No matter what products you will order from China, there will be taxes to pay. There are several fees and taxes to be paid: import duties, customs fees and clearance documents. Even in the face of these, you can still buy and sell products sourced from China with a very good profit margin. There are all sorts of different tariffs to consider depending on the products or commodities you import. Sourcing Nova has been dealing with all of these for some time. This piece will explain all of the import taxes you will face as well as some other issues, such as highly unscrupulous ideas. (Hint: No.)
Trade tensions from the Trump administration
Former president Trump raised tariffs on products coming from China by 200 billion with threats to raise it another 300 billion. This act severely struck many small and medium sized businesses and manufacturers in China.
There are several considerations to make because of this:
• Are your products under the 25 percent increase in tariff?
• What is the current customs rate?
• How much will you be expected to pay?
• Can you still afford to import products from China and make a profit?
• Other questions you may have.
It is understandable if you are considering these questions or if you have not considered them. This is a major aspect of this particular piece from Sourcing Nova. We hope to answer all of these questions for you and leave you feeling safe and positive about continuing to order products from China and selling them in your personal business.
The tax exemption increase
In February 2016, then President Barack Obama signed the Trade Facilitation and Trade Enforcement Act of 2015. This changed the import tax exemption from $200.00 to $800.00. The act officially took effect in March 2016. This means products you order from China with a total less than $800.00 will not be subject to customs clearance and import duties.
This was a very positive move for the U.S. consumer and e-commerce sellers. In particular, there was an upswing in express shipping options. It is important to note these rules are conditional under U.S. Customs Regulations (19cfr10.151). This means those products have to meet certain requirements:
• The same person on the same day receives the products.
• Consildated products will be treated as a single ticket – if the products go over $800.00 collectively, there is a tax-deductible.
• Alcohol, perfumes with alcohol, cigars and cigarettes are not exempt.
Customs and the Act
Customs reserves the right to tax product that are brought in under a single order but shipped separately. Some will do this specifically to avoid the taxes, laws and regulations. Products of a quote cannot be exempted under the Act nor can regulated products (products under FDA regulation).
If you declare less than the $800.00, U.S. Customs does reserve the right to ask for a formal customs clearance. If Customs has reasonable suspicion there is an attempt to skirt the declared value, a re-evaluation is ordered. If the products exceed the $800.00 mark, they are then taxable.
How tariffs and taxes are calculated
Both of these are calculated at a percentage value. The value is based on the declared value which will be indicated on the invoice sent with the products by the sourcing company or manufacturer. It is very important to get this amount correct to avoid paying wrong amounts. The onus is on you, the importer, to make sure the values are correct on the invoice. This is something you need to confirm with the sourcing agency or manufacturer.
Declared value and inspections – A word to the wise
There are going to be those who will try to trick and best Customs. This is a terrible mistake. The U.S. Customs agency is familiar with many tricks and techniques. Product taxes and tariffs are determined by the market value. If your products are significantly lower, Customs immediately takes them to an inspection department. Inspections can run from several hundred to several thousand dollars and significantly slow the arrival of your product order.
Customs bonds are often required for importing products from China. There are mandates on products over a $2,500.00 value or are subject to another federal agency. These are required for all imports.
Customs bonds means you payments on duties and taxes are covered. The bond will make sure those are paid under almost any circumstances. This means sea and air imports need a customs bond. Failing to have a customs bond will delay your products and possibly incur fines.
Very often, most work with a customs broker when bringing products in from China. The broker has a bond that will secure your products and transaction. This is a huge benefit in both time and money, plus the reputation of the broker is good enough to expedite the movement of your products through customs. You can, of course, purchase a bond independently, but there is no set cost. Shopping for a bond will also eat precious time. Strong considerations to make when looking for a customs bond.
Two types of customs bonds
There are two separate types of bonds available for you. The bond you select depends on how often you want to import products from China.
