Import duty is a tax on goods when they import. The purpose of import duties is to protect domestic industries from foreign competition, raise revenue for the government, and regulate the flow of goods. Import duties are typically a percentage of the value of the importing goods. In addition to import duties, other fees and taxes may apply. Additional fees can include value-add tax, customs fees, and surcharges.
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Understanding Customs Duty Calculations and Import Fees
Import duty is a tax on goods when they enter a country. The amount of import duty assessment depends on a number of factors, including the value of the goods, the classification of the goods under the tariff schedule of the importing country, and the applicable tax rate.
In this Guide to how duty and method of calculation:
- Duty calculation
- Most favour nation duty rate
- How to get a lower rate than most favour nation duty rate
- Low value duty free threshold (de minimus value)
- Goods under Tariff Preference Level (TPL)
- Anti-dumping duty explanation
- What is Countervailing duty?
- Value add Tax
- Excise Tax
- Common Import Fees from Carriers
- Best international shipping options to / from Canada
READ MORE: VALUE ADDED TAX VERSUS IMPORT DUTY
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In most cases, the value of the goods is the cost of the goods, plus the cost of insurance, and freight (CIF) to the place of importation. The classification of the goods is via the Harmonize System (HS) code. They are standard codes with international acceptance. The HS system enables classification goods for the purpose of tariff and tax assessment.
Data necessary to calculate the import duty on a particular shipment of goods include:
- HS classification of goods: The Harmonize System (HS) is the international standard to classify goods by most customs authorities around the world.
- Value of the Goods: The value of the consignment include the cost of the goods, insurance and freight costs. Read more about valuation.
- Country of Origin: The country of origin can refer to from where the goods ship but most commonly refer to the country of manufacture. Read more about Certification of origin.
In addition to duty, there can be non tariff barriers such as licensing, permits and other costs.
View Video: Import duty explained
PDF Presentation on Import Duty
Most favour Nation duty rate explanation:
Most FavourNation (MFN) duty rate is the lowest tariff rate that a country applies to imports from other countries. MFN duty rates are via the World Trade Organization's (WTO) General Agreement on Tariffs and Trade (GATT). Under the GATT, WTO member countries agree to extend the same tariff benefits to all other member countries that they grant to their most favour nation.
PDF: List of Originating Countries that may benefit from preferential duty free import to Canada.
MFN duty rates apply to most goods that trade between WTO member countries. However, there are some exceptions to the MFN rule. Preferential tariff rates via free trade agreements. Developing countries have special tariff treatment under the WTO's General System of Preferences (GSP).
The MFN duty rate is an important principle of international trade. It helps to ensure that there is a level playing field for all WTO member countries. The goal is to have non-discriminatory trade rules.
Duty Rates publish via customs authorities and generally available online.Most countries have a default rate. This is the most favour nation or MFN rate.This is the rate for most imports.
What is the Most Favoured Nation Tariff?
The default rate for most countries is often referred to as the Most Favoured Nation rate. This applies to virtually all imports from countries that share regular trade relationship.
General. Rate or "column 1" duty Rate of US Tariff
The default rate in the US tariff shows as the "General" rate of duty. This is essentially is a different term but same principles as the MFN rate.
Helpful Video: Import Duty Explained
Why are shipments from different countries given different duty rates?
Countries who are not part of the WTO -for example North Korea - are subject to much higher rates of duty and restrictions.
Why are their import charges for duty free imports?
Import duty is just one aspect of import fees. Other import costs can include sales or value add tax, cost to prepare a customs entry, import bonds, and carrier disbursement fees.
List of countries that may benefit from preferential duty free import to Canada (PDF)
Get a duty lower rate than most favour nation rate
Preferential tariff rates are possible via free trade agreements and for developing countries. Canada has trade agreements with most of world's major economies (with the notable exceptions being China and India). To qualify for preferential duty rates, the goods must meet the country of origin rules of the trade agreement.
Verify the benefits Canada's Free Trade Agreements
Goods from developing countries may quality for duty free import. See section below on the Tariff Preference Level (TPL) program.
Low Value threshold for duty free import
Most countries have a low value thresholds under which goods can import duty free. This is also the diminimis value. The low value threshold can be as high as US$800 to the USA, EU€150. Canada's diminimis value depends on from where to goods ship but is CA$20 for imports from most countries. Verify the benefit of low value duty free thresholds.
What are Anti-dumping duties?
Anti-dumping duties are tariffs that are on goods that are sold at prices that are lower than their fair market value. These duties intend to protect domestic industries from foreign competition that is perceived as being unfair.
What are Countervailing duties?
Countervailing duties are tariffs that on goods that subsidize by the exporting country's government. These duties intend to level the playing field for domestic producers by offsetting the advantage that the subsidies provide to foreign producers.
What are non-tariff barriers?
Non-tariff barriers refer to regulations, licensing and other processes that bring additional costs for exports and imports. Learn more about non-tariff barriers.
What is ad valorem duty?
Ad valorem refers import duty or tax that calculates as a percentage of value the importing goods. Otherwise, the rate of duty can be via a unit of measure such a size, volume, weight or number of units.
What is the difference between import duty and taxes?
Duty is a type of tax on goods as they import into a country. Taxes are charges on the sale of goods and servicesfd. Imports to countries with a value add tax (VAT*) subject to this tax in addition to duty. VAT is a common feature of the tax systems in Europe, the UK, Australia, Singapore and other parts of the world.
