US Import Duties & Taxes – How much and when do I have to pay for import tax?

So you are wondering how much tax and import rates you have to pay on your product? You keep hearing that anything below “2500$” doesn’t get taxed? Lets look at import duty rates & taxes for the US in detail.

What we are talking about today is the:

1) Informal Entry

An informal entry is the entry of goods valued under 2500US$ and does not need to be cleared by a customs bond as it is designated for mostly personal importations. The amount used to be 1000$ before 2013 but the threshold has been increased to 2500$ since then.

2) Formal Entry

A formal entry is the entry of goods valued over 2500US$ and needs to be cleared by a customs bond. This type of entry is used for commercial importations only (e.g. re-selling goods on Amazon).

3) Lowering product costs to avoid taxation & rates

 

I’ll explain each entry in a little while. The word in the community is that anything below 2500$ doesn’t get taxed and no rates apply. Wrong.

First of all any amount is technically taxable if the product is intended to be re-sold but the US customs and border protection calls the entry with a value under 2500$ an informal entry. An informal entry are “goods for personal consumption or enjoyment”.

Now in most cases customs turns a blind eye and won’t tax or slap rates on your products imported under 2500$. That is if the actual declared product value makes sense. What does that mean? Lets look at two example:

1) Informal Entry

My actual product costs 4$ and I order 500 pieces. The total order is therefore valued at 2000US$. This is called an informal entry.

Now I technically have to pay taxes and duties because I am importing as an individiual or entity with the intent to re-sell these goods.

But customs doesn’t know that and since there is a threshold of 2500$ anyway they often don’t impose any tax or duties.

But that doesn’t mean that you aren’t liable to pay them. Because if you import 500 pieces of a private labeled product it is very likely that customs knows that you have the intention of re-selling the goods.

However, as I mentioned US customs turn a blind eye in many cases and release your goods without having to pay any taxes and duties (just don’t count on it and calculate duties and taxes anyway when calculating your profit margin)

This happens especially if you use couriers like DHL, UPS etc. because they have a special clearance lane and customs often “wave these goods trough”.

Also (see my last post on this here under point 2): https://importdojo.com/how-to-import-to-the-us-for-international-sellers-ship-to-amazon-directly/

If you were to ship by a freight forwarder (Sea or regular Air freight), the forwarder has to file for a Informal Entry and you will likely be taxed according the customs tariff number.

 

2) Formal Entry

My actual product costs 6US$ per piece to manufacture and I order 500 pieces.

I declare 3000US$ Total Order value on my Invoice which means I (my forwarder/carrier) have to file for a formal entry. I get taxed at the import rates and duties as filed under the official US Harmonized Tariff Schedule” https://hts.usitc.gov/

It’s not easy to navigate around that site and often you need to look for a long time to find the correct tariff number. If you aren’t sure you can also go to: www.dutycalculator.com and look for your tariff number there.

However there are only 3 free “look-ups” and then you’ll have to pay.

Let’s say for example my product is the famous “Garlic Press”. I do the research and find out that the garlic press has a import rate of 3%. Therefore the taxable amount and import rate is 90$ (3% of 3000$).

There will be merchandising processing fees that are usually a couple of dollar. In total I won’t be paying more than roughly 100-120$ for import rates and duties.

I am happy to pay that amount and import my product in a fair and square manner.

 

3) Lowering the product value on the Invoice:

Now a lot of sellers/buyers manipulate their product price on the invoice to avoid any taxation because they have heard of the “2500$ rule” but they aren’t aware of the actual regulation (informal/formal).

They do that because they have heard from other people in Facebook groups that they do that as well. Or their supplier told them that they will lower the invoice to help them save costs…. Please don’t!

Say for example they manipulate that 6$ product to a price of 4$ instead to stay below the 2500$ threshold. In most cases customs will not check and therefore you can import your products “if you’re lucky” at a zero percent tax rate which is an informal entry.

While I don’t encourage you to do so this procedure is very common and customs is aware of it. I guess the US supports their economy and has better things to worry about.

However If you greatly underprice your item you can get in trouble. Say for example that the supplier puts 1$ (or even less) on the Invoice to make the total amount out to 500$ (for 500 garlic presses).

