A Guide to Customs Duty and Related Taxes & Fees for the USA Importers

 

 

Custom duty taxes are essential to consider when quoting importing and transportation rates. The fees and costs associated with this often overlooked expense can quickly add up when estimating international shipping costs and working on contractual terms for ocean freight transportation. Therefore, anyone importing goods and products for resale needs to account for import fees and customs charges in their quote.

 

While they are annoying and can be quite expensive, customs duty taxes, tariffs, and other import and export-related expenses by design  help provide a fair and even playing field in the international marketplace. In the United States, they also work to keep jobs here on American soil and discourage companies from going off-shore.

As highlighted by Logistics Management, “Import tariffs are generally set up to favor manufacturing here in the United States. That is, the duty on components is less than the duty on finished products, so companies have an incentive to make their goods here in the United States. But there are 18,000 different tariffs in the U.S., and sometimes they accidentally work in the opposite direction.”

Dealing with customs charges, duties, and other import expenses gets easier when one understands why they exist in the first place and how they impact shipping and logistics.

 

What Are Customs Duty Taxes and Customs Charges in Shipping?

What is a customs duty charge, and why is it important to best practices for importing? Answering those common questions  is fundamental to having a successful importing business. Duty is an import tax levied by customs authorities on goods and merchandise imported into their country.

 

Anyone dealing with ocean freight must understand how general customs taxes and country-specific customs and duties impact imports. While often referred to as import duty, tax(es), or tariff(s), a slight yet essential difference exists between a duty and a tariff.

 

As explained by Munish Gupta, Founder and CEO of Supply Chain Advisory Group: “Customs duties are based on product characteristics, tariffs are fees applied to specific products from specific countries for specific times, and tax rates (VAT/GST) are fixed and calculated on the total value of the product imported into the country.”

 

A tariff can be a fixed charge per unit or a percentage of the unit’s value. Customs dutiesare determined by the total purchased value of the articles, paid at foreign country and not based on factors such as quality, size, or weight..

 

Customs duty tax and related ocean freight fees are paid immediately upon release to the importing country and the local customs authorities. The importer of record (IOR), the party that oversees the shipment and handles all documentation and legal aspects related to the shipment, pays all duties, tariffs, and taxes.

 

Unless stated otherwise, the IOR can be a business or an individual. In almost every case, this is the same person identified as the owner, buyer, seller of the merchandise, or agent who has assumed responsibility for customs charges.

 

A customs duty tax is often applied for various and sometimes overlapping reasons, which can include:

• To regulate and control the level of foreign trade.
• To tax products from foreign countries and stimulate the economy.
• To protect or safeguard the domestic industry with custom duties.
• To regulate and monitor the ocean import and export market.
• To increase revenue and profits for the local government.
• To penalize particular countries with higher duties and tax requirements.
• To track and monitor the digital freight marketplace’s customs duty costs.
• To retaliate against duties another country applies on products entering its borders.

 

Customs duties can fall on any imported merchandise from international trade. It applies to cargo transported via ocean freight, land, or air and must be declared upon arrival. All cargo entering a country through legal imports must have supporting documents establishing the contents and value of the load coming across the border. These include the Bill of Lading, packing list, commercial invoices, and other documents needed to address customs charges and taxes.

Types of Customs and Duties to Know and Prepare For

Several customs duties get levied against cargo imports every day across the globe. Many standard customs duty taxes and charges often come up for importers dealing with extreme shipping container volumes. It is essential to understand these and prepare for them as much as possible. Importers must weigh the costs of fast yet reliable transportation such as air freight versus cheaper yet slower and more risky shipping options like ocean freight. As highlighted by Global Trade Magazine, “while it may not be feasible to transport 100% of your freight via air, air freight continues to be the fastest way to replenish inventory, so prioritizing specific freight can help keep cargo moving.” Customs taxes come into this balancing act as they add to overall costs and must be offset somewhere else in the import and resale process.

 

There may be other specific duties that are applicable to any import shipment. The best way to ensure you are paying the proper amount of duties, taxes, and fees is to check with a freight forwarder or customs broker. For shipping and import basics, the following customs charges and duties are worth keeping in mind.

