Countries calculate import duty and tax on different bases. Most countries also have a defined minimum threshold for duty, sales tax and additional taxes below which nothing is charged.
Generally, the following information is required by most countries to calculate import duty, sales tax and additional taxes:
- Ship from country.
- Ship to country.
- Country of origin.
- Commodity details: description of goods, HS code, units of measurement & value.
- Shipping & insurance cost.
With this information, the customs agency will be able to identify which tariff to use (to obtain the rate) and how much is payable.
Calculating import duty
Duty is calculated in one of the following ways:
- Ad valorem: a percentage of the customs value (e.g. 10% of cost of goods).
- Specific rate: an amount per unit (e.g. $5 per kg).
- Combination: a combination of both of the above.
For ad valorem duty, the calculation is ‘duty = % of CV’. The customs value (CV) is determined in one of two ways:
- Cost, Insurance and Freight (CIF) - the combined cost of goods, shipping and insurance.
- Free On Board (FOB) - the cost of the goods alone.
For specific rate duty, the calculation is ‘duty = $ amount per unit’. Note that the amount as well as the unit can differ. For example, there may be a $5 charge per kg as well as a $0.30 per piece.
For combination duty, the calculation is ‘duty = % of CV + $ amount per unit’.
Calculating sales tax
Sales tax is calculated as a percentage of the sum of customs value and duty payable. Some countries also include additional taxes payable in their sales tax calculation.
For example: if sales tax is 10%, the customs value of your import is $100 and the duty payable is $10; the sales tax payable would be $11.
Calculating additional taxes
Some countries charge additional taxes on certain goods or applied to all imports. The calculation method for additional taxes varies in too many ways to outline in this article, but they will often be calculated in a similar way to duty (either as a percentage or a specific rate).