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What are duties and taxes?

What are duties and taxes?

Duties and taxes are an important part of international shipping, but they can be confusing

Duties and taxes are an important part of international shipping, but they can be confusing

How customs duties and taxes affect your shipment

Customs duties and taxes can have a significant impact on total shipment costs, so it’s important to understand how the authorities calculate them and who’s responsible for the payment. This can save you and your receiver valuable time and effort.

Duties and taxes are imposed to protect national revenue and safeguard local industry. Almost all shipments crossing international borders are subject to duty and tax assessment, with customs officials basing this on information provided on the commercial invoice and other relevant documents.

Payment to the authorities must be met before the shipments are released from customs. Customs charges are based on:

  • Product value
  • Trade agreements (if applicable)
  • Country of manufacture
  • Description and end-use of product
  • The product’s Harmonised System (HS) code
  • Country-specific regulations

What is the difference between Value Added Tax (VAT) and Goods and Services Tax (GST)?

Most countries have a national tax, which is assessed based on the value of the goods and services. While the terminology used in different countries can vary, the principal is the same. In some countries, such as Canada, U.S. Singapore, Australia and New Zealand, this tax is known as the Goods and Services Tax, or GST.

The UK and the European Union (EU) have Value Added Tax (VAT). Businesses that are VAT-registered and fully taxable do not bear the final cost of VAT because it is a tax on consumer expenditure. It can also be known in different countries as IVA, TVA, BTW and AFA, but the principle is the same.

For EU-specific VAT rates, please see the European Commission Taxation and Customs Union website.

GST

Goods and Services Tax

  • Canada
  • U.S.
  • Singapore
  • Australia
  • New Zealand

VAT

Value Added Tax

  • UK
  • European Union (EU)

How are duties and taxes determined?

How do customs authorities calculate customs duties and taxes on imports?

Customs authorities take into account several different elements when calculating customs duties and taxes.

In general, they base these calculations upon the goods description provided on the air waybill and its associated HS code. However, other factors – such as the shipment origin and reason for import – may also contribute to the overall value. Some commodities are also subject to other charges such as excise duty.

In most countries, duty is calculated by taking the value of the shipment contents (plus insurance and a percentage of the transportation costs) and multiplying it by the duty percentage of the product’s Trade Tariff commodity code.

VAT is calculated by taking the value of the shipment contents (plus freight charge, duty and landing fee) and multiplying it by the VAT rate. This can be either 20%, 5% or 0%, depending on the product being shipped. More details on these calculations can be found here.

Valuation

The most common valuation method is the transaction value method. It is based on the price you pay when you buy the goods before they are imported. You must have evidence of the price you pay with your import entry; for example, a copy of the seller’s invoice.

If they are not already included in the seller’s price, some of these costs may need to be added into the valuation:

  • Delivery to the border
  • Commissions (except buying commission)
  • Royalties and licence fees you have paid on the imported goods as a condition of sale
  • Containers and packing
  • Any proceeds of sale the reseller will get
  • Goods and services you give to the seller for free or at a reduced cost; for example, parts you use in the imported goods, or development and design work needed to produce the imports.

Declared value for customs and duties and taxes

Customs officials use a shipment’s declared value (the value a shipper declares on the goods being shipped), along with a description of the goods, to determine duties and taxes. This is why it is important to ensure that the declared value is accurate on the commercial invoice, or customs may consider undervaluation is involved and investigate. Inaccurate declared values are one of the most common reasons for customs delays and disputes over duties and taxes. 

The declared value of a shipment represents the selling price or fair market value of the contents of the shipment, even if not sold.

Gift exemption

Many countries allow gifts to enter duty-free if their value is less than a certain amount and if the gift being shipped is not considered to be a regulated or prohibited commodity.

Strict conditions apply, including:

  • The receiver should be a private individual.
  • The gift must be sent free of charge and be of an “occasional nature”.
  • The word “gift” must be marked on the air waybill and commercial invoice.
  • All items must be itemised with their own value and full description in addition to marking it as “gift”.
  • Items containing alcohol and tobacco will incur excise duty.
  • Items containing food may not be permitted or need additional documentation and be subject to further checks, which could result in additional charges.

Temporary imports

Many countries allow tax relief for items that are temporarily imported or exported, subject to certain conditions. Some common reasons for temporary imports include being used for exhibitions, being imported for repairs or being used for training purposes.

