Customs value

Ciaran Burke

Page written by AI. Reviewed by Ciaran Burke on January 23, 2024.

Definition

Customs value refers to the monetary worth of goods as assessed by customs authorities for the purpose of calculating duties, taxes, and other charges when these goods cross international borders.

What is the customs value?

Customs value is the actual transaction value of the goods being imported. This includes all payments made by the buyer to the seller, or on behalf of the seller, for the goods. The determination of customs value is crucial in customs clearance processes and is governed by international standards 

The primary method for determining customs value is the transaction value method, which is based on the price actually paid or payable for the goods when sold for export. This value includes all costs incurred up to the point of delivery to the country of importation.

In transactions involving related parties, customs authorities may evaluate the declared value to make sure it reflects a fair market value. Adjustments may be made if the relationship between the buyer and seller has influenced the price.

If the buyer provides any assistance, materials, or services for the production of the imported goods without charge or at reduced cost, the value of such assists may be added to the customs value.

The customs value must be expressed in the currency of the country of importation. Exchange rates are applied for converting the value if the transaction is conducted in a currency other than that of the importing country.

Example of customs value 

Let’s consider the importation of a shipment of smartphones for which we want to determine the customs value. The transaction involves:

  • Invoice price: The seller sells 1,000 smartphones to the buyer for £500 each, resulting in a total invoice price of £500,000.
  • Freight and insurance: The buyer incurs an additional cost of £10,000 for freight and insurance to transport the smartphones to the destination country.
  • Royalties: The buyer also pays £5,000 in royalties for the technology embedded in the smartphones.

Therefore, the customs value would be calculated as follows:

Customs value = Invoice price + Freight and insurance + Royalties 

Customs value = £500,000 + £10,000 + £5,000 = £515,000

This customs value of £515,000 serves as the basis for calculating applicable import duties, taxes, and other charges. It reflects the total amount paid or payable by the buyer for the smartphones, including the cost of the goods, transportation, and any additional payments such as royalties.

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