Navigating import taxes on a global scale is a necessary skill for businesses reaching beyond domestic borders. This applies both imports domestically and import cost to destination country. Understanding the intricacies of import taxes worldwide is crucial for ensuring compliance and avoiding unexpected fees. From the United States to Canada, the UK, and Europe, each region has its own set of import regulations. Let start with the fundamentals of import taxes.
What are the common import taxes and fees
For the purpose of this post, we define import taxes more broadly to include all import fees. Before shipping international, become familiar with the concept of import processes
The broad categories of import taxes and fees can include the following:
Customs Duty
The terms "customs duty" and import tariffs are interchangeable. They mostly apply as a percentage of the value but can also calculate on the volume, weight or other type of unit.
- Determining the rate of duty is via the harmonize (HS) code
- Goods that qualify as originating under a free trade agreement can import duty free. Read more about free trade agreements.
- Some countries allow low value goods to import duty free. Verifying global low value duty free thresholds.
- Understanding customs duty calculation
- US customs imposes a "merchandise processing fee" for high value formal entries
Useful information regarding customs customs duty and calculation.
SalesTax for Imports
The assessment of tax is most relevant to countries with a national tax authority. In Europe and the United Kingdom, there is a value add tax or VAT. European VAT averages around 20%.
- Australia, New Zealand and other countries have a "goods and services tax" or GST
- Canada has a mix of federal and provincial sales tax that apply to imports
- Taxes generally apply to all imports. Tax is applicable even if goods otherwise qualify as duty free
- Businesses importing intermediary goods may be able to claim back taxes payable at import
Customs Entry and Brokerage costs
For air courier and postal shipments, basic customs entry preparation is inclusive. For high value and product categories with restrictions, a separate entry preparation cost is necessary. Such entries are usually via a licensed customs broker. The basic brokerage costs can include:
- Customs entry preparation
- Customs bond (to guarantee payment of duty and taxes to custom)
- Charge for Other /partner government agency approvals
Carrier Disbursement or administrative fee
Although customs entry is commonly inclusive, couriers and post offices often charge a "disbursement fee." Such a fee applies when the courier pays import fees on behalf the importer prior to delivery. The fee helps cover this prepayment cost. It is usually around 2.5% of the import fees. The minimum price is usually around $15.
Example:
Import of a shipment of shoes:
- Value: $500
- Tariff Rate: 20%
- Duty Cost ($500 * 20%): $100
Import taxes for in e-commerce orders
Duty rates can be less for lower value e-commerce shipments. To many countries, the value add/ goods and service tax can be more impactful. A key aspect to consider for e-commerce imports is the low value duty free threshold or de minimis value. To the USA, most goods under $800 USD can import duty free. Not all countries have a duty free threshold and most are much lower. Useful information regarding global de minimis value for e-commerce imports.
To grow international sales, sellers must develop processes to reduce and manage import fees.
Knowing how to handle customs clearance for across international borders is vital to successful e-commerce. The European Union, UK, Australia and New Zealand require e-commerce platforms to collect the tax at check out.
Managing your Customers Expectations Regarding Payment of Import Fees
Import duty and taxes is more acceptable to buyers if they made aware of possibility before finalizing the sale. The best option is to incorporate the duty and taxes in the final sale. However, building this capability to multiple countries across an entire inventory can be daunting. The option is to mention the likelihood of import fees and taxes. Essentially, advise the customer to expect import fees. That your transaction is not inclusive of import duty, taxes and other fees. Another helpful strategy is to provide a link to online sites that provide duty estimates.
Non-Tarif costs
Beyond import taxes, there are other costs to consider. The are often, for example, restrictions on specific categories of goods such as cosmetics. Read more about non-tariff barriers and cross border trade.
Understanding Value of the Transaction to Declare
An often overlooked aspect of international shipping is knowing the concept of valuation. The value for duty most often includes the sale price, plus the cost for shipping and insurance. Read more about the subject: Valuation and CIF.
How the Harmonized System (HS Codes) affects duty
Every item shipping international can classify via the Harmonize system. The HS code is what determines the rate of duty. Read more: Understanding HS codes.
Country of Origin
The country from where goods ship can affect the rate of duty. The concept of originating in free trade agreements provides preferential (i.e. lower) rates of duty for qualifying goods. Read more: Country of origin versus from where goods ship.