How will you explain that your 500 pieces of private label garlic presses are for personal consumption? How will you explain that a product that sells for 15-20$ is being imported by you for 1$ a piece? You can’t and you will likely be taxed the full amount as well as a fine for deceiving customs.

Those fines can be in the excess of thousands of US$, depending on the product and the circumstances of the case.

Also bear in mind that the assesment of the total product value is the option and at the opinion of the customs officer on duty.

They aren’t stupid and if a product obviously has a higher value than you have declared they will definitely slap you with the full import rate and/or a possible fine.

In order to avoid any mix up with the correct customs tariff number I recommend you to tell your supplier to mention the correct number. If you aren’t sure which one is the correct number look on https://hts.usitc.gov/ or www.dutycalculator.com

If you still can’t find it then you can also call the phone number on the customs tariff website and they will give you this information for free.

So I’d recommend you to declare the real value and if you really must to save a few $… lower the price to a reasonable price. (E.g. 5.5$ instead of 6$).

I personally declare the real value because it’s simply not worth to falsify a customs invoice to save 90$ of taxes (in above example).

Important: Samples are a different scenario. You actually should declare your samples at a low or NO VALUE at all because they are simply for your evalutation and order decision. You will most likely also not re-sell that sample.

Therefore you can declare samples at a nominal value (1$) and mention on the sample Invoice: “Samples Of No Commercial Value”. Your supplier can put this on the sample invoice for you. See an example below:

 

How do I declare informal or formal and how do I properly file this with customs?

You don’t have to worry, your logistics company will declare that for your. This could be a freight forwarder or a courier like DHL.

In any event, the forwarder/courier knows the amount of total product value and will know how to declare for you.

1) Informal Entry

https://help.cbp.gov/app/answers/detail/a_id/215/~/filing-an-informal-entry-(for-goods-valued-at-less-than-$2500)

2) Formal Entry

https://help.cbp.gov/app/answers/detail/a_id/214/related/1/session/L2F2LzEvdGltZS8xNDUyMzk4NDUxL3NpZC9zTU50bzhHbQ%3D%3D

3) Merchandising Processing Fee

https://help.cbp.gov/app/answers/detail/a_id/334/related/1/session/L2F2LzEvdGltZS8xNDUyMzk4NDUxL3NpZC9zTU50bzhHbQ%3D%3D

 

IMPORTANT: There are exceptions to the 2500$ rule! One exception to the “valued under $2,500 rule” includes textiles. For this type of trade-sensitive merchandise, a lower value of $250 applies. A variation, or subcategory, of informal entry is known as “Section 321” which allows the duty-free entry of merchandise valued at $200 or less – as long as it is imported by one person on one day

I hope this helps and shines some light onto the subject 🙂

All the best and happy sourcing,

Manuel

How to import to the US for international sellers – ship to Amazon directly

Two of the questions I receive the most is: “Can I sell on Amazon US as an international seller” and “Can I send my order directly from the factory directly to Amazon?

Yes you can!

This prompted me to do a write up on the topic and without further ado, here’s a quick guide for you that hopefully answers your questions:
You basically have four options:

  1. Using a customs broker acting as the ultimate consignee (No EIN needed)
  2. Using a courier service like DHL/UPS/FedEx etc. (Amazon’s EIN recommended)
  3. Using a prepping and forwarding company that acts as the ultimate consignee (NO EIN needed)
  4. Using a forwarding company/customs broker when delivery by regular Air or Sea shipment (not by courier) and acting as the Importer of record and ultimate consignee yourself (Amazon’s EIN needed)

In all cases I still recommend you to get your own US Tax Payer Number or also commonly referred as EIN.

Simply follow this link for information and call the number mentioned under “Apply by Telephone – International Applicants”. It’s a very simple and straightforward process that takes about 10-15 minutes.

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-to-Apply-for-an-EIN

Some important reminders:

1) Not all customs brokers can act as the ultimate consignee. The ones that do usually offer services on top to act as your ultimate consignee:

2) Very Important: Never put Amazon as Importer of Record on any document. In case you send goods directly to Amazon only use them as the ultimate consignee but never as the Importer of Record otherwise they will definitely reject your shipment.

