If you are a small business owner, shipping internationally is a smart way to expand your customer base and increase revenue. Yet, there are some challenges, namely navigating the tax and duties regulations of each country. Failing to adhere to them could cause your shipment to be held up at customs or earn you hefty fines.
Before we go any further, let’s break down what customs duties are, who is responsible for paying them, and explore import duty rates by country. Understanding these details will ensure your shipments arrive on time, without extra unnecessary costs when shipping to cross-border customers.
What is import (customs) duty?
Import duty (or customs duty) is a tax collected by customs authorities on goods that cross international borders. The main purpose is to generate income for local governments, but it also raises the final price of foreign goods for consumers. This can encourage local customers to favor domestically produced products over imported ones.
How are import duties different from tariffs or import taxes?
Though these terms are sometimes used interchangeably, there are key differences between import duties, import taxes, and tariffs:
Import duties
Also called customs duties, these are specific taxes charged on imported goods. The rate is determined by the product’s classification, its value, and its country of origin.
Tariffs
Tariffs are a particular type of import or customs duty imposed on certain imported goods. They are generally calculated as a percentage of the goods’ value and are used to regulate international trade flows, often with the goal of protecting domestic industries from foreign competition.
Import taxes
Think of import taxes as an umbrella term that includes all charges applied to imports. They include both import duties and tariffs defined above, but also other taxes like VAT or sales tax.
How do import duties and taxes impact your shipment?
Customs duties and other import taxes will impact the total cost of your shipment, so it’s important you are aware of them early on. You can then factor them into your pricing strategy to ensure your business remains profitable. Import tax directly increases the landed cost of products and incorrect documentation can lead to frustrating customs delays, disrupting supply chains and incurring additional storage fees. Plus, you could face fines for not sticking to customs regulations, putting more strain on your finances and possibly harming your reputation
For your customers, import duty often translates to higher retail prices for your imported goods, influencing purchasing decisions and overall demand. In some cases, customers may be surprised by unexpected fees upon delivery if customs duties and import taxes aren't included in the initial price. You’ll have to make a decision on whether to charge these fees on delivery, or bake them into your sales costs. Our complete guide to International Shipping will take you through some of your options.
How much is import tax?
The import tax and duties you’ll need to pay for a shipment are determined by several factors, including:
- The value of the goods (including insurance and shipping fees)
- The goods description
- The country or region of origin
- The destination country’s tariff rates
- The goods’ HS code(s)
Many countries have a minimum threshold of order value that goods have to meet before taxes and duties apply – this is called a ‘de minimis’ level. In other words, if the value of the order is below this threshold, it can enter the country without the buyer having to pay additional fees like import taxes or customs duties, but if the order exceeds this amount, those extra charges kick in
Countries with the highest and lowest de minimis thresholds
The de minimis threshold varies significantly from country to country, affecting both the overall cost and the convenience of shipping.
Highest de minimis thresholds
- United States: The U.S. has one of the highest de minimis thresholds in the world at USD $800. This high threshold facilitates trade by allowing goods valued at USD $800 or less to enter the country without incurring duties or taxes, which significantly benefits both businesses and consumers by reducing costs and simplifying the import process
- Australia: Australia also has a high de minimis threshold set at AUD 1,000. This means that shipments under this value are exempt from duties and taxes, promoting international trade and making it easier for businesses to ship goods to Australia without additional costs
Lowest de minimis thresholds
Some countries have a zero de minimis threshold, meaning all imported goods are subject to duties and taxes regardless of their value. Countries with a zero de minimis threshold include Egypt, Nigeria, and Sri Lanka, among others.
Country tariff rates
To succeed in the global marketplace, you need to understand the varying tariff rates in different countries. Some countries are known for their high tariffs, while others have adopted more open trade policies. And be aware that while some countries have no tariffs, relevant import taxes and customs duties will still apply.
High tariff countries
- Bermuda: Tops the list with the most expensive average tariff rates across a wide range of products.
- Bahamas: Another island nation with notably high tariffs.
- Fiji: A Pacific island paradise, but imported goods can come with a hefty price tag due to tariffs.
Low to No Tariff Countries
- Hong Kong & Macau: These special administrative regions have long been known for their free trade policies, with no tariffs imposed on most imports.
- Brunei: This small Southeast Asian nation boasts some of the lowest tariffs in the region.
- Singapore: A global trade hub with a reputation for open markets and minimal tariff barriers.
What is an HS code?
A Harmonized System (HS) code is a unique identifier to classify the exact type of goods being shipped. The system is internationally recognized; the customs department of a country defines different regulations based on different classifications.
When you fill out a waybill for your international shipment, you must enter the HS code(s) of the goods. Customs authorities will use this code to understand what is being shipped and apply the correct taxes and duties. If the code is incorrect, you could end up paying the wrong import tax rate – or worse, have your shipment rejected by the destination country.
DHL Express have put together this HS code guide to help you understand more about this aspect of customs clearance, including details of where to find the HS code, how to get the HS code for a product, and other frequently asked questions.
