Customs & Taxes When Importing from China: US, EU, UK, Australia & Canada

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Understanding import duties, port charges, VAT, and other taxes is crucial when importing products from China, especially in a time when trade tensions are at an all-time high. However, each country or market has its own import duty rates and customs value calculation methods.

In this article, we explain what every Importer must know about import duties, customs valuation methods, and other taxes when importing products to the following countries and regions.

• United States
• European Union
• Canada
• Australia
• New Zealand
• United Kingdom

COVID-19 Update

How has the COVID-19 pandemic impacted tariffs?

The pandemic has not had any major impact, so far, on tariffs or other taxes levied on imported goods. The United States has maintained the Trump era tariffs on Chinese-made goods. At the time of writing, there are few signals that this will change in the near future.

Meanwhile, tariffs in the EU, UK, Australia, and most other countries have not changed in either direction.

If anything, the exploding freight cost increases in late 2020 and 2021 has turned out to be a far more severe issue for importers.

Do the increased freight costs affect import duties and other taxes?

Import tariffs are in some countries and markets, in part, calculated based on the freight cost – in particular, the EU and the United Kingdom. Hence, an increased freight cost results in higher import duty.

Example A: Pre-COVID 19 Freight Costs

• Product value: USD 10,000
• Freight cost: USD 2000
• Duty rate: 5%

Total: (10000 + 2000) x 5% = 600 USD

Example A: 2021 Freight Costs

• Product value: USD 10,000
• Freight cost: USD 10,000
• Duty rate: 5%

Total: (10000 + 10000) x 5% = 1000 USD

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United States

Import duties are charged on all imports with a customs value of US$200 or above. As in the case of the EU, certain imports are taxed more than others – especially food and agricultural products.

How much are import duties from China to the United States?

Below follows a list of products and their respective duty rate in the United States:

• Wristwatches: 9.8% + US$1.53 per unit
• Tablet PC: 0%
• Solar Panels: 0%
• T-Shirts: 16.5%
• Electric Bikes: 0%
• LED Bulb Lights: 3.9%
• Peanuts: 131.8%

Notice that these rates don’t take the additional 10% to 25% tariff into consideration

Important update regarding the increased US-China tariffs

In early May 2019, the tariffs on the $200 B goods levied in September 2018, has increased from 10% to 25%. An additional tariff of 10% is effective from September 1st, on the ‘remaining’ $300 B of goods imported from China to the United States. As such, additional tariffs now apply to almost all goods imported from China.

As trade talks have seemingly stalled, it’s essential for importers worldwide to prepare for what is likely the new normal:

1. All companies importing to the US are affected by the new tariffs, including non-US companies importing as a foreign importer of record

2. The current 10% tariff may be increased to 25% in 2020

3. For many product categories, it’s still not an option to simply shift orders to suppliers in other Asian countries, as for most categories there simply are no factories outside of China. Hence, your option is most likely to either pass on the new tariffs so your customers – or not buy products at all.

Learn more about the US-China tariffs in this article

Merchandise Processing Fee (MPF)

All imports to the USA are subject to the Merchandise Processing Fee. The MFP is based on the order value, and is divided into two categories:

• Imports of goods valued less than US$2500: US$2, US$6, or US$9 per shipment
• Imports of goods valued more than US$2500: 0.3464% of the value of the goods
• (Minimum MPF: US$25, Maximum MPF: US$485)

The MPF is, in general, a rather negligible expense when importing from China. Click here to read more about the Merchandise Processing Fee.

Harbor Maintenance Fee (HMF)

HMF is collected on imports transported by sea. It was created in the late 80s and intended to require importers to share the maintenance costs of container terminals in the United States.

However, the HMF won’t make much of an impact on your bottom line – the current HMF rate is only 0.125% of the cargo value.

Additional taxes

So far, the United States doesn’t have a VAT. Instead, a so-called Federal excise tax is charged on certain imports, such as tobacco and alcohol.

For the time being, the Federal excise taxes don’t apply to consumer products imported from China.

