10 Import Tax and Duty
Mistakes You Can’t Afford
Shipping internationally can expand
your business’s reach and reputation —
and provide a big boost to your bottom
line. But venturing into the international
shipping space can create massive
headaches when it comes to tariff and
duty rates. Every country has its own
laws and rates, and businesses from
different sectors face different compliance
challenges when shipping overseas.
10 Import Tax and Duty Mistakes You Can’t Afford to Make ©Avalara 2016Page 1
In this white paper, we take a look at some of the most
common pitfalls experienced by companies shipping
internationally. While many of these mistakes are most
commonly made by businesses that have only recently
begun to expand their shipping policies, even longtime
multinational businesses can make costly tariff and duty
mistakes. Check out this top ten list of potential problems
to make sure you’re not putting your business at risk of
significant fines and penalties.
Assuming consistency between countries
Every new country your customers order from creates new tariff, import tax and duty obli-
gations, with different rates, rules and forms. Customs procedures change at each interna-
tional border, and compliance even in neighboring nations can look drastically different.
Take flip-flop sandals, for instance. If a flip-flop style sandal is made of leather, duty rates
of 10% in the U.S. and 11% in Canada apply. But if you’re selling plastic or rubber flip-flops,
both countries change their rate — in Canada, it goes up to 16%, but in the U.S., the product
is now duty-free.
Passing the buck down the supply chain
Faced with the difficulties of calculating tariff and duty rates, many companies decide to
punt the issue to transportation and fulfillment providers. Some providers of these ser-
vices may imply that they can calculate duty rates, but here’s the secret they’re not telling
you: they have no obligation to get it right — if you fall out of compliance, you could be the
one liable, not the shipping company that estimated an incorrect rate.
The truth is that personalized, tailored duty calculation by transportation providers might
happen for large, enterprise-level customers, but small businesses are often left in the
lurch with little guidance to rely on. If your providers make a mistake, prepare yourself for
poor customer service and to see the monetary burden fall on your shoulders.
10 Import Tax and Duty Mistakes You Can’t Afford to Make ©Avalara 2016Page 2
Using outdated information
It can be a lot of work to get accurate duty rates and customs charges for your entire prod-
uct catalog. Often, once these rates have been calculated for a new country, complacency
sets in — the rate sticks in your shopping cart system for years, with no updates in sight.
Of course, there’s a problem here: rates and taxable products change all the time. A
sustained drop in oil prices and changes in currency valuation have caused many world
governments to search for new sources of tax revenue, and imports are being scrutinized
more carefully than ever. A rate that was valid last year may no longer be current, and
refused shipments (due to unexpectedly high import taxes) are the likely result of relying
on old rates.
Misdeclaring and undervaluing goods
It’s not supposed to happen, but a lot of businesses (especially smaller ones) have done
it: deliberately undervaluing shipments of goods, or misdeclaring one type of item as
another in order to avoid paying a higher total landed cost. Some companies, for instance,
always fill out a low estimated value regardless of the actual product value in a shipment
in order to sneak in under duty free or low-value customs policies.
Governments have noticed this tactic, and are cracking down more than ever. Customs
authorities have developed profiling tactics that help them target shipments for detailed
examination and evaluation. Customs processing delays, as well as major fines and penal-
ties, can be expected if your company routinely engages in these practices.
Playing fast and loose with documentation
Forms, forms and more forms: international shipping can generate a lot of paperwork. It’s
important not only to keep everything but also to ensure that each form is properly filed
and stored. Misplacing import and export paperwork, or being unable to easily search for
documentation when it is requested, can lead to significant delays in processing ship-
In the event of a customs audit, having full supporting documentation for your interna-
tional transactions will lead to an easier and less costly audit process. Ensure that all
documentation is stored with later access in mind — consider digital scanning to make
Special alert: In some
situations, countries may
even revoke your import/
export abilities completely
if you misrepresent the
contents of shipments —
transacting across national
boundaries is a privilege,
not a right, and repeated
abuses of the system can
result in a total loss of
10 Import Tax and Duty Mistakes You Can’t Afford to Make ©Avalara 2016Page 3
Playing fast and loose with documentation
It can’t always be helped: changes happen when you’re shipping internationally. Rerouted
or revised shipments and last-minute changes sometimes lead to quick, back-of-envelope
calculations that can turn costly if estimates are incorrect. Almost always, it’s the shipper
that ends up eating the cost.
When a change is made to an international order, even if deadlines are tight, don’t count
on a quick guess based on other transactions or your recollection of the law — without due
diligence, you risk embarrassing customer service mishaps and rejected shipments.
Not researching regulated products
In many countries, specific products are flagged as regulated and subject to additional
import tax. These costs are not always trivial: for instance, when shipping a car to Singa-
pore, duties, special fees and import tax can cost tens of thousands of dollars — sometimes
as much as or more than the car itself.
Regulated products vary from country to country, and are not always obvious. Sometimes,
products can be regulated to protect domestic trade, which is why wood bedroom furniture
imported to the U.S. from China is subject to a duty rate of over 92%, but similar furniture
from other countries is considered duty-free. In other situations, products may be illegal
to import: Singapore has banned chewing gum from inside its borders, and Nigeria bans
almost all imports as a matter of trade protectionism.
Getting tariff codes wrong
One of the trickiest and most time consuming aspects of calculating accurate landed cost
is making sure every product in your catalog is correctly assigned a tariff code for each
country you ship to. While the first digits of tariff codes are “harmonized” internationally —
that is to say, the same first digits apply to a product regardless of where you’re exporting
it — the last digits vary by country.
Making incorrect determinations about tariff codes (or trying to use one country’s tariff
codes when shipping a product to a different country) can lead to customs delays, unan-
ticipated extra costs, and returned shipments. Each new product should be evaluated
individually to ensure that the correct code determination is made.
10 Import Tax and Duty Mistakes You Can’t Afford to MakePage 4
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A privately held company, Avalara was founded by a team of tax and software industry veterans to fulfill a vision of delivering an affordable, scalable sales tax
solution. Thus making what was not economically feasible in the past for mid-sized business not only affordable, but more accurate as well — all with the latest and
most innovative technology available. From Bainbridge Island, close to Seattle, Avalara’s knowledgeable staff works tirelessly to help customers put the hassles of
sales tax compliance out of mind. Avalara’s mission is to transform the tax process for customers by creating cost-effective state-of-the-art solutions. The company
does so through integrated on-demand, Web-based software services that provide transparent transactions, accurate tax compliance, painless administration
and effortless reporting.
Failing to calculate total landed cost
Some companies calculate international customs duties on their shipments —
then fail to consider VAT and other taxes that can significantly impact the total
cost of shipping. It’s important to remember that total landed cost is a combina-
tion of several factors, and that duty rates will only take you part of the way to a
comprehensive landed cost calculation.
When you calculate total landed cost, make sure you’re taking every factor into
account: the value of the order, door-to-door shipping costs, shipping insurance
costs, customs duty, and any import taxes. This way, you’ll have a comprehensive
picture of your costs and avoid any expensive surprises.
Doing it all yourself
One of the easiest mistakes to fall prey to is trying to get landed cost right with-
out any outside expert assistance. Sometimes, the cost of professional tariff code
and landed cost determination can be excessive, especially if you’re paying the
pros by the hour.
Fortunately, there are low-cost, reliable alternatives. For example, Avalara — a
leading provider of trusted outsourced solutions to transactional tax problems
— offers professional rate code determination at a low flat rate per product and
country. Armed with the right rate codes, Avalara’s LandedCost engine ensures
that you get the right determination every time.