Read more: Duty versus Value Added Tax
They are usually calculate as a percentage of the price of the goods and apply even to duty free imports.
For imports, value add tax is most often on the total of the import value for customs (read more about valuation) plus duty.
Note on value: The value of an import includes the value of the goods plus shipping costs and insurance. This is the CIF (Cost, Insurance Freight) or landing value.
Verify the correct valuation of goods for import.
The importing company can sometimes claim back much of the VAT they pay to clear the goods.
* VAT - Value Add Tax for imports
A value-add tax (VAT) is a type of consumption tax on most goods and services in many countries around the world. VAT is calculation is usually a percentage of the price of the goods or services. Collection is at each stage of the production and distribution process.
READ MORE: UNDERSTANDING IMPORT DUTY AND VALUE ADDED TAX
The way VAT works is that when a business purchases goods or services, it pays VAT on the purchase price. When the business sells the goods or services, VAT applies to the customer. The business is then able to claim back the VAT it has paid on its purchases The net effect is that the business only pays VAT on the value is adds to the goods or services.
For example, if a manufacturer buys raw materials for $100 and adds $50 of value through the manufacturing process, it will charge VAT on the total value of the complete product ($150). If the VAT rate is 10%, the manufacturer will charge the customer $15 in VAT and will pay $10 in VAT to the government. The manufacturer will then be able to claim back the $10 in VAT that it paid on its purchases. So the manufacturer only pays VAT on $50.
VAT typical implementation is as a multi-stage tax. Collection is at each stage of the production and distribution process. Businesses only pay VAT on the value they add.
Example: Calculating UK Import fees for a consignment under £2000 import subject to a 9% duty
- Assessment Value in UKL: £2000
- Duty: £180
- Value for VAT: (£2000 + £180): £2180
- VAT: (20% * £2180): £436
- Total Import Fees: (Duty + VAT/ £180 + £436): £616
- Disbursement fee of (2.5% of disbursement): £15.4
- Total sample import fees + Disbursement (£616 + £15.4) =£631.40
Duty Free Import via Tariff Preference Level (TPL) to Canada
The Tariff Preference Level (TPL) program allows for a certain quantity of certain goods to import duty-free from developing countries into Canada. TPL is a way to help developing countries increase their exports to Canada and to promote economic growth in these countries.
The list of countries that qualify for TPL varies depending on the type of product and the country's status as a developing country. In general, TPL applies to goods that originate in developing Countries (LDCs), Countries with such designation by the Canadian government are eligible for TPL.
Currently, the list of countries that qualify for TPL includes:
Developing Countries with such recognitions by the United Nations that may benefit from TPL duty free import include
- Afghanistan, Bangladesh, Bhutan, Myanmar, Cambodia, Lao PDR, Maldives, Nepal, Pakistan, and Sri Lanka
- Haiti
- Honduras, Nicaragua, Guatemala
The list of countries that qualify for TPL is subject to change and it's important to confirm TPL status prior to shipping.
It's also important to note that TPL only applies to certain goods and not all products from these countries are eligible for TPL. For example, agricultural and seafood products are not part of TPL. Importers must meet certain requirements to claim TPL. Necessary documentation to prove that the goods qualify for TPL is an import requirement.
When does an excise tax apply to imports
Excise tax is a type of tax on specific goods or services that can be harmful or luxury items.
In the case of importing goods, excise tax typically applies when the goods import into the country. Excise tax rates on import of goods are usually set at the same rate as the tax on comparable domestic goods, in order to prevent discrimination against domestic producers.
Items commonly subject to excise tax include:
- Alcoholic beverages
- Tobacco products
- Gasoline and other fuels
- Luxury items such as jewelry, watches, and high-end automobiles
- Certain types of pharmaceuticals
- Gambling equipment
What other import regulatory fees are there besides duty and tax?
There can be other regulatory fees that are on import of goods in order to cover the cost of inspections, testing, or other regulatory activities. These fees can be from customs agencies, health agencies, or other government bodies that are responsible for regulating the import of certain goods.
An example of a processing fee is the merchandise processing fee (MPF) on imports by the government of the United States. The MPF is a way to cover the costs of processing imports. Through customs and other government agencies, such as the Food and Drug Administration (FDA) or the Department of Agriculture (USDA).
The MPF calculation is a percentage of the value of the importing goods, and the rate varies depending on the type of goods and the country of origin. For example, the MPF rate for most imports from countries that are part of the World Trade Organization (WTO) is 0.3464% of the value of the goods. The MPF rate for imports from countries that are not part of the WTO is generally higher, and it can range from 0.5% to 2.5% of the value of the goods.
What Fee's are commonly from the carrier?
A carrier disbursement fee is a charge from carriers including FedEx, UPS and DHL.These fees are typically toward the recipient of the goods. They average around 2.5 to 3%. The minimum fee is around the equivalent of US$15.
Carrier disbursement fees assessment covers the cost of prepaying import duty and tax.
Best International Shipping Options to and from Canada
There are several shipping options available for sending goods international goods to and from Canada. The best option depends on the type and size of the goods you are shipping, the speed of delivery you require, and your budget.
- Air freight: This is the fastest shipping option with door to door integration.
- Ocean freight to Canada: The most economical option for large commercial orders
- Truck load and rail: For sending large commercial orders between Canada, USA and Mexico.
- Commercial carriers such as FedEx, DHL, UPS and their partners.
- Postal service options are generally best option for individuals sending personal goods
