Are Your Charges Dutiable?
Posted on May 11, 2018
All importers are required to pay a percentage duty on the value of their imported merchandise, so determining the accurate value is a vital step in the entry process. When most goods come into the United States, an ad valorem (or percentage based) duty is assigned based on the total value of that good. As with any charge, an importer doesn’t want to pay more than what is required. Just like income taxes, there are both additions and subtractions that may be placed on imported goods to adjust the value.
Let’s examine some factors that will increase the value of imported goods and so increase the amount of duty payable.
- Any packing costs that an importer may incur
- For example, if an importer pays an invoice of $10,000 for goods and an additional invoice of $500 for packing material used to package up the goods, duty must be paid on the combined value of $10,500.
- Any selling commission paid
- If an importer pays a third party a commission to sell their products once they have been imported, the importer will have to pay duty on the amount of commission that is paid to the third party. This is because the act of hiring the seller adds to the value of the item.
- The proceeds of any subsequent sale
- Let’s say a business imports an item that has an invoice value of $3,000 with an agreement that they will split the profits of the sale with the seller of the item. The business then sells that item for $7,000 and sends the original seller his $2,000 and keeps the remaining $2,000. The dutiable value of that item would now be $5,000 (the original $3,000 on the invoice plus the $2,000 proceeds of the sale).
- Any “Assist” that goes into the goods
- Basically speaking, an assist is when an importer of goods provides something of value to the manufacturer for the purpose of manufacturing the imported good. The purpose of this is to allow the manufacturer to produce the product cheaper than if they had to source all production elements independently. The end result is that the invoiced value to the domestic buyer is less than the value the manufacturer would have charged had they not received an “assist” from the buyer. Since customs duty is paid on a percentage basis, it reduces the amount of duty and so is not acceptable to US Customs. This is why the value of the assist must be added to the cost of the goods.
Now that we have covered the potential additions that must be included on the value of imported goods, let’s examine some deductions that may be taken advantage of. Keep in mind though, just like taxes, you will need specific and objective evidence to deduct value from a customs entry. That said, deductions include:
- Any cost in addition to the FOB value of the merchandise
- For example, if an item is purchased with Incoterms CIF meaning the Cost, Insurance, and Freight have been paid for – a deduction may be taken for the cost of the insurance and freight. However, in order to deduct these costs, an importer must have physical proof of the charges such as a bill of lading or a line item on the commercial invoice showing the charge. Charges may not be estimated and or told to the broker verbally.
- Any value that is added to the merchandise after the goods have been imported if those charges have been included on the commercial invoice
- For example, if a table is imported from Italy at a total cost of $3,000 which included a $400 charge for assembly once in the United States that $400 may be deducted from the invoice as a non-dutiable charge. However, that charge must be listed explicitly on the invoice to be able to deduct that cost.
- Any Customs duties or other taxes if they appear on the invoice
- This is a more comprehensive example of the first situation; if an importer is importing an item CIF, there are certain charges that are being paid. However, if an item is being imported DDP, that is Delivery Duty Paid which will include the marine freight, terminal handling fees, insurance, broker fees, customs duties, federal tax and inland freight. All of these charges may be deducted, provided they are separately identified on the commercial invoice, as they do not add value to the item and are charges only to get the item to its final destination.
A complete understanding of what charges are dutiable and what charges are not is an important aspect of any company’s trade compliance program. Assurance must be taken that the value of the merchandise has been correctly assigned and that any discounts that you are entitled to have been taken advantage of while also making sure to account for added value that may not be easily identified. The last thing an importer wants is for time-sensitive cargo to be held up in customs because a broker didn’t properly declare the value!
Contributor: Ryan Smith
About Allyn International
Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China and Prague, Czech Republic. For more information, visit www.allynintl.com.