As an import export business, it’s essential to calculate all taxes and duties before your shipments so that you can stick to your budget and avoid any surprise fees. Since tariffs vary by country, it can be difficult to figure out exactly which fees you’ll need to pay as an importer or exporter.
When you’re importing or exporting to the US, you need to follow the specific guidelines set out by the US International Trade Commission and the US Customs and Border Patrol. Failing to pay the proper tariff rate could result in being charged with customs fraud.
Of course, your tariff rate depends on a number of factors: your product, your product’s country of origin, your product’s value, and whether you’re importing or exporting. Here are some basics that can help you determine which tariff rate you’ll need to pay.
What is a tariff?
A tariff is essentially the same thing as a duty. It is a tax that’s placed on imported goods. Most countries levy tariffs in order to increase their revenue while protecting domestic companies and industries. Typically, a high tariff on a certain imported product will drive consumers to buy that product from a domestic business instead.
There are two main types of tariffs: unit tariffs and ad valorem tariffs. Unit tariffs are levied based on a set cost per unit, for example, 1.5 cents a kilogram or 77 cents a liter. Ad valorem tariffs, on the other hand, are levied based on a percentage of the overall valuation of the goods, for example, 5.7% or 3.3%.
If the value of your shipment is less than $800, you probably won’t be required to pay US import duties. Make sure you calculate the value properly so you don’t end up with surprise fees.
When you’re importing to the US, the most important part of calculating which tariff you’ll pay is finding your harmonized system (HS) code and harmonized tariff schedule (HTS) code. An HS code is a six-digit code that serves as a universal classification tool of your products throughout the international shipping process.
An HTS code is specific to the US and is typically 10 digits (your standard HS code plus four digits). Although HS codes and HTS codes sound identical, they are not. Make sure you use the correct code whenever you’re filling out customs paperwork. Remember, if you find your product’s HTS code, you’ll be able to use the first six digits as your HS code.
The most efficient and low-risk way to find your HS codes and HTS codes is to hire a customs broker. It takes years for experts to learn how to properly classify goods, and their knowledge can prevent you from making a costly mistake as you calculate your tariff rate.
How to find your HTS code
As with most aspects of the customs process, finding your HTS code can be challenging. Here are the steps you need to take in order to determine the proper HTS code and correlated tariff rate for your products.
1. Determine the country of origin
If all of the raw materials of your product come from the same country it’s manufactured in, you probably won’t have any problem determining the country of origin for your product.
In many cases, however, it is difficult to figure out exactly where a product originates due to the global interconnectedness of various materials and manufacturing plants. Check the WTO Rules of Origin to clarify which country of origin applies to your product.
2. Specify which item you’re importing
Once you know which item you’re importing and where it comes from, you can utilize the US International Trade Commission’s Harmonized Tariff Schedule search tool to look for your product. The HTS code is listed to the left of the item description.
For example, if you want to import golf shoes to the US, you’ll find that the first eight digits of the HTS code are 6402.19.05. The last two digits depend on which type of golf shoes you’re importing. Men’s golf shoes add 30 to those first eight digits (6402.19.0530), while women’s golf shoes add 60 (6402.19.0560).
Keep in mind that the HTS code should be as specific as possible. Once you have your HTS code, you’ll be able to use the first six digits as your HS code. In the golf shoes example, your HS code is 6402.19.
3. Check whether the country you’re importing from has a special rate
The last step is to estimate how much you’ll pay in import duties. There are three rates of duty listed next to each item in the HTS: general, special, and column 2. General tariffs apply to most countries that do not have a free trade agreement (FTA) with the US or another special tariff treatment program. Column 2 tariffs apply to Cuba and North Korea.
How can you get the special tariff rate for your products? You need to be importing from a country that has an FTA with the US or another special tariff treatment program such as the African Growth and Opportunity Act or the Caribbean Basin Economic Recovery Act. Each FTA and special tariff treatment program corresponds to a code that is listed in the special rate of duty column. Check these codes on pages 6-7 of the HTS General Rules of Interpretation.
Going back to the example of the golf shoes, the codes that are listed in the special rate of duty column are AU, BH, CA, CL, CO, IL, JO, KR, MA, MX, OM, PA, PE, and SG. That means if the country of origin of your golf shoes is Australia, Bahrain, Canada, Chile, Columbia, Jordan, Korea, Morocco, Mexico, Oman, Panama, Peru, or Singapore, you don’t have to pay import tariffs. There are some special tariff treatment programs listed as well.
If you are not shipping from a country that’s on this list, you’ll have to pay the general tariff rate of 6% of the total valuation of the golf shoes shipment. If you’re shipping from Cuba or North Korea, the column 2 tariff rate is 35%.
Other import fees
When you’re importing to the US, you may be required to pay other import fees besides import tariffs. These fees include the merchandise processing fee (MPF) and harbor maintenance fee (HMF).
MPF is 0.3464% for formal entries or a set fee from $2 to $9 for informal entries (personal or commercial shipments by mail valued at less than $2,000). HMF is 0.125% of the total valuation and is charged only when the mode of transportation is by ship. If you are using ocean freight, you will need to pay both MPF and HMF to the US Customs and Border Patrol (CBP). Air freight is only subject to MPF.
For a full list of estimated fees, use our free customs fees calculator.
What about exporting from the US?
Exporting from the US involves an entirely different set of rules, although you’ll still need to know your product’s HS code. In addition to that, you’ll need to find your Schedule B code.
A Schedule B code is a 10-digit code used specifically by US exporters. The first six digits of a Schedule B code are the same as the HS code, but the last four digits can be different from the HTS code. You can find your Schedule B code using the US Census Bureau Schedule B search engine tool.
Your tariff rate when exporting from the US depends on which country you’re exporting to. If that country has a free trade agreement with the US, you may not have to pay any import duties. Check the specific regulations of the country you’re exporting to in order to calculate your tariff rate and customs fees.
Figuring out which tariff rate your goods are subject to can be challenging. Why not hire an expert to help? At BorderBuddy, we take care of the details of the customs process so you can focus on growing your import export business. Give us a call today.