WIKI: Understanding Import Duties

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Import duties and quotas are related to the post I put together on shipping from China, but the topics are important enough to deserve their own post. By reading through both of these posts, you should have a very good overview of what’s involved in importing from China.

Tariffs & Duties
A tariff or duty (the words are used interchangeably) is a tax levied by governments on the value including freight and insurance of imported products. Different tariffs are applied on different products by different countries.

So the big question here is What duties will I owe on my order?

It would be great if estimating duties for a particular product were a simple process, but unfortunately it’s fairly complex. I’ll try to keep this as simple as possible by describing the general rule of thumb, but be aware that there are a lot of exceptions to this process. If you understand the basics described herein and start small to be safe, you should have very little risk of getting stuck with large unexpected charges.

The first thing you have to do is understand how to find the applicable rate. The rate you pay is based on how your product is classified by the Harmonized Tariff Schedule (HTS). It’s basically a standardized classification schedule used by many countries around the world that will tell you the duty rate for any physical product.

Every classification code will have an associated “general” duty, but there will also be special rates between some countries for certain classifications.

Let’s take a look at Schedule B, which is the resource for classifying your product. You can find links to a downloadable version or an online tool here:

http://www.census.gov/foreign-trade/schedules/b/

Alternatively, you can go straight to the online search tool here:

https://uscensus.prod.3ceonline.com/
Here’s a video on using the online tool: http://www.census.gov/foreign-trade/data/video022.html

There’s also another online tool that works a little differently here: http://hts.usitc.gov/. I don’t know why they offer two different online tools, but I personally find this last link to be the easiest one for me. You should use whichever one seems easier for you.

There’s an additional FAQ page for the tool here: http://www.usitc.gov/faqs/tariff_affairs_faqs.htm, but the most important thing to understand is how to interpret the last four columns:

  • Unit of Quantity: This tells you what unit of measure is used to quantify the product. A listing of the different abbreviations can be found here General Statistical Note 4): http://www.usitc.gov/publications/docs/tata/hts/bychapter/0601gndm.pdf
  • General: This column is most likely the rate that you will pay. So, you will take the amount paid for your product (the FOB price) and multiply it by the applicable rate to calculate your duty. This is probably the only column you really need to refer to.
  • Rates of Special Duty: This column indicates the free trade agreements or tariff preference programs for which the Special rates are applicable. It’s unlikely that you’re importing from a country that does not have Normal Trade Relations with the United States
  • Footnote 2: These rates apply to imports from countries (currently Cuba and North Korea) that do not have Normal Trade Relations status. It’s unlikely that you’re importing from a country that does not have Normal Trade Relations with the United States.

I know this is a lot of information, which is why I said it isn’t simple. On the bright side, there are a few other options for figuring out the proper classification for your product:

Before contacting one of these resources, have a full and complete description of the product and be ready to answer specific questions such as: 1) the country of origin of the merchandise and manufacturer; 2) the composition of the merchandise; 3) the intended use of the item; and 4) pricing/payment information (in order to properly determine the value of the shipment).

  • The government offers export classification assistance, if you email ftd.scheduleb@census.gov or call 1-800-549-0595, Menu Option #2. I’ve never tried contacting them, but once you find the classification for your product, you should be able to easily calculate the import duties. If anyone tries using this resource, please let me know how the process works so I can update this post.
  • Try contacting the port of entry where your shipment will arrive. If you’re not sure where this will be, contact the one closest to you. A list of the various ports can be found here: http://www.cbp.gov/contact/ports. Ask to speak with a CBP (Customs & Border Patrol) import specialist assigned to the commodity you are importing.
  • You can try contacting a customs broker to help you figure out how your product should be classified.
  • Try asking your supplier if they know the proper classification for your product.

However you determine your classification, it’s a good idea to ask your supplier to include it on your invoice. If customs checks your shipment, it’s more likely that they will use the same classification if it’s shown on the invoice.

Additional Information

  • Make sure your supplier includes a very detailed description of your merchandise. This will help ensure it is classified properly.
  • While any shipment of commercial value may be subject to duties, it’s unlikely (but not impossible) that you will be charged duties on shipments valued at less than $2,500.
  • If you must pay duties, you will be asked for an EIN or Social Security number for the Importer of Record (you).
  • If you have a US-based entity, you should already have an EIN.
  • If you are a US citizen, but don’t have an entity, you can use your Social Security Number.
  • If you are not a US citizen and don’t have a US-based entity, you can apply for an EIN over the phone. The process should only take a few minutes: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-to-Apply-for-an-EIN

Hopefully this information was helpful. You can also find excellent information on import duties at http://www.export.gov/logistics/eg_main_018130.asp, if you’re interested in learning more.

Quotas
Quotas restrict the volume of a particular type of product that can be imported into the country. It’s not likely that anything you’re considering would be subject to a quota, so it’s not practical to cover the exceptions here, but you can check with a customs broker if you’d like to check your specific product.

This post is part of the Ultimate Wiki Project.


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