Import Customs Duties: A Guide for Businesses

Import Customs Duties: A Guide for Businesses
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Custom import duties are a complex procedural hurdle to successfully importing and exporting commercial goods.

 This article aims to explain the customs process and highlight the potential consequences of getting customs duties wrong. It will explore the basics of import duties, how to locate duties, what other charges may affect your final customs duty amount, and how a digital freight forwarder can help you with this process.

What Are Customs Import Duties?

Import duties, also known as customs duties, are commercial charges that must be paid for goods to pass through a border into a destination country. 

In the U.S., the U.S. Customs and Border Protection (CBP) determines the amount of duty to be paid based on the relevant HTS code and the commercial value of the item when purchased in a foreign country. The process is similar to imports to Canada, where the Canadian Border Services Agency determines how much duty should be paid.

Who Needs to Pay Duties?

Anyone transferring goods across a border, whether as an importer or exporter, may need to pay some form of duty, with the exception of certain circumstances. 

Incoterms Help Clarify Who Pays Import Duties

When importing goods, the specific Incoterm agreed upon between the buyer and seller helps determine who will be responsible for paying import duties. Incoterms, or International Commercial Terms, are a set of standardized terms that define the responsibilities of buyers and sellers in international trade. 

For example, under the DDP (Delivered Duty Paid) Incoterm, the seller is responsible for paying import duties and taxes, while under EXW (Ex Works) and FOB (Free on Board), the buyer assumes this responsibility.

Products That Fall Under ‘Duty-Free’ Status

Certain goods are classified as ‘duty-free.’ Products eligible under initiatives such as the American Goods Returned policy for U.S. manufactured items being imported back into the U.S. or those donated for charitable causes may be exempt from duty, provided their exemption status is established. This exemption facilitates a more efficient import process for these goods, allowing them to enter the U.S. without incurring additional costs due to various public policy reasons.

De Minimis Value Exemption

In addition to the duty exemptions mentioned earlier, shipments valued below a certain threshold may be exempt from duties and taxes. As of March 10, 2016, the U.S. Customs and Border Protection (CBP) increased the de minimis value from $200 to $800, meaning that shipments valued at $800 or less may be imported free of duties and taxes, provided they adhere to certain restrictions.

 

Where Do I Find the Basic Customs Duty Rate?

If you are importing to the U.S., you need to first find your product in the Harmonized Tariff Schedule (HTS), which is a detailed classification of all products that can be imported. Paying the duty involves becoming familiar with two critical figures: the HTS customs duty rate and the total value of your goods. These key numbers, found on your commercial invoice and within the HTS guide, need to be interpreted correctly to unveil the duty rate, which is usually a percentage indicating the amount you owe.

For example, if your plan involves importing a sleeping bag from abroad into the U.S., you would refer to Chapter 94 of the HTS. You would discover that the standard import duty rate for a sleeping bag containing 20% or more by weight of feathers or down stands at 4.7%. Therefore, your import duty rate would be determined by that percentage of the total value of your goods being imported.

What Else May Affect My Import Duty Rate?

The following are additional factors to consider when assessing import duties:

Merchandise Processing Fee (MPF) 

The Merchandise Processing Fee is a charge applied to the value of imported goods to cover the cost of customs administration in the United States. As of 2023, the MPF is 0.3464% of the value of the imported goods, with a maximum fee of $614.35.

Trade Agreements and Duty Reductions

Trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Caribbean Basin Initiative (CBI), the African Growth and Opportunity Act (AGOA), and various other U.S. Free Trade Agreements, such as the United States-Mexico-Canada Agreement USMCA are key to successful global trade, offering duty-free or reduced tariffs to partner countries. Understanding and complying with their requirements is crucial for importers to minimize costs and leverage benefits for a more favorable customs duty rate.

Quotas

Quotas set a maximum limit on the number of goods imported per year. The details of these quotas are either specific to certain trade agreements or general to any class of goods, regardless of where they are imported from. For example, the U.S. limits aluminum imports from Argentina to a maximum of 500,000 kilograms per quarter.

Anti-Dumping

Another element that can influence the amount of customs duty an importer might pay is the enforcement of anti-dumping regulations. In the United States, anti-dumping duties are imposed to prevent imports from being sold below fair market value. These measures aim to safeguard domestic industries from the negative impacts of such practices. The U.S. Department of Commerce, along with the International Trade Commission (ITC), undertakes the responsibility of examining allegations of dumping. For instance, in the situation concerning rebar imports from China, the authorities imposed duties exceeding 133% to address the challenge of imports priced significantly lower than is considered fair. For importers bringing goods into the U.S., it’s crucial to be familiar with the latest on trade tariffs and related measures.

Countervailing Duties

Closely related to anti-dumping measures are Countervailing Duties (CVDs), which are tariffs levied on imported goods to offset subsidies made available to producers or exporters by the government of the exporting country. These duties are applied to level the playing field for domestic industries that compete with subsidized imports. For example, if a foreign government subsidizes its steel industry, the U.S. may impose countervailing duties on steel imports from that country to prevent market distortion and protect domestic manufacturers. These duties are determined on the basis of an investigation by the Department of Commerce, and the International Trade Commission confirms that subsidization is occurring and causing material injury to the domestic industry.

