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Import duty and taxes explained in a nutshell

In most countries, imports need to be declared, i.e. a description, quantity and value of the imported goods have to be provided to local customs authorities so that duties and taxes can be assessed. Import duty is a tax that the importer has to pay to bring foreign goods into his or her country. Import duty is also known as customs duty, tariff, or import tariff.

Import duty can be ad valorem, i.e. based on the value of the goods, or it can be specific, i.e. based on weight, dimensions, or other units of measure. The customs value on which duty is assessed may be the price paid for the goods alone, or the sum of the product price, the cost of shipping and the cost of insurance. The valuation method varies by country. 

The rate of duty depends on the Harmonised System (HS) of product classification, a system developed and maintained by the World Customs Organisation (WCO), in which traded products are assigned internationally standardised HS codes and commodity descriptions. The HS code is comprised of 6 digits, which designate the chapter, heading and subheading to which a commodity belongs. However, member countries of the WCO are allowed to further subdivide the HS nomenclature beyond 6 digits, and to set their own rates of duty at the level they classify goods.

The rates of duty may also differ depending on the country of manufacture of the imported goods. Preferential duty rates may apply where a Free Trade Agreement exists between two or more transacting countries. On the other hand, additional anti-dumping duties may be levied on products that originate in countries that are believed to price certain goods below fair market value.

In addition to import duty, imports may be subject to other taxes such as sales tax (VAT, GST, etc.), excise duty, or other customs charges. Each country has its own set of taxes, and different ways of calculating them.  

Many countries have set de minimis rules for the payment of duties and taxes. I.e. a minimum threshold has been set for low value imports, below which customs duties and/or taxes can be exempted. Factors other than the value of an import may be taken into account for the exemption of duties and taxes, for instance, the method of transport or whether an import is of personal or commercial nature. 

Some countries have a simplified application of duty for imports under a certain value, and/or of a personal nature. The simplified process may entail a flat tax rate on the value of the import, a lump sum that has to be paid on the import regardless of its value, or an entirely separate set of duty rates to the country's tariff schedule.

Besides duties and taxes, import restrictions or prohibitions are to be taken into account before attempting to import foreign goods. These could be imposed by countries or by carriers. Carrier restrictions exist for instance on hazardous goods. At a country level, an import licence or other types of permits may be required for various types of products, e.g. food, plants, animals, medicines, weapons, etc. Other type of goods may be prohibited altogether, for instance those made of species in danger of extinction, or goods which pose a threat to people or the environment.


Related topics: Customs Value , European Union Free Trade Agreements , Dangerous goods & carrier restrictions

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