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Import duties

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Import duties play a role in regulating international trade. Please watch the following video to learn more about how import duties work.

Import duties have to be paid when goods are brought into the European Union for free circulation. Import duties are levied by the national member states, but the money goes to the EU Treasury in Brussels. However, the member states may keep a certain percentage to cover the costs of their national customs organization.

The level of import duties and the basis for the taxation is the same in all EU member states. The EU tax legislation is very clear about how taxation should take place. If there is a dispute about how the law should be interpreted, a legal procedure can be taken to the European Court in Luxemburg.

Whether import duties have to be paid and, if so, how much, depends on:

Kind of goods

The imported goods have to be classified according to the Harmonised System or goods nomenclature. All customs brokers are familiar with this system.

An HS code can consist of a maximum of 22 digits. The first four digits of the HS are the same worldwide. Many countries even use the same HS code with regards to the first 6 numbers of the code. To classify the goods to determine the applicable tariff, 8 positions are always necessary at a minimum. The other positions are only necessary in special cases, such as excise goods.

Clear classification rules exist to determine the correct tariff code. The good must be classified correctly, to be able to find the percentage of import duties to be paid. A difference in interpretation of the classification rules between customs authorities on the one hand and the importer and its customs broker on the other hand is always possible. It can be very important to know exactly before importation how customs authorities classify a specific good. For this purpose, a Binding Tariff Information (BTI) can be applied for. A BTI provides certainty and is valid for 3 years in all EU member states. If the importer and its customs broker do not agree with the BTI, they can go to court and plead their case.  If a BTI is issued, the importer is obliged to use it and a reference to the BTI should be made in the import declaration. 

Customs agents and their brokers are familiar with the classification of goods in the goods nomenclature. It is nevertheless a tough job, because the broker must in general rely on the information on the invoice. To ensure that the correct goods code is used, it is wise to state it on the invoice. If the customs broker has any doubts, he or she should contact the client in order to establish the goods code in mutual consultation. To prevent future problems, it is wise to put down in writing which HS code has been decided upon in mutual agreement. In principle, no binding consultation with customs about the classification can take place beforehand. As said, if necessary, a BTI can be requested. If during the verification of a declaration, customs are not sure of the correct goods code, they will take a sample and let the customs laboratory rate the goods.

Customs value

The customs value of a product that is imported is determined by a number of factors that are explicitly formulated in the EU Customs Code. The starting point is the last sale price, but that sales price must be corrected based on, among others, the following factors:

  • Transport costs. A correction for the transport costs must be made on the sales price depending on the used term of delivery or incoterm. For example, if goods are sold EXW in Japan, the transport costs from Japan to the EU’s external border must be added. It does not matter by which means of transportation the goods enter the EU.
  • Insurance costs. The insurance costs for the transport to the place where the goods enter the EU must be added to or subtracted from the sales price, depending on the terms of delivery.
  • Royalties, sales commissions, etc. If royalties or commissions are paid on top of the sales price, they must be added to the sales price.
  • Connection between buyer and seller. When goods are imported from the USA to the EU, for example, the companies involved in the purchase and sale could be connected, for instance because they are part of the same multinational. This may influence the sales price, which may be set extra low in order to avoid high import duties. The customs broker must declare in the import declaration whether there is a connection between buyer and seller. Dependent on this information customs can control this kind of transactions more strictly for the correct application of the customs value.

The country of origin of the goods

Import duties are an instrument of trade policy. They can be used to protect a country's economy against cheap imports. By assigning preferences to specific countries of origin, the suppliers from designated countries can be favored over suppliers from non-designated ones. For example, car parts imported from South Africa are not subject to import duties, whereas those from the USA are. A tariff preference can make it possible that fewer or no import duties have to be paid on import into the EU. Documents that are used to prove the origin of goods and that need to be mentioned in the import declaration, are:

  • Form A: China, Japan, and many developing countries mostly use this form.
  • Certificate of Origin: This is mostly used for goods of which for reasons of trade policy, the origin must be proved (for example textile), but to which no preference applies.
  • EUR Certificate: Countries such as Switzerland, Norway, Israel, South Africa, and Mexico use this. Companies with a special permit are allowed to replace EUR Certificates by a declaration on their invoice that the goods have a preferential origin.

Certificates of origin must always be stamped by the Customs Authorities in the country of origin. Customs organizations throughout the world rely on each other to issue the certificates correctly.

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