Updated by Neil
The United States imported about $452.24 billion worth of Chinese products as of 2019.
By September of 2019, America has been imposing 25% and 7.5% tariffs on imports from China on 250 billion dollars and 112 billion dollars’ worth of goods. Therefore, an importer should be sure that the purchase decision is profitable. This chapter comprises essential elements that would help you get customs duty and import taxes right.
Canada eliminated tariffs on all eligible industrial and most agricultural products imported from the United States under the terms of USMCA. Duty-free shipments also apply for de minimis shipments. De minimis refers to the maximum threshold below which no duty or tax is charged on imported items. Some products such as textiles that do not meet the duty-free eligibility requirements under the U.S. -Mexico-Canada Agreement, may be subject to standard tariff rates.
The tariff code connected with each product that is to be imported is listed on the Custom’s schedule (HTS). The import tax rate (usually 0%-18%) that is linked to the given tariff rate is in an extremely organized system with specific characteristics. For instance, one Dracula outfit containing eight or more different items require separate codes. The whole costume would have four different tax rates and four duty-free items. The order should consist of a properly assigned tariff code lest customs put a halt in the shipment.
Various countries assess the value for customs duty based on the price of the goods, accompanied by the cost of international insurance and freight (CIF). However, in the United States, it is evaluated on just the purchase value.
There are exceptions to the application of Customs duty. It does not apply if the shipment value is below a predetermined minimum value. The de minis threshold/ minimum value currently is $800.
The tariff and duty connected with imported goods are listed on the website under custom tariffs 2020. Duty depends on the type of goods, weight and the amount that is ordered. The goods are divided into different sections and depending on what it is and the country it is being exported from the tariff is assigned.
Any good that does not fall under any of the classifications will be assigned the same duty as its nearest group. For example, if there is a certain fruit is not assigned under the section it will have the same duty as the fruit nearest to its kin.
Customs Duty Estimation
Evaluating customs duty can become problematic for you, even more so if you are importing numerous products or importing to other countries (specifically where taxes are due at import as well). The different ways to calculate how much customs duty may be due are as follows:
- Do it yourself– If you are not frequent in making international shipments, then evaluating customs duty maybe within your capability, especially if you are privy to spreadsheets and complex data. Although, this method is more susceptible to mistakes than the other alternatives.
- Contact a consultant– You can always count on international tax consultants such as private customs brokers to check on your work and make sure it is correct. You can also have them map your inventory to tariff codes or even organize your international shopping cart.
- Taking the help of your forwarder– Some forwarders may be open to researching and assigning tariff codes, calculating the customs duty, and determining taxes, fees, and other import costs for their clients. However, you would be the one handling the consequences for any errors made.
- Automatic calculation– Automated solutions for assigning tariff codes and duty rates is a quick, accurate method for calculating duty. There are apps now for incorporating international tax calculations with your shopping cart.
Note: There is no correct system to handle your customs duty and import tax as it depends on what your needs and resources are. However, with more orders you make, more goods you ship, and more countries you communicate with, there is bound to be more complexities. You should make sure whichever method you choose for evaluation is producing the results you estimated and that you are satisfied with them.
The Don’ts when one is dealing with Custom Duties:
If not prevented at the very beginning, these mistakes can result in expensive consequences. They can be detrimental to your business. The following are the eight customs duty and import tax mistakes one cannot afford to make:
- Never assume you do not have to worry– You should take ownership if you’re liable for taxes, fees, and duties.
- Lacking proper records of other costs- Possessing the correct rate of duty and tariff is not all of it. Shipping costs, cargo insurance, and transaction taxes all contribute to landed cost. It is discussed in greater detail in Chapter: Shipping Basics.
- Deciding last-minute- Attempting to manage international tax compliance on the spot is risky and can cause exorbitant mistakes.
- Outsourcing your work- If the freight forwarders whom you hired aren’t customs brokers too, you are the one who is liable to pay in case of an error. It may be convenient for you initially but harmful and risky in the long run.
- Undervaluing or Misidentification– Customs are aware that some importers try to set the value of their shipments under the de minis threshold to avoid compliance or mislabel goods to pay a lower tariff.
- Being laidback with documentation– You should have your import documentation readily available to avoid any substantial delays during any processing of shipments done by Customs.
- Not being up-to-date on information– Tariffs and tax rates are always changing. Information that was valid in Q1 2018 may not be in Q3 2019.
- Trying to do everything yourself– The act may be commendable but not necessarily fruitful.