Basic customs duty

The basic customs duty tax, as implied, is the primary duty imposed on imported goods. The local government determins these customs charges, which get factored in several ways.

Countervailing duty (CVD)

A countervailing duty is imposed on subsidized imports. Countervailing customs and duties offset subsidies made to the producers of the goods in the exporting country, thereby leveling the playing field.

Anti-dumping duty

This duty protects local economies through customs duty taxes on goods mass-produced at lower-than-market value. These customs charges keep cheap products from flooding the market.

Safeguard duty

Like other customs taxes, Safeguard duties get levied on products that threaten local economies. This customs duty tax focuses on potential monetary losses incurred by local industries.

What Is the Harmonized System (HS)

An inherent challenge with global imports is the uniformity of terms, codes, and regulations. The Harmonized System is a multipurpose and international process established and monitored by the  World Customs Organization. Its goal is to harmonize tariff schedules and classify products according to uniform codes from country to country to ensure the proper application of customs charges and customs duties.

 

With so many countries involved in tight markets and e-commerce shipping/importing, it is essential to have a unified basis for import charges. SupplyChainBrain pointed out that “global retail sales in 2020 grew by more than 27% year over year, with a consistent rise in the number of online shoppers worldwide, reaching 2.28 billion. Cross-border e-commerce discretionary sales surged even higher since the spring, expediting an upward trajectory that continued through the recent holiday shopping season and culminated in an overall 36% global growth in 2020.”

 

Customs duty taxes make the HTS codes necessary as the schedule makes it easier to look at codes that are the same across the board and know the applicable customs import fees for each import. Managing duties customs, and customs charges becomes much easier with a unified point of reference.

Factors That Play Into Customs and Duties Rates

To accurately predict and plan for applicable customs duty tax rates and fees, here are three main factors importers operating in major trade lanes must consider:

1. Applicable customs duty rates. Every importing country has established specific customs and taxes, so the country of origin and the destination country can significantly impact import rates and fees.

2. Confirmed value of goods. Most customs duty tax and duty fees get calculated on the commercial or customs value of the imported goods. This differs from country to country, so it requires planning and verification.

3. Origin point of good. Import restrictions and duties can vary significantly between countries. Standard or special trade agreements between the countries of origin and destination can impact import fees.

How to Calculate the Value of Declared Goods For Import Charges

The World Trade Organization (WTO) established six distinct protocols for calculating customs duty tax and other duty charges. The most popular method is called the transaction value method. Simply put, the amount and rate of taxes on a particular import relate to the declared value of those goods. It is important to note that customs charges can often vary from one country to another.

 

In general, establishing the customs value of a good requires calculating the following:

• Commercial invoice value
• Commissions applied to transport
• Royalties or license fees
• Proceeds earned from reselling goods
• Processing or assembling costs
• Import mode (FCL vs. LCL)
• Costs of packing material, boxes, etc
• Cost of land transportation
• Cost of maritime transport
• Cost of insurance for the load or order
• Custom clearance payments
• Other accessorial expenses approved by customs

Knowing how to calculate a customs duty tax rate makes it easier for importers to prepare for customs charges and other expenses related to the cross-border transport of goods.

Making Customs Payment Management Easier

One of the most significant obstacles facing importers regarding customs and duty is managing payments and keeping processes streamlined. While most duties require payment upon entry, it is possible to get an extension.

 

While this may be good in the short term as it gives international shipping importers more time to pay what they owe, it can cause problems when payments are not properly managed and tracked. It is important to note that the U.S. Congress determines U.S. customs charges and duty rates. The majority of other countries choose duty rates based on the price of making, packaging, shipping, and selling the goods. In the U.S., these fees are almost solely based on the value of the goods themselves on the current market.

 

Failure to pay all customs charges can result in customs authorities seizing cargo and blocking a shipment from entering. There are also cases where a poor track record of payments and other issues related to customs duty cost payments can make it more difficult to import goods in the future. Industry reputation is everything, and once importers are on the customs office watch list for one reason or another, they are more likely to be chosen for inspection.

