Calculating customs duties can be a daunting task, especially if you are a beginner in importing or exporting goods. These taxes are levied on various goods such as raw materials, finished products and even personal goods. The process of calculating customs duties involves several factors, such as the type of goods being imported or exported, the value of the goods, the country of origin, and the country of destination.
In this article, we will provide a comprehensive guide on how customs duties are calculated, including the different methods used, factors to consider, and tips to ensure the accuracy of your calculations.
What are customs duties?
Customs tax is an obligation to be levied when goods cross the borders of the State, whether when imported or exported, except those excluded or exempted from it under the agreements or the provisions of this Law. Tax legislation has approved the use of the term customs duties instead of customs taxes.
Tariffs are a tool to protect the local industry and its labor from foreign competition, and one of the most important reasons for imposing it is to increase state revenues, and it can also be used as a means of pressure to influence or protest the policies of another country, but the citizen bears the consequences of this rise.
The government may impose a specific tariff of duties on goods or apply a specific percentage of duties proportional to the value of the imported good.
Types of customs duties
Governments impose customs duties on imported and exported goods to achieve the state’s financial revenues and protect domestic industries from foreign competition. The types of customs duties vary based on their calculation, so if you work in the field of import and export, you should understand the following types of customs duties:
Basic customs duties
It is the customs duties imposed by the state on imported and exported goods that cross its political borders in order to achieve part of the state’s revenues, and are imposed on the value of the goods at a fixed rate. The value of these charges is determined by multiplying the percentage charged by the total purchase value of the good(s) paid in the supplier country; this rate does not change and is not affected by quality, size or weight.
CBP determines the percentage charged on goods according to the HS Code for goods, a reference guide that provides applicable tariff rates and statistical categories for all imported goods.
If you import goods at a total cost of $1,000 and the basic customs tariff is 5%, the basic customs duties will be 1,000*5% = $50.
Additional customs duties (revenue)
They are fees imposed to increase government revenues, as fees generate important tax revenues that benefit the state and increase its revenues.
Compensatory Fees (CVD)
When a country imports goods that its manufacturing country has granted tax exemptions and aid, the importing country imposes on these goods customs duties called countervailing duties to compensate for tax exemptions and assistance granted by foreign countries to their manufacturers, to protect their markets so that the imported goods are not sold at a price lower than the price of similar domestic goods.
Country A grants export subsidy tax breaks to its industrialists, who in turn export goods to country B at a price of $10 per product.
In country B, the same products are available at $12.5 per product. Country B will be hit by unrestricted imports, imposing a 25% countervailing duty on instruments imported from country A, bringing the cost for imported instruments to $12.5. These countervailing duties negate the unfair price advantage that tool makers in country A have due to export subsidies from their government.
They are fees that aim to protect the national industry, especially the emerging ones, by imposing high duties on imported goods, so that their cost rises and their prices rise, and then consumers will prefer to buy local products instead of foreign products, and will limit imports.
In order to protect the national economy, and to counter the dumping policies adopted by some countries by supplying goods at very low prices in the markets of other countries, then these countries will resort to countermeasures such as imposing anti-dumping duties.
Customs duties in the UAE to combat dumping on imports of ceramic tiles and porcelain, of Chinese and Indian origin, starting from June 6, 2020, for a period of five years.
Customs taxes may be imposed at very high prices, which leads to preventing the entry of the commodity permanently into the importing country, and in this case it is called preventive taxes, and it may be the reason for imposing taxes to the country to achieve political goals, as US President Donald Trump did or to protect society, such as preventing the import of alcohol and others, or increasing Saudi customs on billet and rebar from 5% to 10-20%, which are the upper limits allowed by the World Trade Organization.
Value Added Tax (VAT)
VAT is levied at some rate, often 14 or 15%, on all imported goods, regardless of the classification of those goods, the rate of customs duties applied to them, or in cases where the goods are exempt from customs duties.
Customs duties according to the method of calculation:
Tariff duties are either relative (a percentage of the value of the goods such as 10 percent of the value of the imported goods) or qualitative (a lump sum for each unit of the goods such as $ 2 per kg or liter) and the tariff fee may be both relative and qualitative for one type of goods (10 percent of the value + $ 2 per kg).
If you are importing from China, you can cooperate with a shipping company from China that provides door-to-door services such as Basenton Logistics Company, which provides shipping services from China including customs clearance and internal transportation to the door of your warehouse.
How are customs calculated on goods? Method of calculating customs duties
In order to determine the amount of duties and taxes to be paid during customs clearance of imported goods, it is first necessary to specify certain elements related to the goods themselves, namely the types, origin and origin of tariffs (tariff classification) or what is known as the customs coordinator code.
The customs coordinator is an international designation given to a six-digit code, the purpose of which is to classify goods and know the classification of goods and thus the customs duties incurred thereon.
In order to be able to calculate customs duties, it is important to know the customs value of the imported goods and equal to the price of the goods plus all actual costs and expenses up to the port of import on the date of registration of the customs declaration submitted for them, and this value does not include any taxes and other fees, provided that the declaration includes the detailed elements of the goods and the value related to them for customs purposes.
