One of the biggest challenges for importers is clearing customs for their products once they arrive into their home country. This guide will give a solid overview of how to clear customs into most countries, using Canada (my home country) as a point of reference. The exact paperwork varies vastly depending on which country you are importing into, but the overall procedure tends to be similar for most countries.
There are a number of excellent guides produced by countries for importing commercial goods into a country. These include:
As tends to be the case with any official publication, these guides are extremely long, dry, and insist any failure to dot i’s or cross t’s will be met with imprisonment. I hope for this guide to give a broad real world overview of the customs clearing process.
I should point out I am by no means a customs clearing expert, and 99% of the time I have a Customs Broker do this for me. I also have experience only in importing goods into Canada and the United States. However, I know the general process, and normally customs officials are more than willing to help importers fill out the necessary forms.
What is Clearing Customs?
Clearing customs simply means having the appropriate customs officials, in the case of Canada the Canada Border Services Agency and U.S. Customs and Border Protection in the U.S., for import into your country. When your products arrive into your home country (for example a sea port when arriving via sea) they will not be released to you until the appropriate paperwork is filled out along with paying the necessary duties (if applicable- not all goods are dutiable). A ransom is essentially placed on your goods.
The import procedure should be fairly analogous for anyone who has ever traveled internationally. When you arrive back into your home country you are asked to declare what goods you are bringing back with you. If you’re past your exemption, you have to pay applicable duties and taxes. It’s the same procedure when importing commercial goods, it’s just that there is no exemption and the paper work is slightly less user friendly.
Customs Clearance Paperwork
When importing goods, almost all countries require, at a minimum, two pieces of paper work:
- A commercial invoice from your supplier
- Some official customs form
A commercial invoice is simply an invoice your supplier will give you, normally before you pay for your goods. It’s simply an invoice showing what you’re ordering. This is nothing special and it can be a PDF, an Excel document, or hand written on a napkin. 99.9% your supplier will email this to you before you ever pay anything and for the other 0.1% you can simply ask.
The official customs form is unique to all countries, and in some countries it’s more complex than others. Below is a Form B3 which is required for importing into Canada. These forms, while often looking complicated, are looking for only a few basic pieces of information which we’ll cover here shortly.
Other Paperwork that might be required:
- Copies of appropriate memorandums, permits, certificates, etc.
- Packing Lists
- Cargo control document (or similar)
Certain products may have unique permits that are required. For example, many Food and Drugs require certification from appropriate national agencies. However, there’s other more mundane forms, which may be simple ‘promises’ that an item contains no wood products, that it was made 100% in a certain country, etc. Most products will not require such forms and if you call your local commercial customs office and tell the official exactly what product you are importing (ideally with a tariff code) they can tell you what forms you may need.
A packing list is imply a document showing how a shipment is boxed, i.e. 10 Pairs of Sandals in Box 2a.
A cargo control document is a unique term in Canada but other countries have similar documents. It’s simply a document given by a freight forwarder that gives a container or shipment a unique ID that helps customs officials better track and locate the shipment.
10-digit Tariff Classification Number: The Most Important Thing You Must Know
The single most important thing that all importers must know is the 10-digit Tariff Classification Number of their product. “What the *&^% is that?”, you’re probably asking.
As you can imagine, there are millions and millions of different products that exist in the world. How can a customs official be expected to know the details of every single reverse osmosis water filtration system and 2-in-1 Rice Maker/Slow Cooker in the world? Easy- the Harmonized System!
The Harmonized System is simply a big long encyclopedia of product descriptions covering every imaginable product. Almost every single country in the world uses this Harmonized System. When you think about it, it makes perfectly logical sense for the world to have some shared classification of products. Most countries share the same product classifications, but each individual country sets their own rates of duty.
The classification numbers break down like following:
73184.108.40.206 << This is the complete Number
7316 << International Heading (shared by all countries)
11 << International Sub-Heading (shared by all countries)
10 << Tariff Item (Set by Individual Country)
90 << Special statistical tracking number (Set by Individual Country)
As you can see, countries share the first 6 digits of the classification code and then each country sets the remaining four codes. This means that you can use other countries’ classification and tools as a starting point for determining the exact classification code for your country, but you can’t rely on another country’s codes completely.
There are a number of good tools for determining your product classification code. DutyCalculator.com is the simplest and easiest website (by far). However, the US run Schedule B Search is also good place to start. Simply give a couple of keywords to describe your item and you should be given a few results which you can further narrow down after (more words on this shortly).
Most countries have huge PDF documents listing all of the classification codes. Ultimately, you will likely want to go through a few pages to read what code best describes your product. It’s actually somewhat readable as well as interesting. So to determine your classification code you can either a) use a tool like Schedule B Search to find at least what section you should look in and then manually dig deeper or b) simply use CTRL-F to search the PDF for some keywords. More likely than not, you will find a classification that describes your product very accurately.
Help! More Than One Code Describes My Item
Are you finding that more than one classification code describes your item? You’re not alone!
Describing products is often a very subjective art. I was once importing a particular item that could have a different classification code depending on whether it was used primarily for aircraft/watercraft or other purposes. Our customers used this item for both watercraft/aircraft and in their homes, almost evenly split. So which classification code applied?