Unlike anti-dumping duties, which counteract the sale of imported goods below market value, countervailing duties specifically target government subsidies that allow foreign producers to offer lower prices unfairly, thus addressing a different kind of market distortion.

Voluntary Export Restraints (VERs) 

A voluntary export restraint is a trade barrier imposed by the exporting country rather than the importing one, usually at the request of the importing country. For example, Japan could place a VER on the exportation of cars to the United States based on a request by the U.S. government. This can increase the price of the goods and protect domestic industries.

Licenses

Licenses are government-issued authorizations that allow businesses to import a specific type of goods into the country. These types of licenses exist for various reasons, sometimes resulting in a restriction on competition and increased prices for consumers.

Local Content Requirements 

Instead of imposing a quota on the number of goods which can be imported, the government may mandate that a certain percentage of a good be produced domestically. This can be a percentage of the good itself or a percentage of the value of the good.

Value-Added Taxes

In some nations (but notably not the U.S.), imported goods may be subject to value-added taxes. For instance, items shipped to Canada by mail may be subject to the Goods and Services Tax (GST) in addition to other import duties, except for those explicitly exempted. The Canada Border Services Agency (CBSA) is responsible for assessing duties based on the value of the items in Canadian dollars. The duty rates may vary depending on the type of goods and their country of origin or manufacture.

Other Fees

Additionally, there are other tariffs that need to be taken into account. In the U.S., there are also Section 301 Tariffs, which are extra duties levied on goods from certain nations as a part of broader trade policy measures. 

Additionally, Section 232 Tariffs are imposed on imports deemed to affect national security; for example, a 25% tariff on steel imports has been in operation since 2018. 

These fees and tariffs are integral components of U.S.-based trade regulations and are designed to manage the flow and security of imported goods, but similar fees apply in other countries. 

An Overview Table

This short table summarizes the most common types of import duties and limitations:

Term Description
Basic Customs Duty Rate This is the standard tax rate imposed on imported goods, which is based on their classification and value.
Merchandise Processing Fee (MPF) A fee intended to cover the processing costs associated with customs clearance.
Trade Agreements Agreements between countries that reduce or eliminate trade barriers.
Quotas Government-imposed limits on the quantity or value of imported goods during a specific period.
Anti-Dumping Duties Duties on imports sold below fair value to protect domestic industries.
Countervailing Duties (CVDs) Duties to counteract subsidies given by foreign governments to exporters.
Voluntary Export Restraints (VERs) Agreements by exporting countries to limit exports to a particular country.
Licenses These are specific permits that must be obtained in order to import certain goods.
Local Content Requirements Policies mandating a certain percentage of a product to be manufactured domestically.
Value-Added Taxes (VAT) In some countries, consumption taxes are levied on the value added to goods at different stages of production or distribution. This is not applicable to import duties in the United States.
Other Fees Additional government-imposed tariffs or fees (such as those imposed under Section 301 and 232 Tariffs) intended to address unfair trade practices or national security concerns. These fees can change depending on trade conditions and geopolitics.

 

What Happens if You Don’t Pay Duties

Non-compliance with these financial obligations can result in significant consequences, from substantial fines impacting your company’s financial health to legal ramifications, including potential criminal charges for serious violations.

Understanding and adhering to customs regulations is not merely a matter of maintaining a good reputation; it’s a legal requirement. Customs authorities prioritize revenue protection and rigorously enforce compliance to safeguard international trade. Businesses need to be thoroughly acquainted with these regulations to mitigate the risks of non-compliance, which is where a freight forwarder can provide help and advice.

How Does a Freight Forwarder Assist With Customs Clearance?

Navigating the complexities of import duty payments can be challenging, but a trusted digital freight forwarder, such as Ship4wd, can simplify the process as they have extensive expertise in various customs regulations, documentation, import requirements, and duty payment procedures. 

With the help of a digital freight forwarder, importers can take advantage of much more efficient and streamlined processes for managing import shipments, including the payment of duties. 

Keep Customs Clearance Simple with Ship4wd

Ship4wd simplifies customs clearance, taking on many tasks that would normally require significant resources and time from your staff.

As your trusted freight forwarder, Ship4wd offers a suite of services tailored for businesses engaged in international trade. Beyond handling customs clearance, we offer businesses an easy way to book carriers, secure cargo insurance, conduct pre-shipment inspections, and manage the entire shipping operation, including final delivery. This comprehensive door-to-door service ensures that your logistics are handled efficiently from start to finish.

Our customer support team is always on standby to assist with any inquiries you might have about your shipment or using our platform, ensuring your shipping experience is seamless and efficient. 

To improve your shipping processes, sign up with Ship4wd. Let us handle the logistics so you can concentrate on what matters most—managing your business.

Take control of your shipping

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