3) One thing that is super important if you decide to send products from China to Amazon without any stop in between (Prepping, Labelling or Quality Control company in the US):

HAVE AN INSPECTION. I can’t stress enough how important it is to have an inspection before sending anything to Amazon directly.

I know that many buyers have an inspection in the US. But what if the goods are defect to such an extent that you can’t rework them in the US? Are you going to send them back to China? Unlikely.

Save yourself this step and have the inspection in China with a reputable Inspection company like http://www.asiainspection.com

If there’s anything wrong during the inspections you can still have them re-worked in the factory directly.
On top of that you protect your initial deposit to the factory by having an inspection.

4) Also make sure you comply with Amazon’s packaging and labeling requirements (weights, labeling & carton measurements). Amazon’s fulfillment centers prefer palletised shipments but you do have an option to send the shipment un-palletised. There will be an option in Seller Central when you create your shipment that allows you to choose the option of un-palletised shipments.

 

 

 

5) Do as much labelling and prepping in the factory as possible!

Your factory can take care of all the labels and prepping needed for Amazon, you simply need to give them clear instructions when you place your order.

 

6) Think hard about “inventory placement” that lets you ship from China to one Amazon warehouse only.

This costs 0.3$ on top of the product cost but it might be worth it considering that you only have to invoice once. On top of that shipping companies charge extra for each set of documents on various levels and it is complicated to instruct your supplier to ship to 2-3 different warehouses. Think about all the labelling and coordination that has to be done with the supplier. However if you ship to multiple Amazon warehouses, have each order palletised for each warehouse while in China, so that you’re not using U.S. labor to de-consolidate a shipment and re-palletise goods.  You’ll also have to book the ground shipments after your ocean shipment has arrived, which adds complexity to the process

Lets look at each option in detail:

1) Using a customs broker acting as the ultimate consignee

There are several companies in the US that can act as your customs broker and ultimate consignee. If they offer to be a ultimate consignee they usually add a few services on top that they are looking to sell to you such as:

  • Clearing customs
  • Receiving cartons (LCL, LTL or UPS/DHL etc.)
  • Apply shipping labels
  • Ship to Amazon
  • etc.

This can add up in costs on top of your product but they’ll make sure that items are properly packed, labelled and cleared by customs as an ultimate consignee.

I’ve been contacted by http://www.westernoverseas.com a Third-Party Logistics (3PL)/Prepping/Customs Brokerage company based in the US and they had such a detailed process lay down in PDF that I decided to post them (with permission). Credit of the following content goes to Westernoverseas however please note the entire process is the same for other 3PL companies as well.

Why do I need a Customs Broker?

If your shipment is arriving by Regular Air Cargo (not by DHL, UPS, or FEDEX) or Ocean cargo, you will need a Customs Broker to clear the shipment on your behalf. All shipments must be cleared through Customs. Certain commodities are also subject to the regulations of other government agencies such as FDA, USDA, DOT and EPA. Please check with your Customs Broker for import requirements. Please do not ship without doing your research!

What type of Services does Western Overseas offer?

  • International Freight Forwarding (Shipping) – by Air and Sea
  • Customs Brokerage
  • Domestic Delivery from port to final US destination
  • Amazon FBA prepping
  • Warehousing

Should I use Ocean or Air Shipping?

Your decision should be based on how quickly you need your shipment and how much you’re willing to pay.

  • Ocean shipments are less expensive but take longer to arrive. The costs are generally 1/2 – 1/3 the costs to ship by air. You should figure approximately 3 – 4 weeks’ lead time.
  • Air shipments are more expensive but are faster to arrive. You should figure approximately 3 – 5 days’ lead time.

If I choose Western Overseas as a Customs Broker, how do I open an account? Is there a fee?

There are several forms that you must complete to set up an account. Please contact us at Ecommerce@westernoverseas.com. We do not charge a fee. However, we may charge for a consultation fee if extensive research on your product is necessary.

What is an EIN Number? Do I need one?