Generally, to calculate the customs value of a commodity, you need to summarize the following:
- The value of the goods written in the commercial invoice.
- The cost of shipping imported goods to the port or place of import.
- Loading, unloading and handling fees associated with the transport of imported goods to the port or place of import.
- Costs of insurance of the goods.
If we assume that you want to import headphones with a microphone and a magnifier, the first step is to go to the customs or trade site in the importing country to identify the customs coordinator code by searching for the word headphones
To show you the following results:
You find that the customs coordinator code for the goods you want to import is 851830900003.
The first six figures are global and will show you from the customs website of the importing country the customs preparer imposed at the rate of duties due on goods of this type. Customs duties are divided into proportional duties levied on the total value of the goods and fixed specific duties for some products per kilogram of their weight, or every 100 pieces and so on.
Now all you have to do is multiply the fee rate by the total value of the goods if the fee is relative (which is predominant) or multiply the weight or number by the fixed fee value.
Note: Most importers misdeclare customers’ intended selling prices as the value of goods, and end up paying higher fees because of the higher value.
Formula for calculating customs duties
To be able to calculate customs duties yourself, you need to do the following steps:
- Look for commodity coding of imported goods to get the rate of customs duties imposed on your goods.
- Multiply the total customs value of your imported product by the duty rate you came up with after knowing its commodity coding and you will get an estimate of the customs duties you will be required to pay.
i.e.: [Customs duty rate] X [total customs value of goods] + [VAT rate]* [total customs value of goods] = [customs duties imposed]
- Customs duty rate = 5%
- Total customs value of goods = $10,000
The required customs duties are: 5% * 10,000 = $500 and VAT is often (14 or 15%): 15% * 10,000 = 1,500
Total customs duties = 500 + 1500 = 2000
Assuming there were free trade agreements between the two countries, the duties become:
- Customs duty rate = 0%
- Total customs value of goods = $10,000
The required customs duties are: 0% * 10,000 = $0 and VAT is often (14 or 15%): 15% * 10,000 = 1500
Total customs duties = 0 + 1500 = 1500
If there are reductions and the fees imposed become 2% instead of 5%, the fees imposed are as follows:
Customs duty rate = 2%
Total customs value of goods = $10,000
The required customs duties are: 2% * 10,000 = $200
VAT is often (14 or 15%): 15% * 10,000 = 1,500
Total customs duties = 200 + 1500 = 1700
For example: you want to import a commodity worth $10,000 and assuming the customs duties set by the harmonized code are relative and are 3.2%.
10,000 × 3.2% = $320, and the customs duty for your shipment will be $320.
If the duties are fixed, for example, you want to import 100 kg of cotton seeds. You find that the customs duties set by the HS code are 47 cents per kilogram.
100 × 0.47 = 47
So in this case, the customs duty for your shipment will be $47.
Note that these are estimated values, to make sure your customs broker, the customs authorities of the importing country have the decisive say in the matter.
What to consider when calculating customs duties
Free Trade Agreements (FTA)
Check if there is a free trade agreement in place between the country of origin and the importing country. You may be able to get tax breaks or deductions.
However, being granted tax exemptions does not mean that you will not go through the customs clearance stage, as you are still required to declare imported goods to the customs authorities.
Payment methods and due dates
You should check the methods of payment of customs duties and their due dates. While you may have to pay customs duties upon entry into the importing country, you can sometimes be granted an extension of the eligibility period.
Check the grace period for goods at the port
It is important to make sure that your goods are allowed to be in the port, as their presence for any additional period may cause you to be fined additional amounts of money, increasing shipping costs and goods costs and thus reducing your profits.
Use the customs broker
If you find it very difficult to calculate and pay customs duties, you may want to consider reaching out to a customs broker for help.
Websites for calculating customs duties according to your country
When calculating customs duties, do not neglect to use computers for customs duties in your country, we mentioned some of them to you as follows:
- Zakat, Tax and Customs Authority Customs and Tax Authority Calculator in Saudi Arabia
- You use the SimplyDut calculator to calculate for any country in the world.
- As well as the easyship website, which you can use to calculate customs duties to and from any country in the world.
Tips and guidance in customs transactions
- Do not focus your full attention on the price when making the deal, choose the supplier carefully and make sure that he is trustworthy, ask about the supplier’s previous dealings with the importing country, and make sure that he knows the customs laws of this country.
- Choose a reliable customs broker, the importance of the customs broker is evident in his knowledge of the documents necessary for customs clearance in the importing country, consult him in the appropriate type of contract with the supplier.
- Calculate customs clearance costs in the most accurate way first, or ask the customs broker, who can determine the fees charged for the shipment, the costs of the procedures, his fee and other procedures, or through the official websites of customs.
- Prepare all the necessary documents for customs clearance, and it is necessary to prepare them in advance.
- Follow the shipment during its journey from the supplier’s country until it arrives in your country, because any delay in the port means additional ground fees and therefore less profit.
If you are not sure about anything related to the duty or the harmonized code, you can always ask your forwarder or customs broker who you are hiring.