Customs value

Custom duties, MPF, and HMF fees are calculated based on the FOB (Free on Board) value of the imported goods. This includes the following:

• Product cost
• Transportation cost (to Port of Loading in China)
• Export clearance (China)

Most Chinese suppliers quote products based on FOB terms. Click here to read more about Incoterms when importing from China.

European Union

The European Union is a single market. This means that all EU member states have the same import duty rates on products imported from non-EU countries. An importer only pays customs once, for products imported from China.

Import duties are not added to products sold within the European Union. Thus, your Spanish and German customers won’t need to pay customs on products that have already entered EU territory.

How much are import duties from China to the European Union?

The import duty rates vary between different products. Products that are not manufactured in the EU (e.g. consumer electronics) tend to have lower import duty rates – sometimes as low as 0%.

On the other hand, the opposite is often true for products that are considered part of an important industry in the EU.

Shoes, for example, have a duty rate of 12%. Below follows a list of common products and their respective duty rate in the EU:

• Wristwatches: 4.5% (Min: €0.30, Max: €0.80)
• Tablet PC: 0%
• Solar Panels: 0%
• T-Shirts: 12%
• Electric Bikes: 6%
• LED Bulb Lights: 4.7%
• Peanuts: 12.8%

Value Added Tax (VAT)

Value Added Tax (VAT) is compulsory in all EU states. Different member states have different VAT rates. Certain products, such as food and books, often have a reduced VAT rate.

However, the standard VAT rate applies to most consumer and industrial products imported from China. Click here for a list of VAT rates in all EU member states.

The VAT is added on top of the customs value, plus the duty (that is also based on the customs value). However, VAT added on imported products is treated as VAT paid on purchases made within the EU (including purchases from other EU states).

This means that the VAT added on the imports may also be offset against the VAT added on sales.

Customs Value

Practically, the EU customs value is based on the CIF (Cost Insurance Freight) price of the imported goods.

Below follows a slightly more detailed specification of which costs the customs value includes:

• Product price
• Tooling costs (e.g., injection molds)
• Shipping and logistics costs (to Port of Destination)
• Product Development Costs (e.g. product samples)
• Insurance

The customs value is not including the following costs:

• Commission and fees paid for purchasing agents (e.g. sourcing agents)
• Transportation costs generated in the importer’s country (e.g. transportation from the port to the final place of delivery)
• Costs generated in the Port of Destination (e.g. port fees and customs clearance fees)

Customs authorities are not making rough estimates. Instead, the declared value shall be clearly stated on the Bill of Lading – a document that is either issued by your supplier or freight forwarder.

This requires your supplier to declare the correct value. Otherwise, you’ll end up paying the wrong amount.

Canada

The tax situation in Canada is perhaps the most complex of the major English speaking countries. For Canadian importers, there are three different sales taxes to keep track of, in addition to import duties:

• Goods and Services Tax (GST)
• Harmonized Sales Tax (HST)
• Provincial sales tax (PST)

One, or a combination of two, sales taxes apply in all states. However, no state has all three taxes:

Alberta

• GST: Yes
• HST: No
• PST: No
• Total rate: 5% (Lowest)

Ontario

• GST: No
• HST: Yes
• PST: No
• Total rate: 8%

Prince Edward Island

• GST: Yes
• HST: No
• PST: Yes
• Total rate: 15% (Highest)

The taxes are charged based on the location of the company, rather than the entry point of the goods.

What are the import duties from China to Canada?

Here are a few examples of import duty rates for various products imported from China:

• Wrist-watches (mechanical display): 5%
• Men’s or boys’ overcoats (cotton): 18%
• Skirts (synthetic fibers): 18%
• Riding boots (rubber): 20%
• Hats and other headgear: 12.5%

Canada, like most other countries, set lower duty rates for less developed nations.

Customs Value

The customs value in Canada is based on the FOB price. As such, shipping costs are not included in the customs value, resulting in lower import duty. That said, Canadian importers must still include tooling, product samples, and service costs in the customs value.

