Determine Duties and Taxes
It is important to consider the effects of duties, taxes, port handling fees and other customs charges when determining your shipment's total shipping charges. Depending on the content of your shipment and the destination country, customs charges will affect the price the recipient is willing to pay for your product. Being able to calculate and communicate the "landed" cost up-front can often save both you and the recipient valuable time and money.
Almost all shipments crossing international borders are subject to the assessment of duties and taxes imposed by the importing country's government. Duties and taxes are imposed to generate revenue, protect local industries against foreign competition or both. In some countries, duties and taxes must be paid before the goods are released from customs. A shipment's duty and tax amount may be based on:
- Product value
- Trade agreements
- Country of manufacture
- Use of the product
- The product's Harmonized System (HS) code
Customs officials assess duties and taxes based on information provided on the air waybill, the Commercial Invoice and other relevant documents.
Value-Added Tax (VAT) or Goods and Services Tax (GST)
A VAT is a general consumption tax assessed on the value added to goods and services. In some countries, including Singapore, Australia, New Zealand and Canada, this tax is known as the goods and services tax or GST. Because this is a tax on consumer expenditure, businesses that are VAT-registered and fully taxable do not bear the final costs of VAT. Every member state of the European Union (EU) has a VAT. A VAT is typically assessed on the "duty paid value" of the goods (which equals the cost of the goods, insurance and freight (CIF) plus duty). To see EU-specific VAT rates, please visit the European Commission (EC) Taxation and Customs Union website.
Please note: As per the contract of carriage with FedEx®, the shipper is ultimately liable for any duties and taxes assessed on the shipment. If the recipient refuses the package or the recipient or third party FedEx account holder refuses to pay for duties and taxes, the original shipper will be billed for duties and taxes.
Calculate Duties and Taxes
Most countries use the CIF (Cost, Insurance and Freight) method to calculate duty charges. CIF is a pricing term that means the cost of the goods, insurance and freight (shipping charge) are included in the quoted price. The total duty and tax charge is calculated by adding all costs together. (For more information about VAT, see the Value-Added Tax section.)
Gift Exemption for Duties and Taxes
Many countries and economies allow gifts to enter the country duty-free if the value of the gift is less than a certain amount. Any amount above the stated value may be subject to import duties and taxes.
Here are some examples:
- The United Kingdom: No duties and taxes are assessed if the value of the gift is less than £36 GBP. Convert to Canadian dollars if Canadian Payer.
- Canada: No duties and taxes are assessed if the value of the gift is less than CAD$60.
- India: No duties are assessed if the value of the gift is less than 10, 000 INR. Convert to Canadian dollars if Canadian Payer.
To qualify as a gift, your shipment should meet the following requirements:
- The shipping documentation must be clearly marked "GIFT" and include a detailed description of the commodity.
- The total value of the shipment must not exceed the values listed in the above examples.
- In some countries, the shipment must be sent person to person — with no company involvement or indication of involvement on the shipping documentation.
For additional information, review our Important Tips for Shipping Gifts or call FedEx Customer Service at 1.800.GoFedEx 1.800.463.3339.
Declared Value for Customs and Duties and Taxes
Customs officials use a shipment's declared value (the value the shipper declares on the goods being shipped), along with the description of the goods, to determine duties and taxes. It is important to ensure that the declared value claimed is accurate. Inaccurate declared value is one of the most prevalent reasons for duty and tax disputes. A shipment's declared value represents the selling price or fair market value of the contents of the shipment, even if not sold. This value is identified on the FedEx Express® International Air Waybill and the FedEx Express® Expanded Service International Air Waybill as the "Total Value for Customs," and it must be consistent with the value shown on the Commercial Invoice.
Commodity Descriptions and Duties and Taxes
Incomplete or inaccurate content descriptions and leaving out individual item values are the most common errors on the Commercial Invoice. Consider these tips in order to minimize customs delays and to avoid added duties and taxes that are often applied when a commodity description is misinterpreted:
Pay attention to the "big three."
Tariff tables are based primarily on three factors, so ensure that all three are clearly addressed in your commodity description.
- What an item is
- What it is made of
- What it is used for
Avoid abbreviations. "Cxl cbl" might mean "coaxial cable" inside your organization. However, for a customs official, especially one halfway around the world, it will have little meaning.
Be specific. "Metal parts for hydraulic valves" is better than "machine tools." Also, use generic names in addition to trade names.
Many countries allow tax relief (either duties and tax exemption upon entry or a refund after exportation) for items that are temporarily imported or exported, as long as certain conditions are met and procedures are followed. For instance, items are often temporarily imported or exported for:
- Re-export after resale
- Repair or replacement of damaged goods
The customs clearance services included as part of FedEx® international services are meant to facilitate the import of goods intended for consumption in that country. Therefore, they do not include some special procedures that might be needed to meet governmental requirements for duties and tax relief at the time of export or import.
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Paying Duties and Taxes
FedEx Advancement Fee:
Duties, taxes and other charges might be due when importing a shipment and FedEx may advance these fees on behalf of the payer. A fee will be based on the advanced amount and FedEx will bill the party designated to pay the duties and taxes. For more information, visit fedex.ca/recipient.
Duties and taxes on international shipments will be billed automatically to the recipient, unless the shipper requests that FedEx bill the shipper or a third party. When completing the FedEx Express® International Air Waybill or FedEx Express® Expanded Service International Air Waybill, you can select the shipper, the recipient or a third party as the party responsible for payment.
Non-FedEx Account Holders:
Prepayment of duties and taxes before release to the recipient may be required if the recipient does not have a valid FedEx account number or a FedEx account in good credit or standing. Shipments will be held at the destination station until payment arrangements are made or the FedEx Credit department has authorized release of the shipment.
The first step in determining duty and tax information for your shipment is to identify the Harmonized System (HS) code associated with your commodity. The Harmonized Commodity Description and Coding System was developed, and is maintained, by the World Customs Organization (WCO) to standardize trade between its more than 200 member countries. The Harmonized System is based on a fundamental principle that goods are classified by what they are and not according to their stage of fabrication, use or origin of the goods. This coding system ensures that customs officials all around the world are referring to the same item when classifying a product and applying a tariff rate. The HS code is comprised of six digits that represent general categories of goods. For example, 6910.10 is the HS code for ceramic sinks, washbasins, washbasin pedestals, baths, bidets, water closet bowls, flush tanks, urinals and similar sanitary fixtures made of porcelain or china.
All member countries use the same six-digit code as the basis for classifying each commodity. Many countries, including Canada and the U.S., require specific trade data or statistics and therefore require an additional four digits, making the entire code 10 digits. Each country publishes a unique HS code list comprised of the six-digit universal code plus the country-specific extensions identified by detailed commodity descriptions.
The second step is to use this information to calculate the estimated duties and taxes and other fees that may be levied against your international shipment. As a Canadian exporter, you need to know the HS codes for your product before calculating the duties and taxes because:
- The HS code is needed to look up rates of duty
- The HS code is needed to determine whether a product qualifies for preferential tariff treatment under the North American Free Trade Agreement (NAFTA) or other similar trade agreements.