If you’re importing goods into the United States whether as a business or an individual you’ve likely come across the term customs duty.
But what is customs duty exactly, and why is it such a crucial part of international shipping?
In this blog, we’ll break down everything you need to know about customs duty, how it works, when and who pays it, how it’s calculated, and what happens if you don’t pay.
What is customs duty in International Shipping?
Customs duty is a fee imposed by the US Government on the goods imported from another country.
Whether it’s a bulk shipment of electronics or a personal purchase from an overseas website, you may be required to pay this tax before the goods are cleared and delivered.
Example -
Let’s say you're a business in the U.S. importing handmade furniture from India. The invoice value of the shipment is $5,000.
Before you can receive the goods, the U.S. Customs and Border Protection (CBP) will assess customs duty based on the type of product, its declared value, and freight/insurance costs.
So, if the duty rate is 8%, you’ll owe $400 in customs duty payable before your shipment is released.
Even individuals shopping online from overseas sellers (like AliExpress or Etsy) may find that their package is delayed or subject to a charge at delivery that’s customs duty in action.
Is Customs Duty and Import Duty the Same ?
Yes, the terms "customs duty" and "import duty" are generally used interchangeably.
Both refer to a tax collected by a country's customs authorities on goods that cross international borders.
Why Do Countries Charge Customs Duty?
Governments implement customs duties for a few key reasons:
- Revenue Generation: Customs duties are a significant source of income for many nations, especially developing countries.
- Protection of Domestic Industries: By making imported goods more expensive, duties help local businesses stay competitive.
- Regulation of Trade: Customs duties can be used to control the flow of certain goods like harmful products or items subject to quotas.
Who Charges Customs Duty?
In the United States, U.S. Customs and Border Protection (CBP) collects duties on imported goods.
But for other countries, it might be handled by entities like HM Revenue & Customs (UK) or CBIC (India).
Each product is assigned an HS Code, which acts like a global product ID. This classification helps the government authorities to determine the applicable duty rate.
When to Pay Customs Duty
You are required to pay customs duty when your goods arrive at the destination country and before they are released by customs authorities.
Whether you’re an individual buyer or a business importer, this step is crucial in the customs clearance process.
At What Stage Is Customs Duty Paid?
Typically, customs duty is paid:
- After your goods arrive at the port or airport
- Before the shipment is cleared and delivered to you
- As part of the customs clearance process, alongside other import taxes or fees
The shipment remains on hold or in bonded storage until the duty payment is made.
📦 Examples:
Online Shopping: If you order a laptop from abroad, the courier (like DHL or FedEx) may contact you to pay the customs duty before delivering the item.
What Happens If You Fail to Pay Customs Duty?
Failing to pay customs duty can result in serious delays, penalties, or even loss of goods. Customs authorities will not release your shipment until all duties and taxes are paid in full.
Here’s what might happen:
- Shipment Held at Customs
- Your goods will be placed in bonded storage until payment is made.
- Additional storage fees may apply the longer the delay.
- Penalties or Fines
- Customs may impose monetary penalties for delayed payment or non-compliance.
- In some countries, interest may accrue on unpaid duties.
- Shipment Returned or Destroyed
- If duty remains unpaid for a long period, customs may return the shipment to the sender or confiscate and destroy it.
- This is especially common with personal packages where the consignee is unreachable.
- Damage to Importer’s Record
- Frequent non-payment or customs violations can hurt your importer profile, making future shipments more difficult or flagged for inspection.
🔍 Pro Tip: To avoid this, work with a licensed customs broker or freight forwarder who ensures your duties are calculated accurately and paid on time.
Who Will Pay the Customs Duty?
The responsibility for paying customs duty typically falls on the importer of record, which could be an individual, a business, or even a third party authorized to act on the buyer’s behalf.
If You’re Buying for Personal Use
When you purchase a product from another country (say, a gadget from an international online store), you, the buyer, are responsible for paying customs duty when the item arrives.
The courier (like FedEx, UPS, or DHL) may collect the duty from you before final delivery.
If You’re a Business Importing Goods
The importing company or the entity listed as the importer on the shipping documents must pay the customs duty. Most businesses work with:
- A freight forwarder who includes duty as part of their door-to-door service
What If the Seller Pays the Duty?
In certain cases, especially under DDP (Delivered Duty Paid) Incoterms, the seller/exporter agrees to cover the customs duty and all associated import fees.
This is common in eCommerce or international wholesale deals.
How Is Customs Duty Calculated?
Customs duty isn’t a flat fee, it’s calculated based on several factors, including the type of goods, their declared value, and country of origin.
To determine the correct duty, customs authorities follow international classification systems like the Harmonized System (HS) or work with an experienced international freight forwarder.
Is customs duty rate and customs duty the same?
