Import duty is a tax imposed on goods when they are imported into a country. The purpose of import duties is to protect domestic industries from foreign competition, to raise revenue for the government, and to regulate the flow of goods into and out of a country. Import duties are typically calculated as a percentage of the value of the imported goods. In addition to import duties, other fees and taxes may also be imposed on imported goods, such as value-added taxes, customs fees, and surcharges.

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Import duty is a tax that is levied on imported goods when they enter a country. The amount of import duty that is charged 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 in calculated, we review:

  • How duty is calculated
  • Most favoured nation duty rate
  • How to get a lower rate than most favoured nation duty rate
  • Low value duty free threshold (de minimus value)
  • Goods under Tariff Preference Level (TPL)
  • Anti-dumping duty explained
  • What is Countervailing duty?
  • Value Added Tax
  • Excise Tax Explained
  • Common Import Fees from Carriers
  • Best international shipping options to / from Canada

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 determined based on the Harmonized System (HS) codes, which are internationally standardized codes that are used to classify goods for the purpose of tariff and tax assessment.

Data needed to calculate the import duty on a particular shipment of goods include:

  1. HS classification of goods: The Harmonized System (HS) is a standardized system used to classify goods by most customs authorities around the world.
  2. Value of the Goods: The value of goods being imported include the cost of the goods, insurance and freight costs. Read more about valuation.
  3. Country of Origin: The country of origin can refer to from where the goods where shipped but most commonly refer to where the goods were manufactured. Read more about Certification of origin.

sample hs code graphic

Most favoured Nation duty rate explained:

Most Favoured Nation (MFN) duty rate is the lowest tariff rate that a country applies to imports from other countries. MFN duty rates are established through 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 favoured nation.

MFN duty rates are applied to most goods that are traded between WTO member countries. However, there are some exceptions to the MFN rule, such as for preferential tariff rates that are granted under free trade agreements or for developing countries that are given special tariff treatment under the WTO's Generalized System of Preferences (GSP).

The MFN duty rate is an important principle of international trade because it helps to ensure that there is a level playing field for all WTO member countries and that trade is conducted on a non-discriminatory basis.

Duty Rates are published by customs authorities and generally available online.Most countries have a default rate referred to as a most favoured nation or MFN rate.This is the rate applied to most imports.

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.

Get a duty lower rate than most favoured nation rate

Preferential tariff rates that are granted under 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.

free trade vectorVerify 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 be imported duty free. This is often referred to as the diminimus value. The low value threshold can be as high as US$800 to the USA, EU€150. Canada's diminimus value depends on from where to goods are sent but is CA$20 for imports from most countries. Canada_duty_free_low_value_threshold_Jet_graphic

What are Anti-dumping duties?

Anti-dumping duties are tariffs that are imposed on imported goods that are sold at prices that are lower than their fair market value. These duties are intended to protect domestic industries from foreign competition that is perceived as being unfair.

What are Countervailing duties?

Countervailing duties are tariffs that are imposed on imported goods that are subsidized by the exporting country's government. These duties are intended to level the playing field for domestic producers by offsetting the advantage that the subsidies provide to foreign producers.

What is the difference between import duty and taxes?

Duty is a type of tax levied on goods as they are imported into a country while taxes are charges that are imposed on goods and services by governments. Imports to countries with a value added tax (VAT*) regiment are charged taxes at the time import. In general, VAT is a common feature of the tax systems in European countries and the UK, but it is also found in many other parts of the world.

They are usually calculated as a percentage of the price of the goods and accessed even if goods can be imported duty free.

For imported goods, value added tax is most often calculated 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 referred to as the CIF (Cost, Insurance Freight) or landed value. 

declared value vectorVerify the correct valuation of goods for import.

The importing company can sometimes claim back much of the VAT they pay on imported goods.

* VAT - Value Added Tax for imports explained

A value-added tax (VAT) is a type of consumption tax that is imposed on most goods and services in many countries around the world. VAT is usually calculated as a percentage of the price of the goods or services and is collected at each stage of the production and distribution process.

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, it charges VAT to the customer. The business is then able to claim back the VAT it has paid on its purchases, so the net effect is that the business only pays VAT on the value that it has added 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 finished 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 net effect is that the manufacturer only pays VAT on the value that it has added ($50).

VAT is typically implemented as a multi-stage tax, which means that it is collected at each stage of the production and distribution process. This helps to ensure that businesses only pay VAT on the value that they have added, rather than on the full price of the goods or services.

Example: Calculating UK Import fees for a consignment valued £2000 import subject to a 9% duty

  • Assessed 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 limited quantity of certain goods to be imported duty-free from developing countries into Canada. TPL is designed 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 Least Developed Countries (LDCs) as recognized by the United Nations, as well as other developing countries that have been designated by the Canadian government as eligible for TPL.

Currently, the list of countries that qualify for TPL includes:

Least Developed Countries as recognized 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 covered by TPL. Additionally, importers must meet certain requirements to claim TPL, such as providing documentation to prove that the goods qualify for TPL and that the goods were produced in an eligible country.

When does an excise tax apply to imports

Excise tax is a type of tax that is levied on specific goods or services that are considered to be harmful or luxury items.

In the case of imported goods, excise tax is typically applied when the goods are imported into the country. Excise tax rates on imported 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 levied on imported goods in order to cover the cost of inspections, testing, or other regulatory activities. These fees may be imposed by 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 imported goods by the government of the United States. The MPF is intended to cover the costs of processing imported goods through customs and other government agencies, such as the Food and Drug Administration (FDA) or the Department of Agriculture (USDA).

The MPF is calculated as a percentage of the value of the imported goods, and the rate varies depending on the type of goods being imported and the country of origin. For example, the MPF rate for most goods imported from countries that are part of the World Trade Organization (WTO) is 0.3464% of the value of the goods. The MPF rate for goods imported 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 charged by a carrier?

A carrier disbursement fee is a charge that is levied by carriers including FedEx, UPS and DHL.These fees are typically charged to the shipper or the recipient of the goods and average around 2.5 to 3% with a minimum fee of around (the equivalent of) US$15.

Carrier disbursement fees can be levied for a variety of reasons, such as to cover the cost of prepaying import duty and tax, storage charges or other required service.

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.

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  • Air freight: This is the fastest shipping option with door to door integrated solutions.
  • Ocean freight: The most economical option for shipping full container load (FCL) and 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



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Written by Timothy Byrnes

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