: competition with foreign entities, adaptation of manufactured products to international standards, the use of developed and implemented technological and management solutions.

An international commercial transaction is a transaction involving a cross-border element, so it comes down to transactions between entities based in different countries. Foreign trade can be considered in two perspectives: narrow and broad. In the narrow sense, the subject of foreign trade is material goods. Broad sense includes, for example, current and assets and credit turnovers, purchase of goods and intangible services.

Risk in international trade

Conclusion of foreign trade agreements carries different risks for the parties participating in the transaction. The most common are:

• payment risk (refusal to pay),
• currency risk (uncertainty of the exchange rate),
• commercial risk (insolvency of the contractor),
• contractual risk (refusal to receive the goods, termination of a contract by a contractor),
• risk of loss of goods,
• risk of product destruction.

Due to the increasing role of international trade, there is a need to develop safe methods of financing transactions. A clearing instrument allowing businesses to secure financing of transactions is a documentary letter of credit. It was regulated by the international standard UCP 600, which was issued in 2007 by the International Chamber of Commerce in Paris.

INCOTERMS 2000

Terms of delivery in foreign trade were developed by the International Chamber of Commerce in Paris and are called INCOTERMS 2010. INCOTERMS apply to sale contracts and, by analogy, to delivery contracts. There are eleven formulas altogether. Seven of them apply to all modes of transport, and four of them apply to maritime and inland waterway transport.

The rules for all modes of transport are:

• EXW – Ex Works
• FCA – Free Carrier
• CPT – Carriage Paid To
• CIP – Carriage And Insurance Paid To
• DAT – Delivered At Terminal
• DAP – Delivered At Place
• DDP – Delivered Duty Paid

In turn, the following rules are distinguished for maritime and inland waterway transport:

• FAS – Free Alongside Ship
• FOB – Free On Board
• CFR – Cost And Freight
• CIF – Cost Insurance Freight

Documentary letter of credit as a form of payment security

Documentary letter of credit is one of the forms of risk protection. This is a way to secure payments. It is a self-imposed obligation of the importer bank to pay (or guarantee payment) a certain amount of money to the exporter in return for submitting documents by the deadline specified in the letter of credit.

Confirmed letter of credit is even more secure for the transaction. The bank confirming the documentary letter of credit added to it a confirmation (at the order of the opening bank – the importer’s bank). This means that the bank obliges itself to pay a due amount of money to the exporter.

There are four participants in the process of settling the transaction with a letter of credit:

• applicant/orderer,
• issuing bank,
• advising bank/negotiating bank/confirming bank,
• exporter.

Payment settlement scheme

The process of settling transactions with a letter of credit is presented in the following diagram:

1. The parties to the agreement conclude a settlement of the transaction by means of a letter of credit;
2. The importer instructs his bank to open a letter of credit;
3. The issuing bank notifies the exporter’s bank of the opening of the letter of credit;
4. The exporter receives the letter of credit;
5. The exporter sends the goods and presents the documents to his bank;
6. The exporter’s bank transfers the documents to the importer’s bank;
7. The importer receives the documents;
8. The importer’s bank transfers the money to the exporter’s bank and the exporter’s bank pays the funds to the exporter.

Advantages and disadvantages of a letter of credit

The viability of settling transactions through a letter of credit can be viewed in terms of advantages and disadvantages by analysing the situation of both transaction participants. The list of advantages and disadvantages divided as per participants in the transaction is presented in the table below:

Letter of credit in Polish banks

Polish entrepreneurs can use the settlement of transactions by means of a letter of credit. It is offered by banks operating in the Polish market. Details of charges can be found in the tables of fees and commissions published on the respective bank’s websites.

Abstract: International transactions, letter of credit, security of payment

The article was prepared by KG LEGAL KIEŁTYKA GŁADKOWSKI based in Cracow, Poland, specialising in cross border cases, with its focus on investments in Poland, new technologies, IT and life science. It discusses payment risk in international trade and a letter of credit as one of the most popular forms of security for payments in international transactions.

Paweł Dyrduł, associate lawyer (specializing in banking law, financial law) from KG LEGAL KIEŁTYKA GŁADKOWSKI – PROFESSIONAL PARTNERSHIP based in Cracow, specializing in cross border issues and servicing life science and IT companies, discusses the essence of international commercial transactions, the risk they carry for both parties as well as a documentary letter of credit as the most common way of settling and reducing the risk in such transactions.

Artykuł Letter of credit as a form of security for payments in international transactions pochodzi z serwisu KIELTYKA GLADKOWSKI LEGAL | CROSS BORDER POLISH LAW FIRM RANKED IN THE LEGAL 500 EMEA SINCE 2019.