Often you have to make a judgement call. Almost all countries offer the ability to have a formal official determination made of the classification code of the item. If you’re importing hundreds of thousands of dollars of a product in a very grey area you should definitely consult an expert or request an official ruling as customs officials can request back-duties after you have imported a product if they find your classification was incorrect. However, if you are importing a relatively small amount of product in which two or more classification codes have relatively minimal difference in rates of duties, the overwhelming likelihood is that no one is going to chase after you for the 0.1% duty difference on a $5000 shipment you imported. If you want to play it entirely safe without requesting an official ruling, choosing the code with the higher rate of duty will cost you more money but almost always keep you in the good books.
Remember that most countries’ customs procedure is based on a ‘random audit’ system just like your taxes. Again, it’s the same as when you travel internationally. You can ‘forget’ to declare the $5000 Gucci suit you purchased and most of the times customs officials will simply take your word for whatever you report your goods as. Therefore you can declare your women’s designer hand bags as dog chew toys and you may get away with it. But like your taxes, customs officials take very big offense to fraud and are generally lenient to simple mistakes.
Paying Duty and Taxes on Your Product
The ten-digit classification code will determine the rate of duty on your product, which is one of the main purposes of the harmonized classification system. As mentioned, each country sets their own individual rate of duty on items. This varies widely according to product and country, but for reference’s sake, for most of the products my company imports the rate is around 4-7%.
The second determination of how much duty you will pay is the country of origin for your product. Most governments essentially classify countries according to whether they are best friends, friends, or enemies. Best Friends (i.e. Canada and the U.S. who have a free trade agreement) often pay no duty. Enemies (i.e. North Korea) often have duties approaching the high double digits. Finally the vast majority of countries are classified as Friends, also officially (and misleadingly) called Most Favored Nations. China is one of these. For Friends, the rate of duty is normally somewhere between 0-10%.
Depending on the taxation system in your country, you may also be responsible for paying applicable taxes on this. Also depending on the taxation system, you may or may not be able to get these taxes back. For example, in my home country, I must pay 5% GST on all goods that I bring into Canada. However, I can claim back all of this GST at year’s end. In the United States, which has no federal tax, there is no tax payable.
Other Information Required for a Customs Form
Outside of a the 10-digit classification code, most of the information required on a customs declaration form is rather straight forward. Things like your company name and address, date of import, name of the Supplier, etc. are all standard.
There’s only a couple of other things to look out for. First, remember that you will almost certainly be declaring your goods in your home currency. So even if you paid your supplier in USD you will be expected to convert the price of the products to whatever currency you use in your home country. Generally, you’re expected to use the official exchange rate at that point in time (for example, the Bank of Canada official exchange rate). You may also be required to record some type of business identification number, in the case of Canada a Business Number.
Presenting Your Paperwork and Finally Clearing Your Goods
Once you have filled out your paperwork, you will be required to present it to the customs officials. If your goods are being shipped via land, normally you would simply do this at the land border crossing they are going through. If they are being shipped via sea, you can normally submit the document to any official customs office, normally located at a point of entry. In my province of British Columbia, Canada there are over 200 such offices, many of which aren’t actual points of entry. Remember, International Airports are points of entry. Simply Google “Customs office [your city/country]” and you should get a list from your government. For Canada and the USA these offices are:
Once customs officials approve your paperwork, you will have to pay them any outstanding duties. Most will not accept credit card and many will only accept cash or cheque for payment (ask in advance).
Paying your duties is generally the last step in finally having the ransom removed and having your goods released. Once this ransom is removed, the customs officials use a mysterious red telephone to inform the warehouse/port holding your goods that they have been released by customs. You will then be free to pick up your goods, assuming the other criteria has been met such as paying your freight forwarder any outstanding balances and presenting an Original Bill of Lading.
Remember, Customs Officials are There to Help
Remember, customs officials are generally there to help importers like yourself complete necessary paperwork. Granted, many customs officials are sometimes less than pleasant to work with, but part of their mandate is to help business and individuals import and export goods from a country.
If you show up to an office where you can submit the necessary paperwork, there will almost surely be other importers there that day who are going through the same process of filling out such paperwork. You’re not alone! If you’re friendly with the border officials they will help to ensure you have everything completed successfully.
The Ultimate Cheat to Clearing Your Shipment: A Customs Broker
If you completed reading this article and are completely put off, then there is one ultimate cheat/hack to having your shipment cleared and released by customs: using a customs broker. A customs broker will complete all of the necessary paperwork for you without you ever having to leave your living room. The catch of course, is that you will have to pay anywhere from $100-250 for their services.
I recommend most new importers to use a customs broker on their first shipment as there are a lot of other obstacles to deal with and a customs broker is an inexpensive mentor along the way. However, I also recommend all importers, after a couple of successful imports, to clear customs at least once on their own so they can get a true taste for how the entire process works.
Clearing customs, like international freight, is a often a daunting area, because on the surface it seems foreign compared to any processes were used to. However, much like international sea freight is not much different than using a post office, clearing customs is not dissimilar to coming back to airport customs after traveling abroad. Most of all, after a couple of times of going through the process it will become second nature.
As always, if you have any questions or advice, feel free to comment below.