Single entry bonds
A single entry bond will cover a one time order of products. These are the more complicated of the two bonds. You have to have a bond worth the value of your products, taxes, duties and fees owed. Additionally, if there is another agency overseeing the products, FDA or FCC, the bond has to be three times the value. Therefore, if you are importing $5,000.00 of vitamins, your bond will have to be $15,000.00.
Costs on these bonds can vary. There is another bond necessary for sea imports, required under the ISF, Importer Security Filings, mandates. This bond must be purchased in addition to the customs bond.
These are actually much simplier than a single bond. You pay for a minimum of $50,000.00 in coverage and is cheaper if you plan on several different product imports over a single year period. The continuous bond also covers the ISF requirements for sea cargo. Prices for continuous bonds do vary.
Licensed customs broker
A customs broker can be a strong ally when you are looking for importing products. These businesses help make sure your products make it safely over from China and into the port of entry in a decent amount of time. Customs brokers also make sure your products are in line with customs regulations and rules. Their bottom line goal – making importation quick, easy and smooth.
There are a few things that a broker can do on your behalf beyond overseeing the importing of your products:
• Customs clearance at port of entry
• Make read the release of products
• Make sure products enter efficiently
• Make certain all duties, taxes and fees are met
• Find what permits are necessary for your products
• Obtain necessary permits
• Advise you in the process of importation
What are the import taxes to pay on products from China
Again, all products with a value over $800.00 are subject to a import or customs duties. These are two different taxes:
• Import duties are a part of the import tax payable to U.S. Customs
• Customs duties are specific or ad valorem on the value of the products
There are some other taxes required on certain items: alcohol, tobacco and the like incur the Federal Excise Tax. There is also the Merchandising Processing Fee, MPF, and Harbor Maintenance Fee, HMF.
The MPF is based on an ad valorem of 0.3464 percent on the products’ value with a fixed range from $26.22 to $508.70 – the minimum and maximum fees paid. The products coming from sea incur an ad valorem of 0.125 percent of the products’ value for HMF. HMF is not paid for air cargo.
What is the total customs duty to pay?
There have been three different itinerations of the Trump tariff requirements. The first two were against the Made in China 2025 initiative. Specifically, technological parts, electronics and machinery for textiles, food and the like are subject to the 25 percent tariff under HTS 9903.88.01 or 9903.88.02 for the specific number of product coming from China.
The third was for a broad range of categories: consumer products, chemical and construction materials, textiles, tools, food, agricultural, commercial electronic equipment and vehicle/automotive parts. These are found under HTS 9903.88.03 or 9903.88.04.
U.S. Tariffs – Specific tariffs on specific products
Any product shipped from China to the U.S. via any method: express, air or sea will have U.S. tariffs to pay with a minimum of $30.00 and no maximum. As a reminder, products under $800.00 are tariff free.
1. Cotton clothing – 16 percent
The tariffs on clothes is widely varied depending on several factors. Mens’, womens’, childrens’, formal, casual – all of these have gaps and tariffs of various amounts. Clothes of $200.00 declared value or more will incur the tariff and duties. Wool and fur are higher than the 16 percent.
The one advantage – the U.S. does not assess a VAT. There are no additional duties or taxes.
2. LED lights – 3.9 percent
The tariff on LED lamps is typically 3.9 percent, but there is a different tariff entirely on LED’s themselves.
China is a huge producer of LEDs and LED components. Many elect to import the individual components and assemble them domestically. The U.S. imports as well with variable tariffs depending on the LED.
LED, bulbs, lamps and lights have a different tariff. The 3.9 percent is on the LED bulb only.
3. Furniture – 1 percent
Furniture is a huge import from China, and the tariff is around one percent on average. There are some anti-dumping tariffs that can reach 227 percent.
4. Anti-dumping on solar products
Anything in the solar energy field is at the anti-dumping stage in the U.S. Anti-dumping means selling products below market value, and solar panels from China are facing a tariff of up to 165 percent.
