The two key factors of customs compliance

If your business requires you to export physical goods, you’ll need to familiarise yourself with customs compliance. Customs authorities handle the import and export of goods for a particular country, and trading across borders means you’ll need to interact with customs fairly frequently. As such, it helps to have a good understanding of common customs-related issues.

In this blog, we’ll look at some key factors of customs compliance, such as how to calculate customs duties and the importance of applying the correct HS codes. We’ll also look at how you can overcome certain region-specific customs challenges, such as the increased U.K. customs duties in place post-Brexit.

Calculating customs duties

Customs duties will be a significant concern for any business shipping products internationally. These duties are the taxes imposed on goods transported across international borders. Several factors go into calculating customs duties, including the type of item and its country of origin. 

A common problem among cross-border businesses is how to account for customs duties when pricing an item at an online checkout. The complexity of customs duties calculations and the need to provide a price instantly means it’s necessary to automate these calculations. Once you implement a solution for paying duties, you’ll be able to advertise your shipping as DDP (Delivery Duty Paid).

If you don’t apply customs duties at checkout, they’ll be charged to your customer directly. Subsequently, upon delivery, the customer will be asked to pay a potentially considerable fee. This shipping model is known as DAP (Delivered At Place) and can significantly harm the customer experience, so it’s in a company’s best interest to find a way of efficiently calculating customs fees if they plan to trade internationally. 

For more information, and further advice on shipping internationally, download our complete guide to DDP and DAP: Understanding Delivery Duty Paid

Digital tax solutions can help your business to remain compliant, with VAT and sales tax calculations. A digital tax solution can also help to make the tax process easier for businesses, ensuring that they provide fast and more reliable customs duties throughout their operations.

Harmonised System codes

A Harmonised System tariff code (more commonly known as an HS code) is a six-digit code used to calculate tariff rates for all internationally traded products. 

Global customs authorities require tariff codes for the classification of goods and services traded across the world, making HS codes a crucial part of international trade. In fact, 98% of all merchandise sold internationally is categorised with an HS code at some point in its journey. 

Assigning the correct HS code to your goods is your responsibility — unfortunately, customs and shipping companies cannot take care of this for you. Having the correct HS code on your goods is also immensely important, as any number of problems can occur if an item is incorrectly labelled. 

For instance, your item may be delayed while customs identify it, leading to a late delivery and an unhappy customer. Even worse, items with the wrong HS code are charged the highest possible customs duties, so incorrectly labelling your goods can cut into your profits.

HS codes are created by the World Customs Organisation (WCO) and are standardised internationally. You can find HS code lists on their website and on your country’s government website (for instance, here’s the list for the EU and the U.K.). An important point to remember is that HS codes are updated every five years by the WCO — keep an eye out for these updates to ensure your company stays compliant.

HS codes can be complex, especially if you frequently ship a wide variety of products. As such, it’s a wise choice to automate the process instead of relying on human employees. Avalara’s Item Classification tool uses an AI-based classification engine to quickly categorise products in any industry, from retail to manufacturing. The solution is also easy to integrate into existing systems, minimising any business disruption. 

If you’d like to know more, you can read up on the Harmonised System in our dedicated guide: Are HS codes your business’ weak spot?

Region-specific customs compliance

Customs duties after Brexit

Due to the United Kingdom’s exit from the EU, British businesses have been paying significantly higher customs duties — companies reported a 42% increase in their customs duties since Brexit came into force in 2021. On top of these duties eating into profits, U.K. businesses must follow more stringent customs procedures when shipping goods. 

The changes affect nearly every aspect of EU/U.K. shipping and have a significant impact on your tax compliance as well. For expert guidance on dealing with the current customs rules in the EU, check out Avalara’s Brexit Customs and VAT guide here.

U.S. customs

Import and export laws in the U.S. differ significantly from those in Europe. As such, you should do extensive research or contact an expert before you begin selling goods into the U.S. A good first step is to consult the basic import and export rules on the U.S. Customs and Border Protection website.  

One important point to note is that the U.S. duty threshold is $800 for almost all products, meaning that only shipments worth over $800 are subject to import duties at customs. This comparably high threshold is a great opportunity for international companies to sell lower-value products into the U.S., as it means they will rarely need to pay import duties.

How Avalara can ensure total customs compliance

If you’re looking to get your products through customs without delays, penalties, or disruption, look no further than Avalara. As well as offering a fast, accurate Item Classification solution, we can provide you with expert advice on how to minimise delays at customs.

Contact us today to speak with one of our experts and start optimising your customs compliance procedures. If you'd like to learn more about expanding your business abroad, you can also click here to read our Step-by-Step Guide to Going Global.

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