Import Costs: Understanding and Calculating Import Expenses

Importing goods from international markets can be a lucrative opportunity for businesses looking to expand their product offerings and access new markets. However, understanding and accurately calculating import costs is essential for ensuring profitability and avoiding unexpected expenses. In this blog post, we’ll explore the various types of import costs and provide guidance on how to calculate them correctly, helping businesses navigate the complexities of international trade with confidence.

What is import duty?
Import duty (or customs duty) is a tax collected by customs authorities on all goods sold across borders. The aim of import duties is to raise income for local governments – but also to increase the end price of the goods for consumers, thus encouraging them to buy from the domestic market, which is not subject to this tax. Common examples of import duties are trade tariffs and excise duties.

What is import tax?
Import tax is a flat tax rate charged by customs on imports. In many cases, the tax is equal to the local sales tax. Even when the goods have been purchased abroad, this consumption tax will still apply when they enter a different country. Examples include sales tax and value-added tax (VAT).

Types of Import Costs

1. Product Cost: The product cost refers to the price paid to the supplier or manufacturer for the imported goods. This includes the cost of the product itself, as well as any applicable taxes, duties, and tariffs.
2. Shipping and Freight Costs: Shipping and freight costs encompass the expenses associated with transporting the goods from the supplier’s location to the importer’s destination. This may include ocean freight, air freight, trucking, or rail transportation fees, as well as insurance and handling charges.
3. Customs Duties and Tariffs: Customs duties and tariffs are taxes imposed by the importing country on imported goods. The rate of duty varies depending on the type of goods, their country of origin, and the trade agreements in place between the importing and exporting countries.
4. Customs Brokerage Fees: Customs brokerage fees are charges incurred for customs clearance services provided by a licensed customs broker. These fees cover the preparation and submission of customs documentation, as well as communication with customs authorities on behalf of the importer.
5. Import Taxes and VAT: Import taxes and value-added tax (VAT) are additional taxes levied on imported goods by the importing country’s government. Import taxes are calculated based on the customs value of the goods, while VAT is typically applied as a percentage of the total import value, including customs duties and other charges.
6. Storage and Handling Fees: Storage and handling fees may apply if the imported goods are held in storage facilities or warehouses before being released for distribution. These fees can vary depending on the duration of storage and the facilities used.

Calculating Import Costs Correctly

1. Determine Product Cost: Start by determining the cost of the imported goods, including the purchase price, any additional charges paid to the supplier, and the cost of transportation to the port of destination.
2. Research Customs Duties and Tariffs: Research the customs duties and tariffs applicable to your imported goods based on their classification, country of origin, and any preferential trade agreements in place. Customs authorities or trade associations can provide guidance on duty rates and regulations.
3. Factor in Shipping and Freight Costs: Calculate shipping and freight costs based on the chosen transportation method, including freight charges, insurance premiums, and any additional surcharges or fees.
4. Consider Customs Brokerage Fees: If using a customs broker to handle customs clearance, factor in the brokerage fees charged for their services. Customs brokers typically charge a flat fee or a percentage of the customs value of the goods.
5. Calculate Import Taxes and VAT: Determine the applicable import taxes and VAT rates based on the customs value of the goods and any exemptions or preferential treatment available. Some countries may offer duty-free or reduced-duty treatment for certain goods or under specific trade agreements.
6. Account for Storage and Handling Fees: If the imported goods will be held in storage facilities or warehouses, consider the associated storage and handling fees. These fees may vary depending on the storage duration, facility location, and services provided.
7. Summarize Total Import Costs: Summarize all import costs, including product cost, shipping and freight costs, customs duties and tariffs, customs brokerage fees, import taxes and VAT, and storage and handling fees, to calculate the total landed cost of the imported goods.

How to calculate import tax
As international logistics experts, DHL Express has a range of solutions to help make things easy for businesses shipping cross-border. This includes a dedicated Landed Cost Estimator – a simple calculator that estimates duties, taxes, shipping costs, and more, to help you make better pricing decisions.

Parties responsible for import taxes and duties
So, who is responsible for paying the import taxes and duties on a cross-border shipment? Here’s where it can get a little complex, so let’s break down the different parties and their responsibilities.

Carrier: this is the service that transports the shipment cross-border – for example, DHL Express. In international trade, the carrier acts as a customs broker, managing border documentation for clients so that their goods clear customs without any problems. The carrier is also responsible for collecting all associated import taxes and duties.

Exporter and importer: in the case of a cross-border, B2C e-commerce transaction, the seller sending the goods out of the country is the exporter, whilst the customer buying the goods is considered the importer. The party responsible for paying the taxes and duties passed on by the carrier is determined by an internationally recognized set of rules called Incoterms.

Incoterms are agreed between the exporter and the carrier. The two most common are:

Delivered Duty Paid (DDP). This is when the seller takes responsibility for the transportation of the goods (including the associated fees), and paying all import taxes and duties due when the shipment crosses borders.
Delivered Duty Unpaid (DDU). In this instance, the seller is responsible for delivering the goods to their destination and the cost of their transportation, but the customer must pay all associated import taxes and duties to the carrier when they receive the package.
It goes without saying that the latter is not so popular with customers. It may seem the cheaper option for your business, but can you afford to damage the customer experience in this way? Disgruntled customers won’t return!

Importer of Record: this is the individual or entity responsible for ensuring import compliance. They must manage all paperwork (such as licenses and certificates) needed for the import, as well as covering all duties and taxes. In the instance of DDP, for example, the seller is the Importer of Record.

Conclusion

Understanding and accurately calculating import costs is essential for businesses engaged in international trade to ensure profitability and compliance with import regulations. By considering the various types of import costs, researching duty rates and regulations, and factoring in shipping, customs clearance, and other expenses, businesses can make informed decisions and effectively manage their import operations. With careful planning and attention to detail, businesses can navigate the complexities of import costs with confidence and optimize their global trade activities for success.