As a foreign importer, you do not need an EIN number for Customs Import purposes. You may need one as a seller on Amazon for State Tax purposes. Please check with Amazon and/or the Internal Revenue Service (IRS). You will be assigned an Importer Number by customs which will be used in lieu of an EIN Number for the purpose of the Customs declaration. You can be an importer without an EIN#. Customs will assign to you an Importer Number.

But you still need a Customs Broker and an Ultimate Consignee with an EIN#. If you use our FBA Prep Services, we will act as your Ultimate Consignee.
If you are U.S. based and are intending to import under a Corporation, then your EIN number will serve as your Importer Number. If you are U.S. based and are intending to import as a Sole Proprietor (e.g. John Doe dba ABC Importers), then your Social Security Number will be your Importer Number. If you are U.S. based and are intending to import as an Individual (e.g. John Allen Doe), then your Social Security Number will be your Importer Number.

What is a Customs Bond and what is the cost?

Customs requires that a bond be posted with every ISF and Customs Entry to ensure that all duties, taxes and fees owed to the federal government will be paid. An Annual Continuous Bond can be purchased for $500 (through Western Overseas) and it will cover both your ISF filings and Customs Entries. Having a Continuous Bond also reduces our ISF filing fee by $25. If you choose not to purchase a Continuous Bond, you have the option of purchasing Single Entry Bonds for ISF filings and Customs entries. This can become quite costly especially if your shipment value is high or is subject to other government regulations such as FDA. Furthermore, the bonding companies only allow a maximum of “5” Single Entry Bonds for ISF before the importer is required to purchase a Continuous Bond. You would be saving money in the long run. However, if you are planning to import only once, then a Single Entry Bond might be for you. Single Entry Bonds are subject to a $25 Bond Processing Fee. Our Bond costs are below:

  • ISF Bond: $75
  • Customs Single Entry Bond: $6.50 per $1000 of the shipment’s declared value + duties/taxes (minimum charge of $65). For OGA (other government agency – i.e. FDA, USDA) regulated commodities, the rate is $6.50 per $3000 of the shipment’s declared value + duties/taxes.
  • Customs Annual Bond: $500

What happens after I place an order with my supplier?

The process will depend on the terms of sale between you and your supplier. But the following steps are what typically occur for Regular Air and Ocean shipments. The below excludes shipments sent by Air Express Courier.

  • Production begins (seller might send you a sample for approval)
  • Determine if you will be using the services of an inspection intermediary service such as FBA Inspection, Earth Class Mail or Western Overseas.
  • Seller arranges the International Freight Forwarding if his cost includes this (CIF terms); if his cost does not include this, then you are responsible for arranging and paying for the freight.
  • Your supplier may have a couple of shipping companies to refer you to or you can obtain a quote from Western Overseas. If the latter, seller will provide you with the cargo details which you will pass onto the forwarder giving you the quote. You will also want to include the U.S. destination address – whether it’s Amazon FBA or the Intermediary Inspection service of your choice.
  • Hire a Customs Broker if separate from the Freight Forwarder.
  • Get ISF details to Customs Broker (ocean shipments only)
  • Shipment departs
  • Send copies of all shipping documents to Customs Broker
  • Shipment arrives
  • Customs clears
  • Our invoice is paid
  • Shipment is delivered or dispatched

It is your responsibility as an Amazon Seller and Importer to know Amazon’s FBA requirements.

What is Importer Security Filing (ISF)?

There are 10 key elements about a shipment that must be transmitted to Customs at least 24 hours prior to the vessel’s departure from origin through Importer Security Filing (ISF). This filing provides information to Customs regarding the impending import shipment. Your Customs Broker is the most ideal party to handle this transaction. If the filing is late, misfiled or not filed at all, then the importer will be penalized a minimum of $5,000 (max $10,000). Customs requires that all ocean import shipments have an ISF filing whether or not it is late. Otherwise, your shipment will not clear Customs. A late filing or non-filing of ISF also guarantees that Customs will examine your shipment.

What is a Harmonized Tariff Code (HTS)?