How do you pay duties and taxes?

FedEx Disbursement Fee

If duty and tax charges are due when importing a shipment then FedEx may pay the duty and tax charges to the customs authorities on your behalf so that your goods can clear customs.

This incurs a Disbursement Fee, dependent on the duty and tax amount, as detailed below.

Responsible party

When completing the FedEx Express air waybill, you can select who is responsible for the payment of duties and taxes - this can be the shipper, the receiver or a third party. If you don’t select who pays these fees on the air waybill the receiver will be the responsible party.

Incoterms are the agreement between the shipper and receiver as to who is responsible for what charges, including transport duties and taxes. The Incoterms should always be shown on the commercial invoice to make it really clear to the authorities as to who pays the charges.

Non-FedEx account holders

If the receiver does not have a FedEx account, duties and taxes may need to be paid before goods are released for delivery. If so, shipments may be held at the destination station until payment arrangements are made.

The contract of carriage with FedEx states that the shipper is ultimately liable for any duties and taxes assessed on the shipment. If the receiver refuses the package, or the third-party FedEx account holder refuses to pay for duties and taxes, the original shipper will be billed for them.

Duty & Tax amount Disbursement Fee
0 - 42.50 GBP 30% of the Duty & Tax amount with a minimum of 4.25 GBP
42.50 - 510 GBP A flat fee of 12.75 GBP
Above 510 GBP 2.5% of the Duty and Tax amount

Why do I have to pay duty and tax?

You may not have been expecting to receive a duty and tax invoice so we’ve put together some frequently asked questions to help you understand what these charges include.

If you have any further questions, please contact Customer Service.

What is duty and tax? 

Duty and tax are set, applied and charged by the authorities and FedEx applies the rates set by the authorities in the customs declaration.

Duty is a type of tax charged on products being shipped across borders and is controlled by each country’s customs authorities. The purpose of duty is to ensure the cost of imported goods is the same cost as those produced locally to keep competition fair.

Tax is set at a national level and is usually charged at the point of sale for goods sold and bought in a country. It is also applied for goods entering a country often at the point of importation or at the point of sale in the origin country.

Tax can be referred to differently depending on the individual country, for example VAT – Value Added Tax in the UK, GST – Goods and Services Tax in the U.S., TVA (Taxe sur la valeur ajoutée) in France, BTW (Belasting Toegevoegde Waarde) in the Netherlands and Umsatzsteuer or USt in Germany. 

How is duty and tax applied?

Duty and tax is dependent on the HS code and country of origin. Generally, tax is a percentage of the value of the goods with some goods being zero rated in some countries, such as children’s clothes/shoes/books and some food stuffs.

In general, the calculations are based upon the goods description provided on the commercial invoice and its HS code. However, other factors such as origin and reason for import may all contribute to the overall value and percentage of duty and tax applied. Some commodities are also subject to other charges such as excise duty which is an additional tax based on quantity, examples are goods like alcohol, tobacco and oil. Goods that are subject to trade defence measures and a variety of other restrictions may also incur extra charges.

How is duty calculated?

Duty is calculated against the value of the shipment contents declared on the commercial invoice, together with any insurance costs and a percentage of the transportation cost. Together these are known as the Value for Customs. This value is then multiplied by the duty percentage of the HS code given to the goods by the shipper.

Who has to pay? 

Generally, there are two options to pay the authorities. The first option is for the receiver to pay the authorities directly for any duties and tax, usually due at the time of import. VAT in some countries can be deferred or postponed depending on the import country revenue procedure. Duty must be paid at the time of import to the authorities except for specific customs procedures authorised in advance.

The second option is for FedEx to pay this to the authorities on behalf of the receiver. This is generally paid using our own deferment account which operates similar to a bank account with a direct payment to the authorities. We will then invoice the receiver for this payment with an advancement fee for the service, unless the Incoterms state that the shipper pays.

What is the Disbursement Fee?

FedEx can pay the duty and tax charges on your behalf to ensure we can deliver your shipment as quickly as possible. This incurs an administration fee, also known as a Disbursement Fee (which is part of our ancillary charges). Please see our ancillary clearance service fees page to see the charge at destination country.

Why didn’t FedEx advise me of this at the time of delivery? 

Where possible, we will contact you in advance with an estimated cost of duties and taxes prior to your shipment being assessed by local authorities. However, this is not always possible, and we are often not aware of the charges applied until after we have delivered your package.

