Are you paying more Customs duty than you should?
If international freight, insurance, foreign inland freight, or foreign port charges are included in the commercial invoice value you receive from your suppliers, you might be overpaying Customs duty.
Just like income taxes, importers are allowed deductions that can adjust the transaction value of imported goods.
This serves as the basis for the calculation of import duties, including Section 301 duties.
So, what does that mean for your business?
What Are Duties and Taxes
According to The U.S. Customs and Border Patrol website, “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, especially restrictive and prohibited goods, into and out of the country.
The customs duty rate varies depending on where the goods were made and what they’re composed of.
While importers are responsible for paying Customs duties, some overlooked deductions can reduce your total duty owed on goods brought into the United States.
Two Often-Overlooked Duty Deductions
Deduction Option #1 – Freight and Insurance
International freight and insurance costs, often included in the seller/supplier commercial invoice value under Incoterms Cost Insurance and Freight (CIF) terms of sale, may be deducted from the transaction value.
With supporting documentation, these charges can be itemized on the invoice by the seller/supplier and deducted from the transaction value.
The importer must be able to verify the actual costs and receive adequate documentation, such as a forwarder, carrier, or service provider invoice.
Simply itemizing the costs on the commercial invoice is not sufficient.
Taking these deductions ensures your company is not paying duties on freight and insurance costs and provides substantial savings.
Companies often struggle with the recordkeeping requirements for these deductions as sellers/suppliers are sometimes unable or unwilling to provide proper backup for the charges.
In these cases, importers should consider changing the terms of sale to protect from overpayment of Customs duties.
Deduction Option #2 – Supply Chain & Origin Costs
The cost of goods on seller/supplier invoices often includes charges incurred at the origin.
These charges include trucking from the factory to the port or container freight station, terminal handling charges, documentation fees, security charges, and any other charges related to the movement of the goods after they leave the seller/supplier’s factory or warehouse under both CIF and FOB terms.
With supporting documentation, these charges can be itemized on the invoice by the seller/supplier and deducted from the transaction value.
The importer must be able to verify the actual costs and receive adequate documentation, such as a forwarder’s carrier receipt or other service provider invoice. Simply itemizing the costs on the commercial invoice is not sufficient.
Taking these deductions ensures your company is not paying duties on non-dutiable costs and provides substantial cost savings.
While these charges may appear to be insignificant on a per-shipment basis, they can drive up duty costs on an annual basis.
As with freight & insurance, once a process is in place to ensure compliant handling, these deductions require little effort by the importer on an ongoing basis.
In these cases, importers should consider changing the terms of sale to protect from overpayment of Customs duties.
Get started on a path toward duty savings
If you are overpaying duties on international shipments, a freight forwarder can help.
From compliant valuation strategies to the processes and recordkeeping that support them, a good forwarder like BGI can help your team get started today on a path toward duty savings.
We can help:
- Review your current transactions to help identify potential savings
- Draft communication to your suppliers to vet potential savings
- Devise processes that compliantly take advantage of available deductions
- If you’re buying on a CIF basis and want to assess potential savings by taking control of your freight movements, we can analyze opportunities and potential solutions
Controlling the movement of your goods not only saves on duty but may potentially reduce freight costs and improve transit times and service levels.
Don’t pay more duties than you need to!
The Bottom Line:
Taking all deductions available to your company can offer substantial duty savings. With ever-increasing supply chain costs, maximizing every compliant deduction is critical in today’s environment.
Don’t leave money on the table!
Got questions?
Call BGI
800-987-4244
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