Using the right HS code is vital, and as the shipper, this is responsibility always falls to you. To find out the HS code for your product, you will need to carry out a harmonized code lookup. To do this, check your government website for exporting and importing – or use DHL Express’s dedicated Interactive Classifier tool on MyGTS.
How to calculate import tax
As international logistics experts, DHL Express has a range of solutions to make cross-border shipping easy. These include a dedicated Landed Cost Estimator that works out customs duties, taxes, shipping costs, and more, to help you make better pricing decisions.
To start using the Landed Cost Estimator, simply login or set up an account on MyGTS.
Once you're up and running, you'll be asked to fill in details like the origin and destination countries, insurance, brokerage, and transportation fees, and product details. And from there, it will calculate the import tax for you.
Who has to pay for import tax and custom duty?
So, who is responsible for paying the import taxes and duties on a cross-border shipment? Here’s where it can get a little complex, so let’s break down the different parties and their responsibilities.
Carrier
This is the service that transports the shipment cross-border – for example, DHL Express. In international trade, the carrier acts as a customs broker, managing border documentation for sellers like you, so that your goods clear customs without any problems. The carrier is also responsible for collecting the associated import taxes and duties.
Exporter and importer
In the case of cross-border B2C e-commerce transactions, you, as the seller are the exporter, and the customer buying the goods is the importer. Who is responsible for paying the import taxes and customs duties is determined by a globally recognized set of rules called International Commercial Terms, or Incoterms for short.
Incoterms are agreed between the exporter and the carrier. The two most common are:
- Delivered Duty Paid (DDP): This is when you, as the seller, take responsibility for the transportation of the goods (including the associated fees), and for paying all import taxes and duties due when the shipment crosses borders.
- Delivered Duty Unpaid (DDU): In this instance, you, as the seller are responsible for delivering the goods to their destination and the cost of their transportation, but your customer must pay all associated import taxes and duties to the carrier when they receive their package.
It goes without saying that the latter is not so popular with customers. It may seem the cheaper option for your business, but can you afford to damage the customer experience in this way? Disgruntled customers won’t return!
Who or what is the Importer of Record?
Whether a delivery is DDP or DDU, the party responsible for ensuring import compliance is known as the Importer of Record. It's up to them to manage all paperwork (such as licenses and certificates) needed for the import, as well as covering all duties and taxes. In the case of DDP, for example, you, as the seller, are the Importer of Record.
Did you know?
Incorrect incoterms are a leading reason for shipping delays. With that in mind, you might want to partner with an expert in cross-border shipping – like DHL Express – who can lead you through the process and make sure nothing is overlooked.
Considerations when shipping internationally
There is a lot to plan for when shipping to a new cross-border destination, including:
- The destination country’s customs regulations: It’s important to research the local import tax and duty rates to factor into your costs. Get started with our Country Guides.
- Shipping documentation and paperwork: This may include an accurate and detailed commercial invoice, waybill, and bill of lading.
- It goes without saying that you want your shipment to arrive at its destination in perfect condition. Goods should be packed in correctly sized boxes to optimize space (and thus minimize your shipping costs!), with labels displayed clearly. Bonus points for green packaging!
- Prohibited and restricted items: Goods shipped without the correct certificates or permits could be seized by customs or earn you a hefty fine.
- Insurance: This will give you peace of mind in case something does go wrong – such as a damaged or lost shipment. Having insurance ensures your business is protected financially against unforeseen events, allowing you to recover the costs of the goods and potentially other related expenses like shipping fees or customs duties. Depending on the type of insurance you choose, you may also be covered for losses due to currency fluctuations or political instability in the destination country.
Practical steps for handling import tax and shipping duties
Managing customs declarations
When shipping goods internationally, you’ll need to complete customs declaration forms, including a commercial invoice. This is a specialized export document containing comprehensive information about the goods that customs authorities will use to calculate the taxes, tariffs and duties due. You can cut costs by managing customs declarations yourself, or you can engage a customs broker.
Choose a customs brokerage service
Partnering with DHL Express, for example, will mean your business has access to a global network of customs experts across over 100 countries. You’ll benefit from:
- Full transparency and maximum visibility over what has been declared on your behalf
- Global rate cards for transparent costs
- New technologies such as AI-powered compliance tools to reduce clearance delays of your imports
- DHL’s Duties and Taxes Outlay Service, meaning the company will settle all duties and taxes upfront, on your behalf, to prevent delays in the goods getting to their destination
Prepare your customers for paying import duties
Lastly, remember that whatever incoterms you choose for your international shipments, be clear about them to your customers upfront. Surprising them with high shipping fees at the very last moment is a sure way to lose the sale.
Simplify your tax and duty management
Managing taxes and duties for your international shipment may sound complicated, but with a logistics partner like DHL Express, it needn’t be. From calculating the import duties based on a shipment's HS code and declared value, to knowing the import duty rates of a specific destination, their Click here to enter text.specialists can be an invaluable source of expert support and guidance.
Their experience in international shipping means they understand the intricacies of global customs regulations and can take care of everything to ensure your shipments arrive on time. Teaming up with a logistics partner like this can take the stress out of international shipping, so you can focus on expanding your business into new markets with confidence and ease.