Not exactly — they’re related but not the same thing.
Customs duty rate
This is the percentage (or sometimes a fixed rate) set by the government on imported goods.
For example, a 10% customs duty rate means 10% of the product’s customs value will be charged.
Customs duty
This is the actual amount of money you pay, calculated using the duty rate applied to the assessable value of the goods (which usually includes cost, insurance, and freight — "CIF").
🔹 Example:
Value of imported goods (CIF): $1,000
Customs duty rate: 10%
Customs duty (amount to pay): $100
So, duty rate = percentage, while duty = actual payable amount.
Key Factors That Affect Customs Duty Calculation:
Customs Value (CIF Value) – This is the total value of the goods including:
- Cost of goods
- Insurance during transit
- Freight charges
- HS Code Classification – Each product type has an international code that determines the duty rate.
- Country of Origin – Some goods qualify for lower duty rates due to Free Trade Agreements (FTAs).
- Duty Rate (%) – Based on product classification and applicable trade rules.
Basic Customs Duty Formula:
Customs Duty = (Cost of Goods + Insurance + Freight) × Duty Rate (%)
📦 Example: Importing Leather Bags from India to the USA
Let’s say you’re importing leather handbags with the following details:
- Product Cost: $5,000
- Freight Charges: $400
- Insurance: $100
- Import tariff Rate (as per U.S. Harmonized Tariff Schedule): 9%
Step 1: Calculate CIF Value
$5,000 (product) + $400 (freight) + $100 (insurance) = $5,500
Step 2: Apply the Duty Rate
$5,500 × 9% = $495 in customs duty
Is Customs Duty and Import Tariff the Same?
The terms customs duty and tariff are often used interchangeably but they’re not exactly the same.
While both refer to taxes on imports, there are subtle differences in how they're applied and understood.
In short
- Tariffs are like the menu—they list the prices (duty rates) for different types of imports.
- Customs duty is the bill—the actual amount you pay based on what you imported.
In the above example
➡️ Tariff = 9%
- This is the duty rate assigned to leather handbags, based on the HS Code in the U.S. Harmonized Tariff Schedule (HTS).
- It reflects the policy set by the U.S. government for this specific product category.
- You can find this rate by searching for the HS code (e.g., 4202.21.90.00) in the HTS database.
➡️Customs Duty = $495
- This is the actual amount payable on your shipment.
- It’s calculated by applying the tariff (9%) to the CIF value ($5,500) of your goods.
So, tariff = the rate, and customs duty = the result of applying that rate to your import value.
What is Duty Drawback?
Duty Drawback is a refund of customs duties (and sometimes taxes) that were paid on imported goods but are later returned, exported, or used in producing exported goods.
👉 In simple terms: if you import something, pay duty on it, but then don’t ultimately consume it in your country (because you either export it again or use it to manufacture goods that are exported), you can claim back the duty you paid.
Example:
A company imports fabric and pays $5,000 in customs duty.
It uses that fabric to make shirts and then exports the shirts.
The government may refund all or part of the $5,000 duty as a duty drawback, since the goods didn’t stay in the domestic market.
Conclusion
Checking tariffs for multiple products, calculating the right duties, dealing with customs clearance, managing bonds and then chasing refunds if your goods are re-exported can quickly become overwhelming.
But why go through all that stress?
When you work with experts like us, you can stay focused on what you do best, manufacturing quality products while we handle everything related to shipping, from customs duties to delivering at the doorstep.
Frequently Asked Questions
1) What is the difference between a tax and a customs duty?
A tax is a general charge imposed by governments on income, goods, or services. A customs duty is a specific type of tax applied only on imported or exported goods.
2) What are anti-dumping duties?
Anti-dumping duties are special import duties imposed when foreign goods are sold below fair market value, harming domestic industries. These duties are added on top of regular customs duties.
3) Do I have to pay sales tax in addition to customs duty?
Yes, in many cases. Besides customs duties, imported goods may also be subject to sales tax, VAT, or GST, depending on the destination country’s regulations.
4) What happens if I don’t comply with import regulations?
Failure to follow import compliance rules can result in shipment delays, penalties, seizure of goods, or higher scrutiny on future imports. Working with a licensed customs broker can help you stay compliant.
5) How can I recover import duties I’ve already paid?
Import duty recovery is possible through duty drawback programs, where importers get refunds if goods are re-exported or used in producing exported items.
6) Is duty free the same as customs duty exemption?
Not exactly. Duty free applies to purchases made at designated stores (like airports), while customs duty exemptions are broader rules that waive duties on certain goods or under special circumstances.
7)Are all duty free purchases completely free of taxes?
No. Duty free items are exempt from import duties, but depending on the country, you may still need to pay other taxes like excise tax or sales tax when you arrive at your destination.