How much do you have to spend on import duties and taxes?
It depends on the customs value. If you declare incorrectly, you risk paying too little – or too much – for customs duties, VAT or other taxes.
In this article, we will explain what every importer needs to know about customs valuation when buying from Asian countries.
Read on and get answers to the following questions:
- How should the customs value be calculated in our country or in our market?
- How can I make sure that the correct customs value is declared?
- Why do many suppliers deliberately reduce customs value?
- What are the risks that can be encountered if the customs value is too low?
What is customs valuation?
The customs value is the number used by customs authorities to calculate import duties, taxes, and other duties.
Usually, the customs value is declared on the bill of lading.
How do you calculate customs value?
It depends on the market. In the United States, for example, the customs value is based on the price of Free on Board (FOB). The FOB is, essentially, the unit cost.
In the European Union, on the other hand, the customs value is based on the price of the Cost, Insurance and Transport to Port of Destination (CIF) – which includes the cost of transport and insurance (in addition to the unit price).
Therefore, the freight forwarder must declare the value based on the destination which, of course, obliges him to know (or rather, to be informed) the correct method of customs valuation.
Are the costs for moulds, prototypes and services included in customs value?
Yes. What many importers don’t know is that the declared value also includes costs for molds, samples, and related services.
Therefore, buyers cannot reduce the declared value by indicating part of the payment as the cost for design services. However, this only applies if you pay for the project (or other) of the services abroad.
Services that are purchased locally are not included in the declared value.
There are, however, some services carried out abroad that are usually not included in the customs value, for example, the recruitment of suppliers and the guarantee of quality of services.
Moulds and product samples are also part of the customs value. Often the importer is allowed to split the cost of equipment and samples over multiple shipments – or decide to pay for everything upfront.
What can happen if the customs value is not declared correctly?
Underestimating the declared value is like committing tax fraud, which is a criminal offense.
It is a common practice, applied to all shipments ranging from small packages to containers. This is a practice whose estimated cost, as a whole, in the European Union amounts to 80 million euros in uncollected import duties.
How can the authorities check whether the declared customs value is correct?
Customs authorities can access tools that can flag suspicious shipments. If the total declared value is considered artificially low, the goods are reported and the importer is required to provide further evidence of the value of the commercial transaction.
An artificially reduced customs value could be discovered months or even years after the goods enter a country.
Tax authorities can compare documents (e.g., compare the value of the commercial invoice with the actual transaction amount) during in-company assessments.
Customs authorities can also access records that ensure that importers cannot deliberately declare a large number of shipments below the customs limit, to avoid paying import duties.
How can we be sure that the supplier, or freight forwarder, declares the correct customs value?
It’s simple:
- Calculate the customs value based on the valuation method applied in our market
- Inform the supplier and/or freight forwarder of the customs value
- You should ask the supplier and/or freight forwarder to receive copies of the bill of lading and commercial invoice (to verify that the correct value is declared)
Case Studies
Case Study: United States (Free on Board – FOB)
- Unit Price: 12.5 USD
- Quantity: 2200 pieces
- Equipment Fee: 500 USD
- Transportation cost to port of loading: 200 USD
- Transportation cost to the port of destination: 1200 USD (not included)
- Calculation: 5 USD x 2200 pieces + 500 USD + 200 USD = 28,200 USD
Case Study: European Union (Cost, Insurance and Transport to Port of Destination – CIF)
- Unit Price: 12.5 USD
- Quantity: 2200 pieces
- Equipment Fee: 500 USD
- Transportation cost to port of loading: 200 USD
- Transportation cost to destination port: 1200 USD
- Calculation: 12.5 USD x 2200 pieces + 500 USD + 200 USD + 1200 USD = 29,400 USD
Why do some Asian suppliers underestimate customs value?
For two substantial reasons:
- Some manufacturers think they are doing their buyers a favor.
- Most providers do not employ international tax lawyers. They simply do not know the customs valuation laws in force in all countries of the world – not even in major markets such as the European Union and the United States.
It is the importer’s responsibility to calculate the customs value and inform the supplier accordingly.
Customs value depending on the country or market
| COUNTRY / MARKET | VALUATION METHOD |
| United States | Frankish on board – FOB |
| European Union | Cost, insurance and transport to the port of destination – CIF |
| United Kingdom | Cost, insurance and transport to the port of destination – CIF |
| Australia | Frankish on board – FOB |
| New Zealand | Frankish on board – FOB |
| Canada | Frankish on board – FOB |
| Singapore | Cost, insurance and transport to the port of destination – CIF |
| Malaysia | Cost, insurance and transport to the port of destination – CIF |
Cost, Insurance and Transportation to Port of Destination (CIF) = Cost of Product + Insurance + All Transportation Costs to Port of Destination
Free on board (FOB) = Product cost + freight costs/customs clearance costs applied in the supplier’s country
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