When you ship items internationally, the value of your goods is extremely important. Value determines how much you pay in import duties and affects your shipping costs. If you don’t value your goods correctly, it’s considered fraud by most countries’ customs agencies. Both you and your customers could face huge fines for under-valued imported items. The value of your goods will also impact how much it costs you to ship internationally. Couriers usually charge more for transporting items of high value.
Determining the value of goods for import and export isn’t as straightforward as you think, however. The formula changes depending on whether you’re the buyer or seller, and the type of duty applied. How is value determined on goods meant for import and export, and how does it affect your shipping costs?
Customs value vs. transaction value
The value you put on the customs form when you ship your items overseas is the customs value. The transaction value is either how much the buyer paid for the items or how much the seller is planning to retail the items for.
In most situations, the customs value of your imported goods is the same as the transaction value. If you’re importing goods into the US from another country to sell them in the US, then your transaction value would be how much you are planning to sell the items for, or their market value. If you purchased the goods from a foreign retailer and the retailer ships them to you in the US, the transaction value is how much you paid for the items.
To use this method for determining customs value, there must be evidence of a sale, such as a commercial invoice, purchase order, or contract. Also, there can be no restrictions on the buyer for using the purchased goods.
Most countries accept transaction value as the customs value when you ship internationally. In some cases, however, there is no transaction value or it’s not acceptable as the customs value. In these situations, there are five other methods for calculating customs value.
The World Trade Organization Valuation Agreement allows for six acceptable methods of determining customs value, one of which is transaction value.
These methods for determining value are stipulated in the WTO Valuation Agreement and are hierarchical (start with the first method and work your way down as needed).
- Transaction value
- Transaction value of identical goods
- Transaction value of similar goods
- Deductive method
- Computed method
- Fall-back method
Specific duties vs. ad valorem duties
Another important consideration when paying import taxes is whether you pay specific duties or ad valorem duties. Specific duties charge a set rate per item or per unit, regardless of the value. Ad valorem duties, on the contrary, are based on the value of the item and the customs valuation is multiplied by a rate (such as 5 percent) to determine the duty.
For specific duties, there’s no need to get into customs valuation and the WTO Valuation Agreement does not apply. There’s a set rate, and you pay it. For ad valorem duties, you have to use one of the customs valuation methods to determine how much the import duty is.
What is ‘declared value’ when shipping?
Is declared value different from customs value? Yes and no. In some contexts, the declared value of a good for import is the value the customs officers will assess as it crosses the border. When you work with couriers such as FedEx and UPS, however, declared value can mean something different.
Couriers use declared value to cover insurance costs for high-value goods. UPS and FedEx, for example, provide a minimum liability coverage for your shipment. The standard is usually $100 (USD). If the value of your goods exceeds the minimum liability coverage, then you should declare a higher value to get more coverage.
Does declared value include shipping costs?
If you declare a higher value for your goods to get more liability coverage from your courier, yes, it raises your shipping costs. Both FedEx and UPS offer $100 coverage free unless you state otherwise. They both also allow you to purchase more coverage, with maximum amounts up to $50,000 depending on the shipping method you choose.
With FedEx, it costs $3 for every $300 beyond the minimum liability that you list in your declared value. For UPS, it’s $1.05 for every $100 beyond the minimum.
Keep in mind that declared value and shipping insurance aren’t the same thing, although you’ll see the terms used interchangeably. Couriers have a maximum liability amount and several restrictions when you increase your declared value. If you want to insure your international shipments, you typically must take out third-party shipping insurance.
Which factors affect shipping costs?
Apart from declared value, what other factors affect the cost of international shipping?
- Insurance: If you have high-value items that are not covered by your courier’s liability protection, it’s recommended to get shipping insurance.
- Weight: Couriers price their services by weight or size, so these factors will change your shipping costs.
- Shipping destination: It costs more to ship to some places than others. Shipping from Canada to the US will be cheaper than from the UK to the US, for example.
- Your pricing model: Couriers offer a range of rates and shipping services based on what you’re shipping and the destination. You can also opt for flat-rate services, which have a fixed price for all packages under a certain weight. There’s also hybrid shipping, which combines courier and logistic services to lower costs.
Determining value in international shipping
The value of your goods has a significant impact on shipping costs. Calculating customs value, transaction value, or declared value should factor into your business plan. If you’re unsure about how to declare the value of your goods, or you have a high-value item you need to import into the US or Canada, BorderBuddy can assist you.
We’ll ensure that you’re compliant with customs regulations and help you get a clear estimate on the cost of international shipping. You can also use our duty calculator to see how much you’ll have to pay in import taxes to the US or Canada.