The Harmonized Commodity Description and Coding System (HS) is the mechanism by which international tariffs are standardized. If you ship items overseas, you are required to classify them according to the harmonized system. Each country has its own Harmonized Tariff Schedule (HTS).

The description and coding system of global tariffs is an internationally standardized system of names and numbers for classifying products. The first 6 digits of any HTS Code is (in theory) the same for any country. Beyond the six-digit level, individual countries sometimes have different rules for classification. Importers and Exporters the world over must classify all goods moved across international borders using the Harmonized System of the country of import. Every item you sell must be assigned an HTS Code according to the Customs tariff schedule of the country from which you are selling. Each HTS Code has an applicable duty rate. HTS Codes are sometimes referred to as HS Codes and Tariff Codes.

What is the time length for my shipment to be cleared by Customs?

We must allow Customs at least 48-72 hours to clear a shipment, although it could be less.

Why did Customs put a hold on my shipment? I have never had a problem with my DHL/UPS/FEDEX shipment before.

Please bear in mind that Air Express Shipments are treated differently by Customs. They simply move too many parcels on a daily basis for Customs to be able to monitor each one. And because Customs allows Air Express Couriers to clear an entire manifest under their own name and bond, it’s possible that your previous shipment may have just flown under the radar.

With regular Air and Ocean cargo, there is always the possibility of a Customs Exam which may cause a 3- 5 days delay in release. Any exam related charges will be the responsibility of the Importer of Record. Customs exams are generally random unless they have had a recurring problem with the manufacturer, the importer, and/or the commodity. That said, please ensure your product and its labeling comply with Customs laws prior to shipping.
What information do I need to provide Western Overseas to obtain a quote?

For a Customs Brokerage Quote:

  • A full description of the item(s) you are intending to import – i.e. General Description/Name of Product, Function, Material/Composition, Declared Value, Unit Value, & Country of Origin.

For a Freight/Shipping Quote:

  • Terms of Sale (i.e. FOB or Ex-Works)
  • Address of your Supplier
  • Port of Loading
  • Number of cartons
  • Dimensions of each carton
  • Weight of each carton
  • First U.S. Delivery address

For Amazon FBA Prepping Services Quote:

  • Total Number of Cartons and Units
  • A detailed scope of the services you require – i.e. Check for product and package damage, Apply FNSKU labels, Bundle, Insert Cards, etc.

What other fees should I expect?

If you using the International Freight Forwarding Services of another company, then you can expect charges due to their U.S. agent. Your shipment will not be released from custody until those charges are paid. Western Overseas can pay those charges on your behalf for a fee of 1.5% and include them on our final invoice. Other fees may include Customs Exam and related costs and Storage/Demurrage Fees.

Who should be listed as the Notify Party, Consignee, Ship To?
If we (Westernoverseas) are hired as your Customs Broker, we should always be listed as the Notify Party.

Western Overseas Corporation
510 Myrtle Ave. Ste 208
South San Francisco, CA 94080
Tel: (650) 952 – 2955
Email: Ecommerce@westernoverseas.com

If you are a U.S. based importer, the Consignee’s name and address will be your information. The Ship-to party will depend on who will be receiving your shipment immediately upon release from Customs.
If you are a foreign importer, the Consignee and Ship-to parties will depend on who will be receiving your shipment immediately upon release from Customs.

My supplier is asking for Shipping Marks. What are Shipping Marks?

Shipping Marks are printed on the outside of each Master Carton of your shipment. They should contain the information that will identify your cartons from cargo belonging to others. The suggested marks would be:

  • Your Company Name
  • Carton Count – e.g. Carton 1 of 10, Carton 2 of 10, etc.
  • General Description of item
  • Country of Origin
  • Any special handling instructions – e.g. This side up, Handle with Care, Fragile, etc.

What shipping documents do I need to provide to Western Overseas (or other 3PL)?

  • ISF Details (for Ocean shipments only; we must receive this at least 72 hours prior to the vessel’s departure from origin)
  • Ocean Bill of Lading or Air Waybill
  • Commercial Invoice
  • Packing List
  • The above documents are obtained from your supplier. If you use our Int’l Freight Forwarding services, then our overseas agent will supply us with the ISF details and the Ocean Bill of Lading.

