Import tax and duties: calculation and customs tips

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

What are import duties?

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 are import taxes?

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).

How do duties and taxes impact your shipment?

Duties and taxes will impact the total cost of your shipment, so it’s important you are aware of them early on. You can then factor them into your pricing strategy to ensure your business remains profitable. Additionally, failing to manage duties and taxes properly could cause your shipment to be held up at customs, not to mention any fines you may have to pay. 

How much must you pay for import taxes and duties?

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 are influenced by several factors, including:

• Value of the goods (including insurance and shipping costs): The declared value of your shipment, which includes the price of the items, any insurance fees, and the cost of transportation, forms the basis for calculating duties and taxes.
• Type and purpose of item: Different categories of goods attract varying duty rates. For instance, if you are shipping large or bulky items versus smaller, high-value goods, the classification and associated duties can differ. The intended use of the item (e.g., for resale, personal use, or as samples) can also play a role.
• Country/Region of Origin: The country where your goods were manufactured or produced can significantly impact the duty rates applied. For example, goods shipping from the U.S. to Japan might be subject to different tariffs than goods originating from other regions due to existing trade agreements or relationships.
• Importing country's tariff rate: Each country has its own set of tariff rates, which are the taxes imposed on specific types of imported goods. These rates are often determined by the importing country's trade policies and agreements.
• HS Code: The Harmonized System (HS) code, a unique classification for your goods, is a primary factor in determining the applicable duty and tax rates. Different HS codes correspond to different tariff percentages. Japan’s customs authorities will use this code to understand what is being shipped and apply the correct import duties. If you include the incorrect code, you could end up paying the wrong rate, or have your shipment rejected.
• Incoterms: These internationally recognized trade terms define the responsibilities and liabilities of the buyer and seller, including who is responsible for paying import duties and taxes. Understanding your agreed-upon Incoterms is vital for determining your financial obligations.

How to calculate import tax

As international logistics experts, DHL Express has a range of solutions to help make things easy for Japanese 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.

How to calculate import duties

First, you’ll need to determine the applicable duty percentage rate, which varies depending on the type of goods being shipped and the country to which they are being shipped. 

Once you have this rate, you will need to calculate the dutiable value of your shipment. This typically includes the sum of the goods' value, freight costs, insurance, and any other costs associated with international shipping from or to Japan. 

Finally, to calculate the import duty, you multiply the total dutiable value by the duty percentage rate. Understanding how import duty is calculated will help you accurately estimate your import tax obligations and determine how much in import duties you will need to prepare for your specific shipments.

For simpler shipment calculations, DHL's My Global Trade Services (MyGTS) provides HS Codes, tariffs, and landed cost estimates to help avoid customs delays. Explore MyGTS today.

Responsibility for payment of 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.

Parties involved

• Logistics 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, clarifying who is responsible for import duties.
• 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.

Incoterms

Incoterms® are internationally recognized trade terms that define key responsibilities between buyers and sellers in international shipping, crucially determining who pays import duties and taxes. Some of the most common are:

• Delivered Duty Paid (DDP)
• Delivered Duty Unpaid (DDU) (also sometimes referred to as Delivered at Place - DAP)
• Free on Board (FOB)
• Cost and Freight (CFR)

The chosen term also significantly impacts financial obligations. For example, under Delivered Duty Paid (DDP), the seller is responsible for all costs and risks, including the payment of import duties and taxes at the destination. Conversely, with Ex Works (EXW), the buyer assumes almost all responsibilities and costs from the seller's premises, including all export and import duties and taxes. 

Other widely used terms, such as Delivered at Place (DAP), mean the seller arranges delivery to a named destination, but the buyer is responsible for clearing customs and paying all applicable import duties and taxes.

Therefore, understanding which Incoterm applies to your shipment is essential for accurately determining who is liable for these customs charges.

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Other important considerations when shipping internationally

Beyond calculating duties, several other factors significantly impact your international shipping costs and customs experience:

• Familiarize yourself with the destination country’s specific customs regulations: Thorough research into local import tax, duty rates, compliance rules, and any applicable trade agreements will help to forecast total costs more accurately and avoid non-compliance.
• Ensure all shipping documentation and paperwork are meticulously accurate and complete: Errors or omissions in waybills, packing lists, or certificates of origin can lead to significant customs processing delays and potential financial penalties.
• Package and label your goods clearly: Well-packed goods in correctly sized boxes not only prevent damage but also optimize volumetric weight, potentially lowering base shipping costs. Clear, accurate labels with all necessary information also aid smooth customs processing, reducing inspection times and potential delays that could complicate final duty assessments or lead to storage fees.
• Check if your products are prohibited or restricted in your destination country: Shipping goods without the required licenses, specific certificates, or permits will inevitably lead to customs seizures, substantial fines (adding unexpected operational costs), and significant delivery disruptions, far outweighing any duties or profits initially calculated.
• Consider shipping insurance: While it represents an added upfront cost, it provides financial protection against loss or damage during transit. Importantly, the insured value often forms part of the dutiable value of your goods (especially under certain Incoterms), thereby influencing the final import duty and tax calculations.

How to manage import taxes and duties effectively with transparency

Managing Customs Declarations and Optimizing Duty Costs

When shipping goods internationally, you’ll be required to complete customs declarations 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. While you can manage these declarations yourself or engage a customs broker, several proactive strategies can also help manage and potentially reduce your overall duty-related costs.

1. Leverage Trade Agreements: Investigate if any Free Trade Agreements (FTAs) exist between the origin and destination countries. Qualifying goods that meet the specific Rules of Origin under an FTA can often benefit from reduced or eliminated customs duties, leading to significant savings.
2. Choose the Right Incoterms®: Strategically choosing Incoterms can help you manage your cost exposure or offer more competitive pricing by clarifying these obligations upfront.
3. Explore De Minimis Thresholds: Many countries have "de minimis" value thresholds below which imported goods are exempt from duties and taxes. Understanding and utilizing them for smaller, lower-value shipments can help avoid unnecessary fees and streamline customs clearance for eligible consignments.
4. Consider Inward Processing Relief (IPR) or Outward Processing Relief (OPR): IPR can suspend or refund duties on goods imported specifically for processing (e.g., manufacturing, repair) and then later re-exported. OPR offers duty relief on goods that are re-imported after undergoing specific processing or repair overseas, typically by assessing duty only on the value added abroad.
5. Use Bonded Warehouses (Customs Warehousing): This allows you to manage cash flow and defer duties. Imported goods can be stored in these customs-controlled facilities without immediate payment of import duties and taxes. These charges are only levied if the goods are subsequently released into the domestic market; they may be avoided altogether if the goods are re-exported directly from the warehouse.

Apply Correct Customs Valuation Methods: Import duties are almost always calculated based on the declared customs value of your goods. Ensure you use the appropriate WTO-consistent valuation method (most commonly the "transaction value") and accurately declare all dutiable costs (which can include freight, insurance, and other elements depending on the Incoterms® used) to prevent overpayments or penalties arising from incorrect valuation.

Prepare your customers for paying import duties

Lastly, remember that whatever Incoterms you choose for your international shipments, clear communication with your customers about potential import duties is paramount from the outset. 

Failing to notify importers about these charges early in the process can lead to significant issues. Customers surprised with unexpected costs upon arrival of their goods are likely to experience frustration and dissatisfaction. This can result in shipment refusal, leading to costly returns and delays in customs clearance. 

Furthermore, a lack of transparency regarding tariffs can cause disruptions in your supply chain, create compliance issues with import regulations, and ultimately damage your business relationships with international customers, hindering future sales and growth.

Next steps

Managing 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.