Tariff Export Classification
When a company exports goods to an international buyer to complete a traditional cross-border e-commerce transaction, they are responsible for classifying the goods shipped using the destination country's tariff classification system. This is called Tariff Export Classification, and it is one of the first steps required to properly facilitate cross-border e-commerce trade. Tariff Export Classification results in the amount of customs duties and import taxes paid for each export, which is considered one of the most important requirements in cross-border e-commerce trade. Unfortunately for global trade practitioners, it's also a very arduous task to complete successfully. According to KPMG's 2016 Global Management Survey, 91 percent of the respondents report having challenges with tariff classification. For example, goods exported to Mexico must be classified using the harmonized codes according to the Mexican Harmonized System. Figure #1 shows the harmonized code and duty rate for gold necklaces.
Figure #1: 71131999 - Articles of jewelry and parts thereof, of precious metal or of metal clad with precious metal
Obviously, this classification is confusing for English speakers since the information is documented in Spanish, Mexico's primary language. But, these are the types of challenges that companies encounter when they ship to countries that do not speak the same language.
Customs authorities in the destination country meticulously review whether the imported goods were classified correctly. Incorrect classifications can lead to the confiscation of the goods until the tariff classification can be remedied and fines.
When exporting merchandise, you must notify the local Customs of the incoming import. There are generally three tax types, in some countries additional taxes may be required, that must be paid on imports:
- Import Duty
- Special Taxes
All goods are classified and identified by a commodity code called the Harmonized System (HS) Code. Customs duty rates, taxes, fees, or restrictions are linked to the HS Code.
The Importer of Record is responsible for remitting payment for duties and taxes. If your business is registered as a VAT register, then you need to calculate and report the import VAT to the local Tax authority generally by filing a tax return. If your business is not registered in the VAT register, your company will only have to pay import VAT to local Customs at the time of import, the standard approach for most cross-border e-commerce transactions.
How to export and clear goods through Customs safely
As goods enter the buyer's destination country, they typically arrive via a shipping company, which stores the merchandise in a customs-approved storage facility.
Customs storage facilities are not owned by the local Customs authority, but the facilities are approved by local Customs authority for the storage of un-cleared goods until customs clearance is obtained. Shipping companies, such as UPS or FedEx, usually own these facilities, or partner with local forwarding agents.
Normally the shipping companies or forwarding agents will obtain customs clearance for your goods. A forwarding agent is a company that provides transport, customs clearance, and delivery on behalf of sellers. The forwarding agent is also responsible for declaring the goods electronically by submitting information about the goods to the local Customs clearance system. For example, in Norway it's called TVINN. Click here to read more about TVINN. Using a system like the TVINN, prevents the forwarding agent from physically meeting with the local Customs authority to declare the goods upon its arrival in the country.
If you have any questions about this article or questions about cross-border e-commerce, please contact us.