Many US importers are accustomed to paying customs duty and “user fee” charges that are based on the values listed on the foreign seller’s commercial invoice. For a very large fraction of import shipments, this “invoice value” is also the “dutiable value” of the shipment, and the value upon which duty and fees payable to US Customs are calculated.
Under US customs law, however, some types of charges often included in invoice value are exempt from customs duty and fees, so long as these amounts are properly documented. On the other hand, some types of costs that may not be included in invoice value are dutiable, and must be added to the invoice value to produce an accurate dutiable value. Occasionally, one or more of each type of adjustment may apply to a commercial invoice, requiring both additions and subtractions from invoice value to determine dutiable value.
Determining dutiable value normally begins with “the price actually paid or payable” for the goods. “Payable” in this context means a price that has been agreed upon between seller and buyer, even if the actual payment has not yet been made. The net price “paid or payable” may include the result of including or applying:
discounts from a basic rate
increases from a basic rate
application of a formula, such as a price in effect on the date of sale or export, in a specified commodity market, or commodity index
Some of the most common types of charges that may be included in the seller’s invoice value, but can be deducted to reduce dutiable value if clearly and separately identified, include:
prepaid international freight charges
prepaid cargo insurance premiums
installation or maintenance of the goods, or similar technical assistance, after importation of the goods into the US
transportation of the goods after importation into the US
These deductions from dutiable value, especially for shipments of goods subject to relatively high duty rates (including “additional duty” rates of 10%, 25%, or even more) can help importers save large amounts of money on their customs duty and fees costs for import shipments.
Some of the most common types of costs which must be added to invoice value (if not already included) to produce an accurate dutiable value include:
“assists” provided (directly or indirectly) by the buyer, to the producer or seller of the goods, if the value of the assist is not declared as part of the seller’s invoice value
packing costs incurred by the buyer
any selling commission or selling agent fee incurred by the buyer, directly or indirectly
any royalty or license fee that the seller is required to pay, directly or indirectly, as a condition of the sale of the goods for export to the US
the proceeds of any subsequent resale, disposal, or use of the imported goods that accrue, directly or indirectly, to the seller
However, a bona fide buying commission paid by the buyer to a buying agent is not dutiable, so long as the relationship between buyer and agent meets Customs requirements, and none of that buying commission accrues, directly or indirectly, to the seller.
If the buyer is required to pay a royalty or license fee to a “third party” for use in the US of a copyright or trademark related to imported goods, that expense is generally treated as part of the buyer’s selling expenses, and therefore not dutiable.
“Assists” are additions to the value of the goods, which are typically arranged (and usually paid for, either directly or indirectly) by the US buyer, for use by the producer or seller of the goods, and may include any or all of:
materials, components, parts, and similar items incorporated into the goods
tools, dies, molds, and similar items used in production of the goods
material consumed in the production of the goods, even if not actually incorporated into the goods
engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the US, that are necessary for the production of the goods
The value of an “assist” added to increase dutiable value is:
if the assist consists of something that is available in the public domain, the cost of obtaining copies of the assist
if the assist was produced partly in the US and partly in one or more foreign countries, the value added outside the US
if the assist was produced by the US buyer or a related person, the cost of that production
if the assist was purchased or leased from an unrelated person, the cost of the purchase or lease
The value of an assist also includes any separate transportation costs incurred to get the assist delivered to the place where it is used. Additionally, the value of an assist may be:
decreased if previously used by the buyer, before being provided as an “assist” to the production of a specific lot or type of goods
increased by repairs or modifications performed, or directly or indirectly paid for, by the US buyer of the goods produced using the assist
Engineering, development, and similar types of work are not treated as “assists” if the work:
is performed by an individual domiciled in the US, and
is performed by that individual while acting as an employee or agent of the buyer of the imported goods, and
is incidental to other engineering, development, or similar work undertaken within the US.
An “assist” may be apportioned over one or more import shipments of the product that the assist applies to. If the entire anticipated production using the assist is for export to the US, the total value of that assist may be apportioned:
all to the first shipment, or
according to the amount of the product included in each individual shipment, beginning with the first shipment, or
according to some other reasonable method of apportionment, in accordance with generally accepted accounting principles.
If the anticipated production using an assist is only partly for export to the US, or if the assist is used in multiple countries, the US importer must provide appropriate documentation to support the allocation of the value of that assist.
If an importer fails to declare the value of an “assist” or other addition to dutiable value, and US Customs discovers the omission, the importer may receive one or more US Customs notices advising that Customs is:
increasing the entered value of the shipment by the value (or estimated value) of the assist or other addition to dutiable value
billing the importer applicable customs duty and user fees on the increase in dutiable value
billing the importer interest on the increase in the amounts of duty and fees, calculated from the time the entry summary was filed with Customs until the date of the notice
issuing a proposed penalty, for failure to file accurate customs documentation
This can be very costly to the importer, especially if:
the value of the assist is high, in proportion to the original entered value of the shipment
the duty rate on the goods the assist applied to is high (and most especially if the goods are subject to “additional duty” rates such as 10%, 25%, or even more)
interest has been accruing for a long time
To avoid this type of potential issue, Transmark Customs Brokers recommends that any importer who may have additions or deductions to/from the dutiable value of their shipments consult us. We will be glad to help you identify opportunities both for saving money today, and to prevent potentially expensive problems tomorrow.