What Is Import Duty Tax, Who Pays It, & How Is It Charged?

Becoming an international FBA seller on Amazon—sounds easy, right? In theory, it’s a business move that seems straightforward enough. However, sellers new to the Amazon marketplace will quickly discover a complex platform with established policies, regulations, and fees that frequently discourage owners from promoting their products overseas. 

One of these hurdles is import duty tax.

If you’re intimidated by import duty tax, you’re not alone—but fortunately, there are ways to leap over the hurdle with the help of a third party who can facilitate the smooth transfer of goods across foreign borders.

In this guide, we’ll break down everything you need to know about import duty tax and offer the best possible solutions for entering the FBA marketplace with as few obstacles as possible.

Let’s get started.

What Are Import Duties And Taxes?

Import duty, also known as customs duty, is the tax placed on goods (as well as services and capital) attempting to enter a foreign country, overseen by the destination country’s customs authorities. 

It’s at customs that duty is actually collected, accompanying an often exhaustive inspection process to ensure VAT Compliance, authenticity, and fair market provenance of the goods seeking to clear the border. In order to make entry, your importer will also have to verify these criteria with the appropriate (and valid) documentation.¹

The purpose of duties levied on imported goods is fourfold:

• To generate value on behalf of the local government (and dually, the importing country itself) through international trade,

• To maintain a home-field advantage for comparable, competing goods manufactured in the importing nation,

• To regulate goods that may have an adverse impact on public health or interest (for example, cigarettes),

• And, in some cases, to penalize a foreign country of origin (COO) by imposing high duties on the products they import.²

Every nation has its own method of calculating import duty tax imposed on foreign goods, but their formulas for determining it are universally dense and complex. Before paying VAT on imports, a thorough assessment will be taken to determine the given value of an item. Assessing a given product’s value means taking a magnifying glass to the myriad resources, manufacturing practices, and workers it took to mint any given piece of merchandise.³

For instance, if you’re in the business of producing milk frothers, trade specialists may examine the raw materials used to sculpt the product. They will determine how the motors were made to give the frother its spin and pinpoint where the frother itself was assembled, becoming more than the sum of its parts.

Duties vs Tariffs: What’s The Difference?

More often than not, the terms “duty” and “tariff” are used interchangeably. This is because they ultimately have the same effect on both producers and consumers of products: driving up the cost of goods and the overhead costs of commercial enterprise.

The main difference between duties and tariffs is that the former has an immediate impact on how much a consumer pays for a given product, while the latter only bears on the producer or owner of international imports. Meaning the customer that has to pay import duties, while the seller must build the tax they pay at customs into their ultimate price point.

Duties and tariffs can also be distinguished by the distinct motivations behind each:

Duties are regarded as an indirect tax. While an importer is responsible for covering import duties, they ultimately land on the consumer, theoretically making domestically-produced goods more attractive by keeping their prices lower than international competitors’.

Tariffs are considered a direct tax. Depending on the politics of foreign relations, they may also be intended to protect the domestic economy (or sanction a foreign one) by making it more costly for foreign sellers to import their goods to the local marketplace.

The tariff fees placed on imports and exports are determined by a percentage. This is a non-flexible, preordained percentage codified in the World Customs Organization’s (WCO) official Harmonized Tariff System Codes (HTS). 

In most cases, every product shipped across national borders must carry an HTS code appropriate to the country it’s destined for. When a shipment reaches customs clearance, the import fee it incurs accords with this predetermined percentage, dictated by the particular product(s) it contains.

HTS codes are granularly specific—up to 10 digits long—reflecting the nuanced process of dictating a product’s value. If you were importing peanuts, the exact kind of peanut, the origin of the peanut, whether or not the peanut was shelled, and whether or not it was seasoned with salt are all factors that will determine the code assigned to the imported good. This code will ultimately impact the tariff your product will incur to clear customs.

Duties vs Tariffs: The Bottom Line

In practice, duties and tariffs are determined by a distinct but equally complex series of methods employed by trade experts, even as the terms themselves seem fairly interchangeable. In the world of international trade, sellers needn’t (and shouldn’t) burden themselves with knowing the precise differences between tariffs and duties.

For sellers, the main takeaway is much easier to conceptualize: both duties and tariffs affect how much you’ll be charged when importing a product overseas and, ultimately, feed into your ROI—whether or not you optimize your profits.

