Ignorance of the Duties & Taxes Bombshell in International Shipping

The average small business owner wears too many hats to count including sales, marketing, finance, IT and human resources. In addition, these trailblazers and entrepreneurs are already working around the clock with limited resources to drive sales and to ensure their businesses thrive. No wonder that shipping is often a last-minute necessity with no time to research all the paperwork and legalities, especially for imports and exports.

When a package goes from one country to another, it is subject to scrutiny and additional fees. Global shipping carriers like DHL, UPS, FedEx and even USPS and the many private international cargo companies may help to provide some tips and tools. However, customs clearance is a function of the importing government, and they have the ultimate decision-making authority. Customs processes and guidelines for calculating duties and VAT (value-added taxes) vary from country to country. Even when published, these rules are often amended year to year and can become quite a complicated and time-consuming process. Many countries, like Canada, the United Kingdom and South Africa, may randomly select packages for an in-depth customs investigation. If your package is one of the unlucky ones, you may be subject to weeks or even months of delay as well as additional costs and processing fees. They may even choose to return the item to the shipper, at your expense, to start the process all over.

So what can be done? There are no guarantees for smooth sailing through customs when importing or exporting. But you can minimize the chances of a snag. First, become familiar with the importing country’s de minimis value. Most countries will only assess packages that have a declared value over a certain amount. For instance, the current de minimis threshold in Canada is only $40, while the US value is $800. Any goods entering these countries with values beneath these amounts will have their custom duties and taxes waived. On July 1, 2020, The North American Free Trade Agreement (NAFTA) was replaced by the United States-Mexico-Canada Agreement (USMCA) which has revised some of the longstanding values that were previously published. Work with a partner that has international shipping experience and you can also educate yourself with many publicly available tools;

Customs rationale and motivations vary by country. However, much of it is driven by the country’s need for additional tax revenue and by their position on global trade and imports. Often, they will assess higher duties/taxes on items that they believe could have been purchased within the country, helping their local economy. The country of manufacturing origin, not shipping origin, may also figure into the assessment. This is why the commercial invoice must indicate where the item was produced. Lastly, you should also check to ensure certain commodities are not restricted from entering the country but we will address this in another post.

For gifts and samples with no commercial value, there are typically no duties or taxes assessed. These must be clearly marked on the commercial invoice. However, customs screeners around the world are diligent about ensuring that the items are truly what they say they are. Even with gifts and samples, it is still up to each customs department to make the final call. If they are suspicious and not comfortable with your documentation, they have the right to assess fees or return the items to the shipper.

I recently had a customer ship 50+ gifts to different destinations around the world. Most were cleared through the various customs offices with no problem and no assessed fees. However, in the United Kingdom, they became suspicious and chose to randomly inspect a couple of the packages. No matter what revised documentation and assurances were provided, the customs inspector would not clear the items and returned them to the shipper. This is an individual inspector and country-level decision and will happen from time to time. Savvy shippers will understand this and have a plan in place to quickly address, respond and mitigate any potential snags.

Global shipping is an imperfect process with tremendous upside potential. Discounted shipping insurance is almost always worth the investment in case something goes wrong. Going global is the key to exponential growth and can be one of the most rewarding aspects of trade. Be brave, be bold and be careful to avoid the pitfalls, wherever possible.