When do I pay Western Overseas ((or other 3PL) and what type of payment is accepted?

Payment for an Annual Customs Bond will be due upon receipt. Payment for Customs Brokerage services including duties/taxes, delivery, freight, etc. will not be due until your shipment has cleared from Customs and is ready to be delivered or dispatched.

We accept the following payments:

  • Credit Card (Visa, MasterCard, American Express)*
  • Wire Transfer**
  • PayPal*

*subject to a processing fee

**full invoice amount is due without any deduction of your bank’s wiring fee
June 2015

—End of content from Westernoverseas—

 

 

If you are interested in their fees and other services here’s the contact information:

Susan Park
Business Development Specialist
Western Overseas Corporation
11605 Pike St.
Santa Fe Springs, CA 90670
Tel: (562) 985-0616 x5069
Direct: (714) 243-5069
Fax: (562) 364-7798
Email: Susanp@westernoverseas.com
Website: www.westernoverseas.com

2) Using a courier service like DHL, UPS, FedEx etc. (EIN recommended)

 

Air Express Courier shipments sent via DHL, FEDEX, or UPS are different. Customs has special regulations for them where they are allowed to clear entire mass quantities of shipments under their own name and Customs bond. They simply move too many parcels for Customs to be able to clear every single one. Therefore, they are authorized to clear shipments that are on one cargo manifest of low-risk up to values of their own discretion. They also won’t ask you to apply for a customs bond or filling an ISF. They provide a one-stop solution and are therefore more expensive than forwarding or logistics companies/customs brokers.

You simply be the Importer of Record with your foreign address or you can subscribe to services like http://www.usamail1.com/ to get an US address (not obligatory) and apply for an EIN here (obligatory if you want to be the ultimate consignee): https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-to-Apply-for-an-EIN

 

3) Using a prepping and forwarding company that acts as the ultimate consignee (NO EIN needed)

 

There are several services around that receive your goods (where you act as the Importer of Record) after cleared by customs. For example if you send in your order by courier (DHL etc.) and then want them prepped, labeled etc. you can use prepping companies that can also act as your ultimate consignee. These guys are similar like the first example but usually don’t clear customs for you. You can act as the Importer of Record with a foreign address and will be assigned an Importer Number by customs. Once the prepping, labeling etc. is done these service provides will send in the order for you to Amazon.

4) Using a forwarding company/customs broker and acting as the Importer of Record yourself (Amazon’s EIN needed)

 

If you send items by Air or Sea the regular way (meaning no courier like DHL, UPS etc.) you will need a forwarding or also referred to as Third party logistics company (3PL) that can act as both the forwarder as well as the customs broker HOWEVER not as the ultimate consignee.

In this case you will be the Importer of Record and Amazon will be the Ultimate consignee. You don’t need an address or bank account in the US but you will need an EIN number of the ultimate consignee or Importer of Record. You can contact Amazon for this information but your Customs Broker should be able to obtain this information for you.

I also heard that sometimes Amazon refuses your goods if you don’t provide your own EIN but I haven’t found anything to the contrary.

You simply be the Importer of Record with your foreign address or you can subscribe to services like http://www.usamail1.com/ to get an US address (not obligatory) and apply for an EIN here (obligatory if you want to be the ultimate consignee): https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-to-Apply-for-an-EIN

 

 

There’s one more option. If you know someone in the US who is willing to receive your order as the Importer of Record providing his EIN number you can go that way too. But I recommend you pay all fees upfront so your friend/acquaintance doesn’t have to bear them.

Miscellaneous:

I do recommend you to apply for an EIN for general tax reasons and to comply with IRS regulations. Amazon can track your sales tax back with you and your country of origin.

If you want to learn more about the process and import from China professionally please check out our ImportDojo Masterclass here:
https://importdojo.com/importdojo-masterclass/

I will be adding over 20 hours of new material to the class in February 2016 increasing the price in the process, so act soon.

Hope this helps and if you found this article helpful please share below trough social media 🙂
All the best and happy sourcing,
Manuel

ImportDojo

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