The EU customs legislation is quite extensive in the field of customs valuation. Basically import duties need to be paid for the value of a transaction (transaction value).
The transaction value is calculated by determining the CIF EU border value. Depending on the type of delivery term it is calculated as follows:
Value of shipment USD. 1000.00
Freight cost USD. 100.00
Handling cost USD. 25.00
Duty rate: 5%
In case of FOB/FCA delivery:
In case of oceanfreight one has to add 100% of the freight cost, in case of airfreight shipments from Hong Kong 78%. Below is an example:
|Invoice value of the shipment
|| = USD. 1000.00
||= USD. 25.00
|Freight cost USD. 100 x 78%
||= USD. 78.00
= USD. 1103.00 x 5% à import duty USD. 55.15
In case of CIF delivery:
Often in case of CIF deliveries the handling and freight cost are included in the invoice value. In case of airfreight the value can be reduced by 23% (100%-78%=22%)
|Invoice value of the shipment
||= USD. 1125.00
|Freight cost USD. 100 X 22%
||= USD. 22.00
||= USD. 1103.00 x 5% à import duty USD. 55.15
As one sees the basis for paying the duties in case of FOB or CIF delivery is the same. It is essential that the term of delivery be mentioned on the proforma invoice because if there is no term of delivery mentioned Customs would automatically take FOB. If the term of delivery happens to be CIF one pays too much importduties.
What components will influence the transaction value:
There are cost price components that can influence the Customs value. There are components that need to be included in the Customs value and there are components that can be excluded from the Customs value.
Needs to be included in customs value
- Freight cost
- Packing cost
- Handling cost
- Insurance cost
Can be excluded from customs value
- Cash discount
- Sales volume discount
- Sample discount
Details of freight, handling and packing can be extracted from the airwaybill or Bill of lading. The components that can reduce the Customs value (resulting in paying less import duties) need to be extracted from the proforma invoice. In case your payment terms are: 2%/nett 30 days you need to state that on your invoice because then the invoice value can be reduced with 2%!
What to do in case there is no transaction value?
The main way of calculating the customs value is the “transaction value”. The transaction value is the price actually (to be) paid for the goods. In case there is no transaction value there are other ways to calculate the value:
Can we agree on a ruling with Customs
- Transaction value of the imported goods
- Transaction value of identical goods
- Transaction value of similar goods
- Deductive method (resale price minus EU elements)
- Cost price plus profit method
It is possible to make arrangements with Customs about the Customs value. A company provides Customs with the relevant data as well as a proposition about the Customs value to be implemented. Customs will investigate the proposal and in case Customs agrees the company will get a “customs value ruling.” This ruling will be documented in an official letter from Customs and the ruling is valid for an agreed period of time.