 

They will likely face greater scrutiny over their payments and documentation, as well as more regulations on their container load shipping attempts.

 

If it all gets too confusing and overwhelming to calculate and pay customs duty tax, outside help is available to importers. Enlisting the help of a certified and experienced customs broker can streamline payment processes and make border inspections and customs dealings less stressful overall. A customs broker will be responsible for everything involved with securing the customs clearance approval and handling all legal requirements and steps. Many importers find the investment worthwhile, primarily if they regularly deal with complex or high-volume transactions.

Special Note For US Import Rates and Fees

Every country with which the U.S. has trade agreements has its own agreed-upon terms and customs charges. These rates can frequently shift higher or lower depending on several factors, with inflation rate changes accounting for the most drastic shifts. McKinsey & Company highlighted earlier this year that “from boardrooms to grocery stores, inflation is affecting everyone. Prices are up over 7 percent in the United States and more around the world—with no signs of coming down anytime soon. Businesses are already reeling, and tired, from two years of a global pandemic that required nimble, innovative solutions. But it’s time again to strategize.”

 

Like every other aspect of shipping and transportation, there is no idle time dealing with imports and exports. Management must always plan and be ready to adjust as international trade work needs and demands continue to shift.

 

Anticipating changes to customs duty tax rates and customs charges allows importers to better plan and strategize for the future. This is especially true for those operating in the United States. More countries are involved, and there is more fluctuation in baseline tax and fee rates than most other import countries have to manage. It is worth noting that U.S. customs duty rates might be lower when importing from countries with which the U.S. has international trade agreements. The ability to lower required customs duty tax and duty payments remains an influential consideration for importers and exporters looking to establish trade agreements.

 

As highlighted by the United States Trade Representative (USTR), the U.S. has free trade agreements with that directly impact customs charges in these countries:

 

Partner	Signed	Entry Into Force	Full Text
Panama	June 28, 2007	October 31, 2012	Full Text
South Korea	June 30, 2007	March 15, 2012	Full Text
Peru	April 12, 2006	Feb. 1, 2009	Full Text
Costa Rica	May 28, 2004	Jan. 1, 2009	Full Text
Oman	Jan 19, 2006	Jan. 1, 2009	Full Text
Dominican Republic	Aug. 1, 2004	March 1, 2007	Full Text
Bahrain	Sept. 14, 2004	Aug. 1 , 2006	Full Text
Guatemala	May 28, 2004	July 1, 2006	Full Text
Nicaragua	May 28, 2004	April 1, 2006	Full Text
Honduras	May 28, 2004	April 1, 2006	Full Text
EI Salvador	May 28, 2004	March 1, 2006	Full Text
Morocco	June 15, 2004	Jan. 1 , 2006	Full Text
Australia	May 18, 2004	Jan. 1,  2005	Full Text
Chile	June 6, 2003	Jan.1 , 2004	Full Text
Singapore	May 6, 2003	Jan.1 , 2004	Full Text
Jordan	Oct. 24, 2000	Dec. 17, 2001	Full Text
Mexico	Dec. 1 , 1992	Jan. 1, 1994	Full Text
Canada	Dec. 1 , 1992	Jan. 1, 1994	Full Text
Israel	April 22, 1985	Sept. 1, 1985	Full Text

 

Managing customs and duties while dealing with multiple countries can be confusing. Consulting official sources such as the USTR and following Incoterm Rules makes the entire process easier from start to finish.

Gain Control Over Custom Charges, Duty, and Related Custom Duty Taxes With Freight Mango.

Customs duty taxes and other fees are vital factors when quoting shipping rates on imported goods. These fees may not seem like much on an individual basis, but they quickly add up and significantly affect the overall costs of getting goods and products imported. Anyone importing through the freight marketplace must carefully consider import fees and surcharges when pricing products for resale. Working with an industry expert to learn more about customs duty taxes and duties and customs payments is vital for ongoing growth and success.

 

Contact FreightMango today to sign up and get expert help for all your customs duty cost prediction and payment needs.