Trade Resources Blog What You Should Know About Customs Duties and Taxes

What You Should Know About Customs Duties and Taxes

By Celinelee on Oct 29, 2021
Tags: Customs Duties and Taxes

When it comes to sourcing from China, you have to be prepared for all occasions. One of the most important preparations that you need to account for is customs duties and taxes. These are incredibly important because many people assume that they do not have to pay for these items and do not account for them within their budget.

For even the most successful business owner, it can be essential for you to factor in exactly how much you might have to be to account for bringing the items in and selling them in your home country.

Throughout this article, we will explain what these items are, why they are essential, and why you should make sure that you are prepared with these items on hand. By the end of this article, the goal is to provide you with enough information to calculate your customs or taxes, as well as prepare for any particular instances depending on what product you sell and whether or not taxes apply to these items.

Customs Duties and Taxes

What Are Customs, Duties, and Taxes?

There are various kinds of customs, duties, and even taxes. These are the taxes or amounts typically paid for products brought into the country. These even apply to business owners who are already finished with their contract with their supplier after completing their purchase.

No matter what kind of product you sell—clothing, shoes, electronics, vehicles and etc.—you have to account for these customs duties and taxes in your budget because nations use these taxes to protect their economy and supply chain from competitors. Therefore, there are particular kinds of taxes and customs for each item, and here are the specific things that you will have to look out for a while you are purchasing from suppliers in China.

Customs Duty

Customs duty is a tariff or tax imposed on goods that come across international borders. These are, as explained before, used to help protect countries in their economy, no matter what kind of products come in from any nation around the world. Each item collects a specific duty rate that must be followed, and typically, these are generally found within your local, national government webpage regarding customs, duties, and taxes.

Where Do Customs Apply?

If you source from China, you're more than likely going to have to pay a customs and duties tax to make sure that you comply with your local government. Customs apply to goods from China. It always depends on the value of the good being taken from the country or even brought into the country. Typically, customs tax imports and exports, which can be tricky for those looking to sell items after purchasing them from a particular international country.

The cost of customs should be incorporated into the cost of your purchase. This will ensure that you remain within the balance of your finances for the given year. While they are a little bit more expensive than people assume, they're not incredibly difficult to budget into your finances.

With import and export duties, these are important for consideration if you are transferring into cross borders. For instance, since you are probably reading this as a buyer looking to purchase from a supplier in China, you will likely have to account for import or export tax depending on what occurs in the contract you create.

What Are the Most Common Customs Duties?

Here are the most common customs duties and taxes, as well as a further explanation about what these are and how they relate to you:

customs tariff

Most-Favored-Nation Duty Rates (MFN Duty Rates)

The MFN duty rates are typically for nations such as those part of the World Trade Organization or even individual countries such as China. This includes nations such as the United Kingdom, America, Canada, and several other European nations. Most of these duty rates are comparable and slightly cheaper than other customs rates that you might find for different products.

Conventional Duty Rates

Conventional duty rates are for nations that have created regional trade agreements with China outside of the World Trade Organization or even outside of further arrangements that could be possibly categorized differently. These are specialized and usually comprised of about 20 other nations that are not part of the World Trade Center but encompass a significant agreement that helps offset some of the cost of import or export tax.

Special Preferential Duty Rates

Special preferential duty rates are also created for that outside of the World Trade Organization or even inside. These are typically designed to have special agreements with China that are outside the norm in the expected that you see within the MFN duty rate or even the conventional duty rate.

Tariff Rate Quota (TRQ) Duty Rates

The Tariff Rate Quota (TRQ) Duty Rates are typically for specialized items that are more agricultural in nature. For example, the current tariff rate quota duty rates are generally applied to wheat, corn, rice, sugar, wool, cotton and fertilizer. These have yet to change but are typically appraised every so often to ensure that they account for specific goods that follow this categorization.

General Duty Rates

The general duty rates are exactly as they seem, as they are not part of any of these previous mentions, but they are still typically charged to the nation doing business in China. Again, this is important, and many people might have to deal with this. These usually are not for international or governmental trade but for those who engage in free enterprise as buyers and sellers.