Australia

Australian importers enjoy very lower duty rates, compared to their counterparts in the United States and the European Union. This can be explained by the fact that the Australian economy is not as reliant on manufacturing as most other developed countries.

What are the import duties from China to Australia?

Here are a few examples of duty rates applied to goods imported from China to Australia:

• Wristwatches: 0%
• Tablet PC: 0%
• Solar Panels: 0%
• T-Shirts: 10%
• Electric Bikes: 5%
• LED Bulb Lights: 5%
• Peanuts: 5%

China-Australia Free Trade Agreement (ChAFTA)

The China-Australia Free Trade Agreement was signed in 2015 and has gradually reduced tariffs on most products import from China to Australia to zero. As of January 2019, 93% of Chinese imports to Australia are tariff-free. However, imports from China are still subject to GST.

Minimum thresholds

From 1 July 2018, there is no longer a GST threshold. Previously, private importers did not pay GST on imports valued less than AU$1,000. However, this is no longer the case and GST applies to all imports, regardless of value.

Goods and Services Tax (GST)

GST (10%) is added on the Customs Value of the imported items, transportation, and insurance – plus the import duty. GST applies to all products imported from China to Australia.

In addition, foreign (non-Australian) importers are also required to get GST registered when reaching a certain threshold of goods sold to consumers in Australia.

Import Processing Charge

Imported goods valued more than AU$1000 are subject to an Import Processing Charge. The amount depends on three factors:

• Mode of transportation (Sea or Air Freight)
• Type of import declaration (Electronic or Documentary Import Declaration)
• Customs Value (Goods valued between AU$1,000 to 10,000, and goods valued more than AU$10,000)

The fee is charged for each import declaration. This means that you pay the Import Processing Charge each time you receive a shipment from China.

Luckily, the charge is usually in the range of AU$40 – 50. Click here to read more about the Import Processing Charge.

Customs value

Custom duties, GST, and Import Processing Charges are based on the goods FOB (Free on Board) value. This includes the following:

• Product cost
• Transportation cost (to Port of Loading in China)
• Export clearance (China)

United Kingdom

The United Kingdom is still largely in line with the EU system, meaning that:

• Import duties apply to most products imported from China to the UK
• Value-added tax (VAT) applies to imports
• The total customs value is largely calculated based on the CIF value (products + freight + insurance value)

It’s possible that tariffs and VAT rules will deviate from that of the EU in the future. For example, the UK could opt for an import tariff eliminating FTA along the lines of the China-Australia Free Trade Agreement (ChAFTA) at some point in the future.

Anti-Dumping Duties

The Chinese government has provided (and still is) certain industries and/or domestic manufacturers with subsidies. Essentially, this means that the relevant Chinese manufacturers are allowed to sell products below the market price. Good old price dumping.

These practices are not much liked by the EU and US – which often react with Anti-Dumping Duty measures. Sometimes the Anti-Dumping Duties target entire industries, sometimes they target individual manufacturers.

An Anti-Dumping Duty shall be taken seriously since these are often in the range of 40 – 60% (as a comparison, the average duty rate is around 5% in most western countries). If you would end up importing products that are under Anti-Dumping, you probably won’t be notified until the cargo arrives in the Port of Destination.

After all, the Chinese manufacturer is not liable for taxation outside of China.

Thus, it’s critical that you research whether Anti-Dumping Duty measures are imposed on your product and/or supplier before you place an order.

Anti-Dumping Duties are currently imposed on a wide range of products and industries. Read more about open cases in the European Union, the United States, and Australia in the links below:

• European Union
• United States
• Australia
• United Kingdom

Declared Value

Import duties and taxes are percentages calculated based on the Customs Value. The customs value is based on the declared value, which in turn shall be stated on Commercial Invoice – a document issued by the supplier.

It’s critical that the correct value is declared on the Commercial Invoice, or you might end up paying the wrong amount.

It’s always the importer’s responsibility to ensure that the correct declared value is stated on the Commercial Invoice. This responsibility cannot be shifted to the Chinese supplier.

