International trade – Are you aware of the applicable duties and taxes?
In the first of a series of articles, we discussed how importing goods cannot be improvised. Good planning is important to help prevent unexpected costs and delays.
It is vital to know the roles and responsibilities of all parties involved in the supply chain: the buyer/importer, the seller/exporter, the carrier, the customs authorities, and the customs broker.
Who will assume the costs, customs formalities, and risks in getting the goods from point A to point B? It is important to properly negotiate Incoterms when buying or selling. Less experienced companies will often leave this responsibility to the other party by choosing an Incoterms of arrival (DAP, DPU, DDP), while a company with a better grasp of international transport will prefer to control the costs and choose an Incoterms of departure (EXW, FOB, FCA).
Moreover, it is critical to verify that the shipment meets the requirements of other government departments and that it is admissible into Canada (e.g. whether a permit is required, whether the labelling is compliant, etc.).
You must also be aware of the duties and taxes applicable in Canada. Different types of import taxes may apply: ad valorem duties, specific duties, anti-dumping duties, excise tax, and so on. Each of these is determined according to the product (its description, composition and use), its customs classification and its origin.
How to determine the customs classification will be covered soon in another article.
- The ad valorem duty is a percentage ranging from 0% to more than 200%, applied on the customs value of the goods in Canadian dollars.
- The specific duty is a fixed amount expressed in dollars or cents applied on a unit of measure (number, weight, dozen, etc.).
- Anti-dumping duties are applied to dumped goods.
- Countervailing duties are applied to subsidized goods.
- Excise tax is applied on fuel-inefficient vehicles, automotive air conditioners and gasoline.
- The surtax is an additional duty applied on top of existing duties.
- Goods and Services Tax (GST)
- Provincial tax
Ad valorem duties are applied to the vast majority of products in Chapters 1 to 99 of the Customs Tariff, while specific duties are imposed primarily on products in Chapters 1 to 24 (live animals, poultry, dairy products, vegetables, fruits, cereals, flour, fats, foodstuffs, sugars, cocoa and food preparations and beverages).
Meanwhile, anti-dumping and countervailing duties are applicable to specific products that the Canadian government has investigated. The goal here is to help Canadian producers who are victims of illegal foreign competition in the Canadian market.
Several verifications are needed to determine the applicable duties and taxes. If you are well prepared, you can avoid unpleasant surprises and establish the right costs on your products.