Provisional Duty Rates for Imports

Finally, the last form of customs tax that will be discussed in this report is regarding the provisional duty rates, which are typically only applied to imports. These are only used to implications for the particular reason to allow for the boost of trade and domestic demand, which helps to make more of a strong economy in China and facilitates more exchange internationally.

customs charges

Understanding Value-Added Tax

Besides the customs duties and taxes previously explained within this article, there is a value-added tax. This is defined as a consumption tax on a product. This adds value to the product as it's being completed through the supply chain. For instance, with every step of the supply chain, a car would likely have more value-added tax because of the production costs and other metrics. Again, this is the same all around the world but differs in rates from nation to nation.

It's essential to recognize that these can also be reduced to help negotiate lower shipping costs or insurance premiums. So, for buyers like yourself, understand how suppliers can work with you to help lower these costs and find a feasible opportunity to create a business deal that might not have been there before. If you're willing to work with them, you will be able to offset your overall costs by reducing other areas besides your required customs duties and taxes.

In the past, many of these value-added taxes have been about 9 to 13%. These fluctuate, and the percentages are applied to specific items, such as crops or manufactured goods. This will likely continue to change throughout the pandemic as things fluctuate with the current inflation rates. Thus, these sorts of customs duties and taxes are likely to be affected by inflation significantly.

It's essential to recognize that many of these products that have a value-added tax are typically only applied to those that qualify as agricultural, utility, or manufactured items. If you are looking to buy a product that will create more value because it's a manufactured item or a utility item that you'll use for production, make sure you add this into your finances to account for this change. This will help you significantly when you're planning your finances and how you will structure and support your business. 

Consumption Taxes for Certain Goods

Other than the customs duties and taxes about value-added tax, there's also a significant point to make in regards to consumption tax. These are only applied to certain goods, and rightfully so. However, when looking at the items typically charged with this tax, it's apparent why these payments are devoted explicitly to this particular entity. Here are the following categories that China taxes in regards to this consumption tax:

  Products harmful to health

  Luxury goods

  Motorcycles and vehicles

  Non-renewable and non-replaceable petroleum products

  Financially significant products like tires for vehicles

These customs duties and taxes can be added monthly and paid based on the raw materials to source them. The reasons for taxing these items make sense. For instance, taxing things that are harmful to health would be beneficial for ensuring that these are not as while they set it in the country and not as widely seen in the country. This also ensures that China has more control over its markets, necessary for their economic success.

It protects the economy because it helps to make sure that the products that will help the people are being put into the market rather than those harmful or potentially dangerous to use. Other nations also have similar protocols, but luckily, these do not apply to some products being sold from China. China only charges these taxes to those brought into the nation to be sold to the general public.

If you're looking for tools to calculate your consumption taxes if you source any of these items, be sure to look at calculators designed to help you understand your estimated dues. This is especially important in terms of being able to prepare and support your business effectively.

How to Calculate Your Customs Duties and Taxes

After reading all this, you probably want to know exactly how to calculate these items. Understanding what your customs taxes and duties will be is incredibly important for you to prepare financially. No matter where you live around the world, there's going to be a significant amount of resources available to you.

The first step to find out how to calculate your tax amount is to make sure that you check out websites that are designed explicitly for exporting and importing. For example, UPS or FedEx are incredibly great places for you to find resources, and they also have a calculator to help you calculate the amount of customs duties and taxes you might have to pay.

Additionally, you can also check out your national website for the government to see exactly which procedure they offer. Every country has its different design and requirements for tariffs, which is why it's essential to do your research. Make sure you know exactly what you need to know about taxes, customs, and other payments before you end up shipping something to your home country from the supplier in China. The last thing you want is to end up in a situation where you cannot afford the taxes, but you've already paid for the goods!

types of custom duty

Final Thoughts on Customs Taxes and Duties

Customs taxes and duties are not that difficult to deal with, but it's essential that you prepare  make sure that you will be ready for whatever heads your way. No matter which product you source from China, there are a variety of concerns taken into account. Be sure to talk to your supplier and connect with applicable business people in China to help you understand what you might be looking into paying.

If you have trouble connecting with the right individuals in China, you can also reach out to individuals and the government at your home government offices to understand what you might be paying. These individuals might direct you to the right resources, or they might even offer you a solution and calculation to help you make a good decision.

No matter what your customs duties and taxes might be, make sure you prepare. Then you're ready to take on whatever occurs next because as long as your business keeps running, you will always need to be prepared and aware of these taxes and customs.

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