What are customs, duties, and VAT?
When shipping internationally, your packages must clear customs in the destination country. This process involves three main types of charges:Customs duties
Customs duties are taxes imposed by governments on imported goods. These taxes protect domestic industries and generate revenue for the importing country. Key characteristics:- Calculated as a percentage of the goods’ value (ad valorem) or as a fixed amount per unit
- Vary significantly by product type and country of origin
- Often subject to trade agreements and preferential rates
- Collected by customs authorities at the border
VAT (Value Added Tax)
VAT is a consumption tax applied to goods and services, including imported products. Unlike duties, VAT is typically applied to the total value including duties and shipping costs. Key characteristics:- Applied to the final consumer price
- Rates vary by country (typically 15-25% in most countries)
- May be exempt for business-to-business transactions with proper documentation
- Collected by customs or tax authorities
Customs processing
Customs processing refers to the administrative procedures required to clear goods through customs, including documentation, inspection, and classification. Key characteristics:- Requires proper documentation and declarations
- May involve physical inspection of goods
- Processing times vary by country and complexity
- Can result in delays if documentation is incomplete
Check destination requirements. Each country has specific customs requirements, documentation needs, and prohibited items. Always verify requirements before shipping to avoid delays or additional costs.
The Harmonized System (HS)
The Harmonized System is an international standard for classifying traded products. It provides a common language for customs authorities worldwide to identify and categorize goods.What is the HS system?
The HS system is a standardized classification system used by over 200 countries and territories. It assigns unique codes to products based on their nature, composition, and intended use. Purpose:- Facilitate international trade by providing consistent product classification
- Enable accurate duty and tax calculation
- Support trade statistics and analysis
- Ensure compliance with international trade agreements
HS code structure
HS codes follow a hierarchical structure with increasing specificity: Chapter (2 digits): Broad category of the product Heading (2 digits): Sub-category within the chapterSubheading (2 digits): Specific type of the product within the heading Tariff Item (2-4 digits): Detailed product classification (varies by country)
HS code example
A laptop computer might be classified as HS code 8471.30.01.00:- Chapter 84: Nuclear reactors, boilers, machinery and mechanical appliances
- Heading 8471: Automatic data processing machines and units thereof
- Subheading 8471.30: Portable automatic data processing machines, weighing not more than 10 kg
- Tariff Item 8471.30.01.00: Laptop computers
Country-specific variations. While the first 6 digits of HS codes are standardized internationally, countries may add additional digits for more specific classification. Always verify the complete HS code required by the destination country.
Identifying the sender
Customs authorities require proper identification of the sender to process international shipments. Different countries and regions use various customs identifiers:VAT number
A Value Added Tax identification number used primarily in EU countries and other jurisdictions with VAT systems. Usage:- Required for business-to-business shipments within the EU
- Enables VAT exemption for commercial shipments
- Format varies by country (e.g., GB123456789, DE123456789)
- Must be validated before use
VOEC (VAT on E-commerce)
A Norwegian customs identifier for businesses selling goods to Norwegian consumers. Usage:- Required for shipments to Norway with value over 350 NOK
- Enables simplified customs procedures
- Must be registered with Norwegian tax authorities
- Format: 9-digit number (e.g., 123456789)
EORI (Economic Operators Registration and Identification)
A unique identifier used in the EU for businesses involved in customs activities. Usage:- Required for all customs declarations in the EU
- Enables faster customs processing
- Format: Country code + business identifier (e.g., GB123456789000)
- Must be obtained from customs authorities
Other customs identifiers
IOSS (Import One-Stop Shop): EU system for VAT collection on low-value imports DUNS number: Used in some countries for business identification Business registration numbers: Country-specific identifiers for commercial entities Tax identification numbers: Various formats used globally for tax purposesMultiple identifiers may be required. Depending on the destination country and shipment value, you may need to provide several different customs identifiers. Check requirements for each destination country.
Best practices for customs compliance
Accurate product classification
- Use correct HS codes for all products
- Provide detailed product descriptions
- Include material composition and intended use
- Update classifications when product specifications change
Complete documentation
- Ensure all required customs forms are completed accurately
- Include proper commercial invoices with detailed product information
- Provide certificates of origin when required
- Keep records of all customs documentation
Value declaration
- Declare accurate commercial value of goods
- Include all costs (product, packaging, insurance)
- Provide supporting documentation for declared values
- Understand difference between FOB and CIF values
Prohibited and restricted items
- Check destination country restrictions before shipping
- Obtain necessary permits for restricted items
- Understand differences between prohibited and restricted goods
- Provide required certificates for regulated products
Common customs challenges
Delays and additional costs
Customs processing can result in unexpected delays and costs:- Inspection delays: Random or targeted inspections can add days to delivery
- Documentation errors: Incomplete or incorrect forms cause processing delays
- Duty disputes: Disagreements over product classification or value
- Storage fees: Charges for holding goods during customs processing
Customer communication
Keep customers informed about customs requirements:- Provide estimated delivery times including customs processing
- Explain potential additional costs (duties, taxes, fees)
- Offer guidance on customs procedures in their country
- Set clear expectations about delivery timelines
Compliance monitoring
Stay updated on changing requirements:- Monitor changes in customs regulations
- Update product classifications as needed
- Review and update customs documentation regularly
- Maintain relationships with customs brokers when needed