From customs duties to taxes, fees to pay at the border are an unavoidable part of importing and exporting goods, and calculating them incorrectly may have severe repercussions on your company. Delays at the border, competitive disadvantage, and even financial penalties from the Administrative Monetary Penalty System (AMPS) are among the possible consequences.

These fees are usually calculated by the customs broker handing your importation or exportation, but you need to provide the correct HS code (see below). In this article, the W2C team will explain to you how the amount of customs fees to be paid (particularly customs duties) is determined.

Commercial importation

The total amount to be paid during a commercial importation includes customs duties, the value added tax (VAT), and the goods and services tax (GST).

The customs duties for a commercial importation are calculated as such:

Canadian dollar value of the goods X customs duty rate

The Canadian dollar value is obtained by multiplying the value of the goods indicated on the commercial invoice by the exchange rate at the time of the shipping. The customs duty rate is calculated by your broker based on the HS number and various other factors (see below).

The total tax payable amount is calculated according to the following formula:

(Canadian dollar value + customs duties) X 5%

Personal importation

The same fees that apply to commercial importations still apply to importations of goods for personal use. Additionally, you must pay a provincial tax. In Quebec, the Quebec sales tax (QST) is equivalent to 9,975% of the imported goods’ value.

Under some circumstances, personal goods may be imported free of duties and taxes. This includes the personal effects of a Canadian resident deceased outside of Canada, or effects inherited or otherwise acquired by a Canadian resident in the wake of the death of a non-Canadian resident.

HS code and customs duties

The HS code (standing for Harmonized System) plays a vital role in the process of calculating customs duties. Depending on this code, duties can vary immensely between products, from 0% on some goods (such as machines destined to be used in some industries) to 245% on others (such as cheese). Your customs broker will calculate the customs duties for you, but you need to provide the proper HS code.

The Harmonized Commodity Description and Coding System was created by the World Customs Organization (WCO), an authority that provides the many countries of the world with common grounds for customs duties negotiation and provides useful statistical reports on HS codes. So named because it applies everywhere in the world to avoid any inconsistencies in product classification between countries, the Harmonized System has been in force since 1988. The system is organized into 21 sections subdivided into 96 chapters, and classifies a total of 5019 product types, each with its own unique code. In Canada, HS codes consist of ten numbers, of which the first six are international and the last four are unique to Canada. Depending on the country, the total amount of numbers in an HS code may vary, but it may never be lower than six.

Figuring out the correct HS code can be a difficult task for an importer. With over 5000 product types, it often seems like a given product could be classified into different categories with equal ease. Yet, one product can never have two different HS codes in the same country. This issue primarily concerns companies that import or export a wide variety of products with different HS codes. If you’re the one importing the product, the sender will usually provide you the HS code. If not, the following options are available to you:

• Customs broker’s services

The customs broker in charge of your product importation can provide the HS codes for your products, but may bill you additional costs for this service.

• Training session

Learn something new with W2C by signing up for our customs training – the perfect way to become familiar with customs regulations. Customs classification course is offered in addition to Customs Compliance I and II. It will help you not only become familiar with the interpretation of the rules of origin and classify your products based on customs tariffs, but will also allow you to validate the work done by your customs broker.

• Request for a ruling

One way of establishing the correct HS code for a product is sending a letter to the CBSA (Canadian Border Services Agency) to request a ruling. This letter should include the relevant product information – either a sample or a full description with a data sheet. The CBSA will reply with an official ruling number, which can be indicated on the commercial invoice presented to the customs officers to avoid delays.

The main drawback is the long response time (from 30 to 90 days, approximately one to three months).

What can influence a customs duty rate?

Under some circumstances, the customs duty rate on the same product in the same country may vary:

• Agreements between countries

Agreements signed between countries can influence the customs duty rate for imported products. Possible agreements include the most favored nation clause (MFN), the General Preferential Tariff (GPT), the Least Developed Country Tariff (LDCT) and many others.

Free trade agreements like the NAFTA may reduce to zero the customs duty rate on some products originating from member countries, if the importer has the necessary permits and the quota is not exhausted.

• Special classification provisions

Chapters 98 and 99 of the Harmonized Commodity Description and Coding System provide specific exemptions to standard customs duty rates, particularly when the product being imported will stimulate the country’s economy. For instance, as per appendices 9967 and 9968, customs duties on products destined to be used in aircraft are zero.

Conclusion

To avoid financial penalties and other problems during importation and exportation, the importer must provide the right HS codes and calculate the customs fees correctly. The best way of doing so is to work with professional and experienced customs brokers. The W2C team will gladly calculate your customs duties, provide you the correct HS codes, and answer any other questions you may have regarding customs compliance.