HS Codes

The import duty is not entirely based on the declared value – it also varies between different products. However, customs officers are busy people.

They don’t have time to open every single carton and classify the items on their own. Instead, an HS code specifies the type of product/s.

HS Codes (Harmonized Commodity Description and Coding System) are part of an international classification system that makes this process quite simple.

Yet, it’s up to you to ensure that the correct HS Code is specified on the Commercial Invoice. Otherwise, you’ll end up paying an import duty rate based on the wrong product.

How to pay import duties and other taxes

There are various ways to pay the import duties and related taxes when importing from China. In fact, you can even pay them directly to your Chinese supplier. Below we list the most common cases:

Option 1: Pay import duties and other taxes to the freight forwarder

This option is probably the most simple. Your cargo arrives at the Port of Destination and the customs authorities add customs and taxes (e.g. VAT) based on the declared value and the HS code. This amount is then invoiced to you by your shipping company (e.g. FedEx or DHL.)

In some cases, you are required to pay the customs and tax invoice before the goods are delivered. However, you might get better payment terms if you’re an account holder of the freight company in question.

This service doesn’t come free of charge.

The shipping company usually charges somewhere between US$40 – 80 for managing the customs declaration.

Option 2: Apply for customs credit from your local customs authorities

Customs authorities offer customs credit to importers. Basically, a customs credit allows you to first get your cargo to your warehouse and pay customs and taxes at a later date.

The transaction is then made directly to a bank account operated by the Customs Authority, instead of paying the freight company (as detailed in Option #1).

Option 3: Purchase DDP (Delivery Duty Paid) directly from your supplier

DDP is an incoterm that, on top of shipping and port fees, includes custom duties. The import duty is included in the price you pay your supplier.

However, additional taxes such as VAT and GST is in general not included due to cross-border taxation issues. Instead, these taxes are paid upon arrival in the Port of Destination.

Are import duties refunded?

No, unlike VAT, import duties cannot be offset. Therefore the import duty shall be considered as part of the product cost – and not a temporary outlay.

Sometimes the duty rate is so low it barely makes a difference. However, in other cases, the duty rate makes up a substantial part of the procurement cost.

Do I need to pay import duties and taxes on replaced or repaired units?

In a scenario where you ship products to China, for repair, or if the supplier sends replacements for defective units to your country – you shall generally not need to pay import duties twice.

Instead, you should notify your freight forwarder or customs broker before the shipment – or hand in documentation after delivery.

Even if they end up charging you twice, you can in most cases get a refund or tax credits. Just make sure you have sufficient documentation to prove that the goods are actually replacements or repaired units.

Do we need to pay import duties or other taxes in China?

No, foreign companies and individuals are not tax subjects in China. Besides, any costs generated in China shall be included in the FOB (Free on Board) price.

However, if you purchase products on Ex-Work terms (EXW) from your Chinese supplier, no shipping and exporting related costs are included.

This means that you’ll need to pay for transportation from the supplier’s facility to the Port of Loading in China – AND pay for exporting clearance documents.

While this is not a tax, it’s still a cost you cannot avoid when buying from China.

In general, we recommend small to medium-sized importers to purchase products at FOB terms, rather than EXW terms.

How can reduce my import duties and other taxes when buying from China?

Understating the customs value is by far the most common method to reduce the import duty, as the amount is calculated based on the declared customs value.

This practice is, of course, illegal, and can, in more severe cases, result in lengthy jail terms.

Import duties can in some cases be reduced by exploiting free trade agreements between countries. However, the added transportation costs make such complex strategies loss-making for small to medium-sized businesses.

Who is responsible for paying import duties and other taxes when a product is dropshipped from China?

The importer is by definition the company or individual specified as the receiver of the goods. When dropshipping products from China, the parcel is sent directly from the wholesaler to the customer – without ever being imported by the seller.

Hence, the customer is therefore defined as the Importer, and may, therefore, need to pay import duties and other taxes, such as VAT or GST.

