U.S. Custom Duties

Customs duties are commercial charges that must be paid for goods to pass through a border into a destination country. 

Foreign businesses exporting to the U.S. should address customs duties in their inbound tax planning. Export contracts between sellers and buyers should clearly define who is responsible for paying these duties. These are typically specified through International Commercial Terms (Incoterms), which indicate whether the exporter or importer bears this cost.

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

• Delivered Duty Unpaid (DDU): In this instance, the seller handles the delivery and transportation costs, but the customer is ultimately responsible for the import taxes and duties to the carrier upon receiving the package.
• Delivered Duty Paid (DDP) means the seller is responsible for transporting the goods and covering all associated fees, including import taxes and duties when the shipment crosses borders.

Example:

ABC Corp. from Italy sells $10,000 worth of premium coffee beans to XYZ Coffee House in New York under Delivered Duty Paid (DDP) terms. ABC Corp. (seller) pays for everything: shipping the coffee from Rome to New York, all the U.S. import taxes and fees (about $500), and delivering the coffee directly to the XYZ Coffee House’s warehouse. The U.S. coffee shop owner just waits for the delivery truck to arrive with their coffee – they don’t have to deal with customs, pay any extra fees, or worry about shipping costs. This is because ABC Corp. already took care of everything and included all these costs in their selling price. However, the burden falls on the foreign seller, ABC Corp., which is subject to U.S. Customs duty on exporting coffee to the U.S.

In the U.S., the amount of duty owed is determined by U.S. Customs and Border Protection (CBP) based on the Harmonized Tariff Schedule (HTS) code and the item’s commercial value.

The Harmonized Tariff Schedule (HTS) is a comprehensive classification system for all products that can be imported. If someone is importing or exporting goods to the U.S., then they should first find their product in the Harmonized Tariff Schedule (HTS).

To pay the duty, you need to know two key figures: the HTS customs duty rate and the total value of your goods. These figures are located on your commercial invoice and in the HTS guide. Understand them correctly to determine the duty rate, which is typically a percentage of the total value.

Please note that the U.S. has various trade agreements with different countries. That may result in duty-free or reduced tariffs if a foreign importer belongs to a partner country of the U.S. trade agreement.