Duties and taxes are something you can’t avoid when shipping your goods internationally. They’re a cost of doing business, no matter where you or your supplier are based. It also doesn’t matter if you’re engaging a sourcing company or a freight forwarder to handle your shipment – the costs must be paid.
Depending on the precise product you’re importing, your country’s customs department may determine if you owe a particular duty or tax and charge you accordingly.
Virtually all shipments crossing an international body will be subject to this assessment, and each country assesses the charges differently.
Below, we’ll look at what duties and taxes you’ll have to pay, and the charges levied in a number of countries including Australia, the United Kingdom, the European Union and the United States.
What duties and taxes on my international shipment do I have to pay?
First, let’s start with some basic concepts.
A duty is a type of tax that’s payable to a government, charged on goods and transactions.
A customs duty includes both import and export duties, with import duties known as tariffs. This is what the importer has to pay when bringing foreign goods into their country. Import duties typically vary per category, and so aren’t as standard as a sales duty.
Each country’s customs department maintains its own import duty on specific goods depending on their Harmonised System (HS) Code. A ‘Harmonised Commodity Description and Coding System’ code consists of 6-10 digital figures and is applied to a specific type of good.
For example, there are three different HS Codes for vanilla, including:
· vanilla (HS Code 0905);
· vanilla that’s neither crushed nor ground (HS Code 0905.10.00); and
· vanilla that is crushed or ground (HS Code 0905.20.00).
Different duties will apply according to specific HS Code assigned to an imported good.
A tax, as we all know, is a mandatory financial obligation levied by governments on goods, income, transactions and other activities. There are a variety of taxes levied on goods and services including:
A direct consumption tax imposed on the sale of a good, collected directly from a consumer by a vendor once a customer purchases a product.
Value Added Taxes (VAT)
VAT is an indirect consumption tax levied at each stage of a supply chain, charged at the end of a sale. Not to be confused with GST.
The idea is that VAT is taxing the value added to the item at each stage of the production line. Businesses will typically charge VAT and pay it later to the government. If you’re running a business, you’re essentially the middleman between your customer and customs.
Goods and Services Taxes (GST)
Another indirect consumption tax on each stage of the supply chain, also to be charged at the end of a sale. Whilst similar to VAT in that they are treated the same, there are important differences.
As discussed above, these are taxes you’ll need to pay when bringing goods into the country.
This tax needs to be paid when your goods are declared at the local customs agency at the port of destination. Failure to pay these duties may lead to your goods not being cleared at customs, adding further costs and delays to your business.
There are various ways of calculating an import duty, but a common way is through CIF (Cost, Insurance, Freight). This means the complete cost of a product right up until it's delivered. Another method is FOB (Free on Board), which means the amount paid for the goods as well as the costs of transport, unloading, loading and other costs ancillary to delivering goods at a particular destination port.
So, what duties and taxes will you need to pay in your country? Below, we’ll take a look at how the differences between customs departments in four different regions across the world.
Importers based in Australia must pay customs duties to the Australian Border Force, part of the Department of Home Affairs.
All goods are subject to taxes and duties when imported in Australia unless a specific exemption or a concession is applicable. When importing your goods, it’s important to classify your goods in accordance with the correct HS Code to ensure the correct duty is applied. You may be entitled to a refund of a customs duty you’ve paid in some circumstances.
Generally, imports valued over AUD $1000 and specific imported goods (such as alcohol and tobacco) are subject to a customs duty. You must also pay GST in the amount of 10% on your imports.
You may be entitled to take advantage of several of Australia's concession schemes, such as the Tariff Concession System. Here, you can apply for a Tariff Concession Order (TCO) which grants you a concession if there are no Australian manufacturers known to produce goods that can substitute the goods you're importing.
Importers in the United Kingdom must pay their customs duties to Her Majesty’s Revenue & Customs.
You will be charged customs duty if you are importing excise goods (i.e. tobacco and alcohol), or goods worth more than £135. Customs duty will be payable on both the price paid as well as postage, packaging and insurance.
Customs duty in the UK is assessed on the market value of the goods when they arrive into the country. Prices typically consist of CIF and Duty with a 20% VAT on the aggregate value (this may be lowered to 5% and even to nil for certain goods). You can read more about UK's VAT rates here.
Your freight forwarder (such as our team at The Sourcing Co) can declare your goods and pay the relevant duties and VAT on your behalf. We will then typically include this in our invoice to you.
You can read more about the UK requirements here.
Like in other parts of the world, when you import goods into the EU, the European Commission’s Taxation and Customs Union will take into account the goods’ value, the applicable customs tariff and where your goods came from.
When importing from a non-EU country, importers in the EU will be liable to pay Customs, Excise and VAT. This will be calculated as a percentage (which will depend on the good).
The value of the customs payable will depend on its classification in the Combined Nomenclature (CN). This is similar to the HS system we’ve described above, but EU-specific. It takes into account the Common Customs Tariff which is payable on non-EU imports.
It is important to check the requirements of each specific EU state, who have their own rules regarding costs such as VAT.
Note that you won’t have to pay customs duty on goods below €150 if the goods are supplied directly to the buyer.
When importing from a country within the EU, customs duties are not payable.
In the United States, your primary customs agency is U.S. Customs and Border Protection, an agency of the Department of Homeland Security.
Once again, the customs duties that are payable will depend on their HS Code. The U.S International Trade Commission have put together a comprehensive database where you can search the estimated applicable duty on what you're importing.
Some countries will have preferential rates if they have a free trade agreement with the USA.
Duties won't be charged if the value of your goods are less than $800.
Customs will collect taxes including the Federal Excise Tax (imposed on alcohol and tobacco) and also a Merchandise Processing Fee on:
· “informal entries” (goods valued under US $2500) – fees may include a $2.10 per shipment, a $5.77 mail fee and a $3.15 manual entry fee; and
· “formal entries” (goods worth over US $2500) – set at about 0.3464% of the value of the goods (with charges ranging from $26.22 to $508.70).
You may be eligible for a refund of your duty if you’ve overpaid what you owe.
Also read: Info you need to know on Duties & Taxes When Importing to the U.S.
Questions on your shipment’s duties or taxes?
We understand that your taxation and duty obligations can be overwhelming, especially if you are new to global shipping.
Our team here at The Sourcing Co are not only an experienced sourcing company. We also have a dedicated freight forwarder team that all completely across the duties and taxes payable.
If you’ve got any questions about paying duties and taxes on your international shipment, please don’t hesitate to get in touch with one of our friendly professionals here at The Sourcing Co.