What is import duty & import tax? A guide to import tax and shipping duties

Let’s break down what you need to know to ensure your shipments always reach cross-border customers on time.

What is import duty?

Import duty (or customs duty) is a tax charged by customs authorities on goods that cross international borders. Governments impose these duties primarily to generate revenue, but they can also influence trade by making imported goods more expensive. This can encourage consumers to purchase domestic products instead. 

Common forms of import duties include trade tariffs and certain excise duties applied to specific categories of goods.

What is import tax?

Import tax is a consumption tax charged by customs authorities when goods enter a country. In many cases, this tax mirrors the country’s domestic sales tax. Even when items are bought abroad, this tax is applied once they enter the destination country. Common examples include sales tax and value-added tax (VAT).

The key difference between import tax and import duty lies in their purpose. Import duties are typically used to regulate trade and protect domestic industries. Import tax, on the other hand, ensures that imported products are subject to the same consumption taxes as goods sold within the local market.

How do duties and taxes impact your shipment?

Duties and taxes directly affect the total cost of your international shipment, so it’s important to account for them early in the planning process. Understanding these charges helps exporters price their products more accurately and maintain healthy profit margins when selling overseas.

Failing to declare or manage import duties and taxes correctly can also lead to customs delays, additional inspections, or even financial penalties in Indonesia. Being prepared with the right information and documentation helps ensure your shipment clears customs smoothly.

How much is import tax?

Many countries have a minimum threshold of order value that goods have to meet before taxes and duties apply – this is called a de minimis.

The amount of tax and duties you’ll need to pay for a shipment is influenced by several factors, including:

• The value of the goods (including insurance and shipping fees)

• The goods description

• The country or region of origin

• The destination country’s tariff rates

• The goods’ HS code(s)

Import duties and taxes are typically calculated on the CIF (Cost, Insurance, Freight) value of the shipment, which represents the total value of the goods, including shipping and insurance costs, to the destination country. Understanding what the CIF value is helps exporters and importers estimate landed costs and plan pricing strategies effectively.

What is an HS code?

A Harmonized System (HS) code is a standardized numerical code used to classify goods for customs purposes. HS codes are typically six digits long at the global level, with additional digits sometimes added by individual countries to further specify product categories. 

For example, the HS code 6203.42 specifically classifies men’s or boys’ cotton trousers and shorts. The first two digits (62) denote the broad category of non-knitted apparel, while the subsequent digits narrow the category down further. Because different countries may extend HS codes with additional numbers, exporters from Indonesia should verify the exact code required by the destination market.

Identifying the correct HS code can be challenging when shipping to multiple destinations. Tools such as DHL Express MyGTS+ help businesses find accurate HS classifications and customs information for different countries. By using these resources, exporters can reduce compliance risk when planning to send international parcels.

How to calculate import tax

As international logistics experts, DHL Express offers digital tools that help simplify cross-border shipping. One of these is My Global Trade Services (MyGTS), an online platform that provides guidance on duties, taxes, and import requirements for different markets. You can login with your existing DHL Express business account or register a new MyGTS account to access MyGTS.

Within MyGTS, businesses can access the Landed Cost Estimator, a calculator that estimates duties, taxes, shipping costs, and other charges. By understanding the total landed cost before shipping, exporters can price their products more accurately and plan international shipments with greater confidence.

Import tax is calculated based on several factors, including the value of the goods, the applicable duty rate based on the HS Code, and any consumption taxes in the destination country.

Here’s an example of how to calculate import taxes and duties.

Consider an Indonesian exporter shipping goods valued at US$ 1,000 to an overseas customer. If the destination country applies:

• Import duty of 10%

• Value-added tax (VAT) of 11% (applied on the combined value of goods and duty)

The calculation would be:

1. Import duty: US$ 1,000 × 10% = US$ 100

2. Taxable value (goods + duty): US$ 1,000 + US$ 100 = US$ 1,100

3. VAT: US$ 1,100 × 11% = US$ 121

4. Total import tax and duty: US$ 100 + US$ 121 = US$ 221

The customer would therefore be responsible for US$ 221 in duties and taxes.

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 upon 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 payment of 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 cover all duties and taxes. In the instance of DDP, for example, the seller is the Importer of Record.

Considerations when shipping internationally

There is a lot to plan for when shipping to a new cross-border destination, including:

• The destination country’s customs regulations. It’s important to research the local import tax and duty rates to factor into your costs.
• Shipping documentation and paperwork. This may include an accurate and detailed commercial invoice, waybill, and bill of lading.
• It goes without saying that you want your shipment to arrive at its destination in perfect condition. Goods should be packed in correctly sized boxes to optimize space (and thus minimize your shipping costs!), with labels displayed clearly.
• Prohibited and restricted items. Goods shipped without the correct certificates or permits could be seized by customs or earn you a hefty fine.
• Insurance. Shipping insurance will give you peace of mind in case something does go wrong – such as a damaged or lost shipment.

In 2024, Indonesia exported a total of US$297 billion, making it the 27th largest exporter in the world1. The most common export destinations include:

• China: A significant trading partner with complex customs processes. Accurate HS codes and complete documentation are essential to avoid delays.
• United States: High consumer demand for diverse products, but strict labeling and documentation requirements apply.
• India: A growing consumer market with strong demand for diverse products.
• Japan: Known for stringent quality and packaging standards. Indonesian exporters should prioritize product quality and clear labeling.
• Singapore: A major logistics hub with efficient customs procedures, making it an attractive destination for cross-border trade.

Practical steps for handling import tax and shipping duties

Managing customs declarations

When shipping goods internationally, you’ll be required to complete customs declaration forms, including a commercial invoice. This is a specialized export document containing comprehensive information about the goods that customs authorities will use to calculate the taxes, tariffs and duties due. You can cut costs by managing customs declarations yourself, or you can engage a customs broker.

Choose a customs brokerage service

Partnering with DHL Express to send international parcels, for example, will mean your business has access to a global network of customs experts across over 100 countries. You’ll benefit from:

• Full transparency and maximum visibility over what has been declared on your behalf
• Global rate cards for transparent costs
• New technologies, such as AI-powered compliance tools to reduce clearance delays of your imports
• DHL’s Duties and Taxes Outlay Service, meaning the company will settle all duties and taxes upfront, on your behalf, to prevent delays in the goods getting to their destination

Prepare your customers for paying import duties

Lastly, remember that whatever Incoterms you choose for your international shipments, be clear about them to your customers upfront. Surprising them with high shipping fees at the very last moment is a sure way to lose the sale.

Growing your business globally

Managing import taxes and duties for your international shipment may sound complicated, but with a DHL Express Business Account, it needn’t be. You’ll have expert guidance from customs specialists, whichever market you’re selling to. Grow globally with DHL.