Paying Custom Duties and Taxes when Shipping Products from US
Goods shipped may incur Duty and VAT when shipped to international destinations. Customs Duty is a tariff or tax imposed on goods when transported across international borders. The purpose of Customs Duty is to protect each country’s economy, residents, jobs, environment, etc., by controlling the flow of goods. VAT is (similar to Sales tax in US) a consumption tax assessed on the value added to goods and services. This national/local tax applies more or less to all goods and services that are bought and sold for use or consumption in the Community. Total amount of Duty and VAT varies based on the destination country, nature of the product (Harmonized Code), country of manufacture and value of the product. There is no way to predict this value ahead of time.
- eCommerce retailers must bring clarity: Most eCommerce retailers clarifies in their terms and conditions that the person receiving a shipment is obliged to pay Duty and VAT. In some cases, the shipped can choose a private carrier (FedEx, UPS or DHL) and send a shipment to cover the cost of duties and VAT. In such situation, the shipper gets billed later once the Duty and VAT gets calculated and product delivered. The sender does not have any option to pay Duty and VAT when shipping smaller consumer related items via USPS. Duty and VAT, if applicable, must then be covered by the person receiving the shipment. Individuals buying products from US should be careful about these extra charges and must read the supplier’s website on the responsibilities for covering these charges.
- Calculating duties/taxes: Customs officials use a shipment’s declared value (the value the shipper declares on the goods being shipped), along with the description of the goods, to determine duties and taxes. It is important to ensure that the declared value claimed is accurate. Inaccurate declared value is one of the most prevalent reasons for duty and tax disputes. A shipment’s declared value represents the selling price or fair market value of the contents of the shipment, even if not sold. The first step in determining duty and tax information is to identify the product classification number, i.e. Harmonized System or Schedule B number for your product. More importantly, your goods won’t ship without this number on key shipping documents. A Schedule B number is a 10-digit number used in the United States to classify physical goods for export to another country. The Schedule B is based on the international Harmonized System (HS) of 6-digit commodity classification codes. There is a Schedule B number for every physical product, from paperclips to airplanes. The Census Bureau sponsors a free online tool called the Schedule B Search Engine. Each country’s government that list tariff (duty) rates by each product’s harmonized System code. you may visit export.gov to get the latest publication and details. It is best to check with your shipper or fulfillment service provider to assist you with this research.
- Can we ship any product?: Generally speaking, there is no restriction and most items are permitted to be shipped internationally. The items which can be shipped falls in category of Clothing, DVDs, electronic, magazine, books etc. However, certain items are prohibited such as biological materials, bacteria or virus samples, firearms or their parts, flammable products, hazardous waste material, lottery tickets or other gambling items, money or other forms of money or cash equivalents. We also cannot ship alcohol.
- Products manufactured in US has advantage: Some countries have very high duties and taxes; some have relatively low duties and taxes. If your product is primarily made in the U.S. of U.S. originating components it may qualify for duty-free entry into countries with which the U.S. has a free trade agreement. US currently have free trade agreements with more than 20 countries including Canada and Mexico. Targeting “Free trade agreement” countries is a good market entry strategy because buyers pay less tariff for goods made in the U.S. compared with similar goods from countries without “Free trade agreement”. Country of manufacture, therefore, must be stated when preparing “bill of lading”. Products manufactured in China or India but shipped from US do not qualify any advantage of “Free trade agreement”.
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