Import duty

Page written by AI. Reviewed internally on January 31, 2024.

Definition

Import duty is a tax imposed by a government on goods that are imported into a country. It is a source of revenue for the government and serves various economic and trade policy purposes.

What is import duty?

Import duties are charged at the border when goods cross into a country, and they are a form of indirect taxation on imported products.

The duty is calculated based on the customs value of the imported goods, which includes the cost of the goods, shipping, and insurance.

Import duties are often used as a tool in trade policy. Governments may adjust import duty rates to protect domestic industries, encourage or discourage certain types of imports, or address trade imbalances.

Import duties are commonly referred to as tariffs. Countries may negotiate and enter into trade agreements to reduce or eliminate tariffs on specific goods, promoting free trade and economic cooperation.

Importers are required to declare the value and nature of the goods being imported to customs authorities. The declared value serves as the basis for calculating the import duty.

Governments may provide exemptions or preferential treatment for certain goods, especially those deemed essential or in line with specific policy objectives. These exemptions can be based on trade agreements or domestic policies.

Example of import duty

XYZ Auto Parts is a company based in the US that specialises in manufacturing automotive components. They decide to import a shipment of specialised machinery parts from a manufacturer in Germany.

XYZ Auto Parts provides a detailed customs declaration specifying the quantity, value, and description of the imported machinery parts. U.S. Customs reviews the customs declaration and applies the appropriate import duty rate based on the HS code classification. Let’s say the duty rate for the specific machinery parts is 5%.

If the total value of the imported machinery parts is $50,000, the import duty payable by XYZ Auto Parts would be calculated as 5% of $50,000, which equals $2,500.

XYZ Auto Parts is required to pay the import duty of $2,500 to U.S. Customs before the machinery parts are released for further distribution or manufacturing.

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