I pre-paid duty and tax charges before delivery so why have you charged me?

Tax is generally applied by the authorities at the time of import. If you have paid the tax to your supplier and this is not clearly indicated on the paperwork supplied by the shipper then FedEx will not be aware of this. You will need to discuss this with your supplier and ensure that the correct Incoterms are used on the commercial invoice for future shipments.

Why have you invoiced me for a different amount of duty and tax to your original estimated figure?

At the time of import, you may be charged an estimated figure. This is calculated prior to an assessment of your shipment by the local authorities. If the estimate is lower than the final charge you will be required to pay the difference, and if it is higher, we will refund the difference.

If the amount of your invoice is different to the amount you pre-paid, please get in touch with FedEx Customer Service.

I believe the shipper paid for all charges relating to this shipment so why have I been charged?

The shipper indicates on the air waybill and commercial invoice using the appropriate Incoterms as to who pays what charges. FedEx follows this instruction from the shipper and may have charged you if the Incoterms used indicated that receiver pays duties and taxes. If you believe the shipper should pay these charges you will need to discuss this with them in the first instance. The shipper must ensure the Incoterms are correct and clearly indicated on the paperwork for future shipments.

Are duties and taxes applicable as I am a temporary visitor in a country?

You will need to pay duties and taxes but may be entitled to claim the charges back when you leave, depending on the individual country and your circumstances. Please contact Customer Service for further information.

Are duties and taxies applicable if I purchase my goods online?

The prices advertised on websites often do not include duty or tax. This can make products appear cheaper when compared to the country prices so be aware and watch out for any added charges at the time of import.

Are duties and taxes applicable if the shipment is a gift? 

Some countries permit gifts to be imported free of duties and taxes, however, they often have strict criteria which must be followed including:

  • The sender must be a private individual and the consignee must take delivery at a private address.
  • The gift must be sent free of charge and be of an "occasional nature".
  • The word "gift" must be marked on the air waybill and commercial invoice along with the actual detailed description of what the gift is.
  • All goods must be itemised with their own full description and value.

Not all countries permit gifts, so you should check your destination country rules and regulations.

Please note that items containing alcohol and tobacco will incur excise duty. Items containing food or other controlled items may need additional documentation and be subject to further checks, potentially resulting in additional charges.

If I’m shipping samples do I need to pay duties and taxes?

Samples can often be imported into a country without duty or tax charges, as long as they meet specific conditions, including:

  • The goods may only be used as samples e.g. a single glove or scored clothing
  • They are of a negligible value
  • They are intended to obtain orders for the type of goods represented

The item must be clearly indicated as a sample on the commercial invoice and any other paperwork provided with the shipment. This will enable FedEx to identify this to the authorities and claim relief of duties and taxes.

Do I need to pay duties and taxes if the goods are second hand?

Second hand goods may still have duties and tax applied. Goods classified as antiques or original artwork may benefit from a reduced rate of VAT depending on the national regulations and if your goods meet the correct criteria. A statement confirming the age and artwork is often needed on the invoice or additional paperwork to confirm the status. Check with your destination customs authority website or with your customer to confirm if your goods will meet the criteria.

I no longer want the shipment so what happens to duties and taxes?

To be classed as a rejected import, your shipment must comply with strict rules, for example:

  • Goods are defective, or damaged before clearing customs.
  • They do not comply with the supplier's terms and conditions of contract.
  • Claims must be made before the goods are returned or destroyed.
  • Claims must be made within 12 months of the original entry to the authorities.

You will need to pay any duties and taxes to FedEx, and process a claim directly with the authorities to reject your shipment.

Where can I find more information?

More information about duties and taxes
Contact HM Revenue and Customs National Advice Service on 0300 200 3700 or visit the HMRC website.

Consumer advice about products sold by companies outside of the UK
Contact the Office of Fair Trading consumer advice service on 08454 04 05 06 or visit the Citizen’s Advice consumer service website.

I have a general invoice or account enquiry
Click here to submit your details online.

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Account number:
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Sort code:
40-02-50
Account name:
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All information is correct at time publication and FedEx Express UK Limited accept no responsibility for information relating to third party contact details changing without prior notice. HM Revenue and Customs make the final decision on all imports. View terms and conditions regarding your FedEx Express UK Limited invoices.