Customs Value Information

Import duties and other taxes are calculated based on the customs value. As such, it’s critical that importers understand which costs to include in the customs value, and ensure that the correct customs value is declared. Further, the calculation methods differ depending on the country.

What is customs value?

The Customs Value is the number used by the Customs authorities to calculate Import duties, fees, and other taxes.

Normally, the Customs Value is declared on the Commercial Invoice.

How can I calculate the customs?

That depends on the market. For example, the Customs value is based on the FOB (Free on Board) price in the United States. The FOB is basically the unit cost.

In the European Union, however, the Customs value is based on the CIF cost – which includes the freight cost and insurance (in addition to the unit price).

Hence, the shipper must declare the value based on the destination, which of course also requires the shipper to know (or, more accurately, be informed) of the correct Customs valuation method.

Are mold, prototype, and service costs included in the customs value?

Yes. What many Importers don’t know is that the declared value also includes costs for molds, samples, and related services. Hence, buyers cannot reduce the declared value by declaring part of the payment as a cost for design services. However, this only applies if you pay for design (or other) services abroad.

Services purchased locally are not part of the declared value.

However, there are some services, performed abroad, that are generally exempt from inclusion in the Customs value. Sourcing and Quality Assurance services, for example.

Molds and product samples are also part of the customs value. The Importer is often allowed to divide the cost of the tooling and samples over multiple shipments – or pay everything upfront.

What can happen if the customs value is not correctly declared?

Undervaluing the declared value amounts to tax fraud and is a criminal offense.

This is also a common practice, on everything from small parcels to containers. A practice that is estimated to cost the European Union as a whole, as much as €80 million in lost import duties.

How can the authorities check if the declared customs value is correct?

The Customs authorities have access to tools that can flag suspicious shipments. If the total declared value is deemed artificially low, the cargo is flagged and the Importer may be asked to provide additional evidence of the transaction value.

However, an artificially reduced Customs valuation may be discovered months, or even years, after entry.

The tax authorities may compare your records (i.e., compare the Commercial Invoice value to the actual transaction amount) during a company audit.

The Customs authorities can also access records, which ensures that importers cannot deliberately declare a large number of shipments below the customs threshold, in order to avoid paying import duties.

Surprisingly, we keep getting requests from Importers looking for guidance on how to game the system. We can assure you that there are no easy tricks that the authorities haven’t seen already.

How can I be sure that my supplier or freight forwarder declares the right Customs Value?

By not assuming that they will declare the correct value, to begin with.

The formula for success is simple:

1. Calculate the Customs value according to the valuation method in your market

2. Inform your supplier and freight forwarder of the Customs value

3. Request the supplier and/or the freight forwarder to provide you with copies of the Bill of Lading and Commercial Invoice (to verify that the correct value is declared)

Case Study: United States (FOB)

• Unit price: $12.5
• Quantity: 2200 pcs
• Tooling Cost: $500
• Transportation costs to Port of Loading: $200
• Transportation costs to Port of Destination: $1200 (Not included)
• Calculation: $12.5 x 2200 pcs + $500 + $200 = $28,200

Case Study: European Union (CIF)

• Unit price: $12.5
• Quantity: 2200 pcs
• Tooling Cost: $500
• Transportation costs to Port of Loading: $200
• Transportation costs to Port of Destination: $1200
• Calculation: $12.5 x 2200 pcs + $500 + $200 + $1200 = $29,400

Why does some supplier declare a lower customs value?

There are two reasons. First, some manufacturers think they are doing their buyers a favor.

Second, most suppliers don’t employ international taxation consultants. They simply don’t know the Customs valuation laws of every country in the world – even major markets such as the US and EU. It is your job to calculate the Customs value and inform your supplier and freight forwarded accordingly.

Customs Value by Country or Market

CIF (Cost Freight Insurance) = Product Cost + Insurance + All Transportation costs to the Port of Destination

FOB (Free on Board) = Product Cost + Transportation costs / Export clearance costs in the supplier’s country