5. Other tariffs on certain products
This is by no means an exhaustive list, but it does give you a solid idea of what you can expect to pay in terms of tariffs depending on what you select to import.
• Bicycles – The bicycle tariff went up 30 percent due to Trump’s tariffs, mainly because of inexpensive labor and materials.
• Wrist watches – 9.8 percent plus $1.53/each
• Peanuts – 131.8 percent. High because the U.S. uses 2/3 of the peanut consumption worldwide.
How much will you pay in duties?
The amount you will pay depends on the ad valorem, the value, of the products you order. Again, the cut off is $800.00.
There are two duties depending on the shipment from Customs Authorities.
Your products you import, if there is a value above $2,500.00, there is a bond requirement. This is an example of a Formal Entry. Customs sees this as a commercial import because of the value of products in the shipment.
It is a good idea to submit the bonds to the CBP, Customs and Border Protection, early. You can get your products before paying duties and tariffs.
Formal Entry example
Your product cost is $5.00. You order 2,500 pieces as the MOQ.
You will declare $12,500.00 order value on the invoice. You will file for a Formal Entry.
The products you have ordered, cake frosting bags and tips, has an import rate of two percent. You will pay a duty tax of $250.00. There are a few other taxes to pay, like processing fees. These are minor – no more than $100.00 on average.
Your product order is less than $2,500.00. This is an Informal Entry and has no need for a bond. The exception to this is textiles – anything over $250.00 is considered a Formal Entry.
If I only ordered 100 pieces of my cake frosting bags and tips, I would not have to pay duty. It is under the $800.00 threshold.
If you do bring in that many pieces, it will be pretty obvious you plan on reselling them. There always a chance Customs will pull your products to review and check.
How to pay your tax
Paying the taxes collected by CBP is not that difficult to do. Most people simply pay with cash, check, money order or cashier’s check. All of these are accepted.
Common ways to lower duties and tariffs
Sourcing Nova stresses this to you – Do not try to do these tricks to reduce your taxes. The U.S. government takes taxes very seriously and will prosecute you. This will result in heavy fines and fees plus possible incarceration. Sourcing Nova is providing this for informational purposes only.
This is the $800.00 limit, with the exceptions mentioned previously. You are allowed some tobacco and alcohol in small quantities for personal use.
The same can be said for a small number of products. However, it is not likely you will convince the CBP that you have 100 cake frosting bags and tips for your own personal use.
Samples are not to be resold and often come into customs with a $1.00 value and the phrase, “Sample of No Commercial Value.”
Batch via international mail
You can try and send several packages worth less than the $800.00 value. However, the shipping costs may exceed what you would pay in regular taxes and tariffs. This is something to consider.
Dropshipping sends products to a third party. There is no import tariffs, but you will be assessed sales and income tax on the products.
Lower the commercial value
There are some who will lower the declared value on products. This will cut the tariffs.
Suppose you were able to cut the price of the cake frosting bags and tips from $5.00 to $3.00. You would still be responsible for tariffs but not as much.
Intermediate trade or entrepot
Some are thinking sending products to a third country before shipping into the U.S., claiming the third country as a country of origin. This is primarly due to the 25 percent tariff policy on Chinese imports.
Common fines you will face
It is important to pay your tariffs and taxes on time to avoid fines. This also includes getting your products on time, within 15 business days. After that, the products are moved to a warehouse and will be inspected. If your products go to storage, here are the fines you will face:
· Cabinet and returning cabinet
· Warehouse decommissioning
· Warehouse storage
· Container costs
You have six months to pay the fines, get clearance and LIEN notice to get your products. If not taken care of, the authorities will seize the products and auction them for storage fees.
Taxation, tariffs and duties are simply a part of doing business with products from China. Sourcing Nova will help you every step of the way in getting your product from the manufacturer to you as well as working with all of the customs. How can we help you get started? Let us know below.