How Import Duty Affects FBA (and non-FBA) Sellers

Import duties and tariffs are just one barrier constituting the larger complex known as customs compliance. 

Any business—whether they work with Amazon as an FBA seller or operate independently—is legally obliged to accurately declare their commercial products and meet the customs requirements stipulated by the destination country’s authorities.

A failure to accurately classify and meet import duties, and meet customs requirements more generally, can result in:

• Stuck shipments,
• Overpaying on transport costs, taxes, and duties,
• Underpaying on imported goods, resulting in exhaustive (and time-intensive) inspections,
• And, upon violation, fines or even legal trouble for the seller.

Businesses working with Amazon as FBA sellers must also prepare for and comply with Amazon’s own laundry list of requirements for goods being imported to their facilities—on top of knowing and supplying appropriate import duty for a given country.⁴

Amazon maintains that it will not serve as the legal importer for their FBA sellers—an inviolable, no-exceptions policy. FBA businesses who do not appoint an importer to facilitate the changing of hands between shippers and Amazon will be denied access to Amazon facilities and returned to the seller on their own dime.⁵  

Who’s Responsible for Paying Import Duties?

Traditionally, there are three parties who may be responsible for paying income duties:

• The owner of the product,
• The person or entity who purchased the product,
• Or the customs broker who mediates the product’s entry through customs and border protection.²

Because import duties incurred will ultimately be reflected in the product’s market price point, it’s essential to make good on (and not overpay) import duties on your goods so that customers don’t take their business to a more affordable place. For FBA sellers (and, more and more frequently, non-FBA), this means hiring an Importer Of Record (IOR).

Not only will a third-party IOR supply the prodigious body of knowledge, expertise, and contacts necessary to ensure products make it securely to the warehouse—they’ll also take care of any import duties charged by the destination country.

How To Manage Import Duties As An FBA Seller

It’s a tale as old as time: every country has a vested interest in guarding its own economy against international competitors, and import duties and tariffs are theoretically one of the easiest ways for a country to protect its own interests. 

However, with the expansion of e-commerce, international trade regulation has become even more complicated and slippery. The morass of regulations can be enormously restrictive to small and medium-sized businesses burdened with the labor, time, and cost-intensive task of staying up to date with current trade and taxation policies in every country they do business in.

This is one reason why it is in the vast majority of businesses’ best interest to work with an IOR (Importer Of Record) to manage the shipment and Customs Compliance of their products. In the face of international trade regulations’ density, complexity, and caprices, IORs have the ability to:

• Serve as the legal guardian of the sellers’ merchandise as it makes its way to its destination country,

• Draw on their knowledge base and experience to know what products will incur which duties in each country they petition entry for,

• Manage all duties, taxes, and tariffs on behalf of the seller,

• Resolve stuck or delayed shipments tied up in a country’s customs process,

• And facilitate the smooth movement of international freight at the lowest rates.

Enter The Amazon Marketplace With Zee

The major takeaway from getting acquainted with Import Duties is this: it takes expert-level knowledge of the fluxes and flows of international trade to enter foreign markets as an FBA seller without a hitch.

It’s a tall order for smaller-scale businesses to supply this know-how independently—but fortunately, there are partners who can help you sail through customs and border protection, assume responsibility, and cover import duty taxes to streamline your products’ entry to foreign markets, whether that be in the United States, Europe, Australia, and so on.

Zee is your one-stop-shop shipping partner equipped to serve as your business’ Importer Of Record. Rather than attempting the Herculean feat of managing shipping protocol and transport costs solo, look to Zee to cut through the red tape so that you can focus on what you do best: selling.

Sources: 

1. Drip Capital. Duty vs Tariff – What’s the Difference? https://www.dripcapital.com/en-us/resources/blog/duty-vs-tariff
2. Investopedia. Import Duty. https://www.investopedia.com/terms/i/import-duty.asp
3. U.S. Customs and Border Protection. Determining Duty Rates. https://www.cbp.gov/trade/programs-administration/determining-duty-rates
4. Amazon Seller Central. FBA inventory requirements. https://sellercentral.amazon.com/gp/help/external/201100890?language=en_US&ref=efph_201100890_cont_GASFW4BD897LNTNN
5. Amazon Seller Central. Import and export inventory. https://sellercentral.amazon.com/gp/help/external/G201468520?language=en_US&ref=efph_G201468520_cont_GASFW4BD897LNTNN