Do you know how to correctly prepare your shipment paperwork to avoid customs duties and taxes when, and where possible when making a repair and replace or warranty replacement shipment?
Have you or your customers ever been surprised by an unexpected bill for customs duties and taxes? Confusion sets in. You thought the shipments were items in need of repair or calibration, or maybe they were warranty items, or just being returned because they were the wrong parts. Hundreds of companies around the world are faced with this dilemma each day.
What may be surprising to hear is that most of these situations are preventable. All it takes is the knowledge to correctly prepare your shipment’s paperwork.
In this article, we discuss the key mistakes leading to this issue, and explain how you can correct these mistakes with the proper knowledge.
It’s important to state here, that it is a common misconception that all shipments involving returns are always duty and tax free. They are not.
To begin, lets deconstructing the essential elements. We need to separate the shipments in to two types: those that are exported out of the U.S., and those that are imported into the U.S. It’s important to do this in order to bring attention to the first mistake many companies make — the paperwork (which includes the air waybill, and commercial or Performa invoice) are being completed in the same way regardless of the reasons the shipment exist. This behavior is at the root of the problem. Export and Import shipment paperwork are not the same!
To prepare shipment paperwork correctly one must always take into consideration the FIVE KEY ELEMENTS that Customs officials use to determine if they will allow a shipment to enter their country, and at what rates of duty and tax.
What are the FIVE KEY ELEMENTS?
1. REASON FOR IMPORT / INTENDED USE — this is often one of the most overlooked considerations, and it can have a huge impact on the outcome. The more the customs officials can ascertain from your paperwork the better.
2. ACCURATE DESCRIPTION OF THE COMMODITY — an accurate description is very important. Stay away from general terms when describing your commodity. Part numbers don’t mean anything to Customs agents; the space they take up is better served with an accurate description.
3. VALUE OF THE COMMODITY — More often than not, there is confusion about the value of the commodity. Many shippers gravitate toward either end of the spectrum. On one end, “it’s a return, so the value is zero, isn’t it?” While on the opposite end, “We paid $X amount when we bought the thing, so I guess that’s the value?” Both of these extremes are incorrect for this type of shipment.
4. HTS CODE USED — which HTS code you use is incredibly important! For many shippers, they’re not concerned much about the HTS codes unless they also had to file an EEI with AES. The proper HTS code should be provided by the shipper on all shipments. It’s extremely important for the type of shipment we’re discussing.
The HTS code, put simply, is an internationally accepted system of numbers that match up to a specific commodity description, so that customs officials around the world can know what the commodity is regardless of the language spoken. The HTS code for shipments exported from the U.S. is also referred to as the Schedule “B” number.
Various countries around the world may add variations to the HTS codes from time to time, but only for their specific country. The U.S. is no exception. Currently all U.S. Imports are cleared using a special addition to the HTS codes called the H.T.S.U.S. (Harmonized Tariff Schedule of the United States).
Again, we illustrate that export and import shipment paperwork cannot be prepared the exact same way. If the shipment will be Exported from the U.S. then the shipper should use the proper HTS code, also known as the Schedule “B” number.
In the case of an Import coming to the U.S., the shipper is to use the correct H.T.S.U.S. code, which is used by U.S. Customs to clear all imports.
5. COUNTRY OF ORIGIN — Last, but not least, is knowing the Country of Origin, also known as the COUNTRY OF MANUFACTURE. It is used by customs officials to determine where the commodity was made.
Why is this important? Around the world, there are many trading alliances between countries. These trading alliances are also called things like Trade Agreements (such as NAFTA), or Preferences (such as the GSP or “General System of Preferences”) . Some of you may have also heard of alliances such as MFN (Most Favored Nations), or Developing Countries.
Under the authority of trade agreements, participating countries have agreed to make certain concessions on duty and taxes levied on commodities made in other participating countries. This is also true for the shipment type we are discussing. The concessions made by customs under the trade agreements will vary widely; ranging from duty-free to lower rates of duty.
Now that you have been given more insight into what makes customs officials tick, you know to ALWAYS consider the FIVE KEY ELEMENTS. Lets bring it all together with some practical examples.
In these examples you’ll find helpful directions, and as always we’re here to help.
Example 1 – Export Commercial Invoice (Link to PDF)
Example 2 – Export DHL Air waybill (Link to PDF)
Example 3 – Import Commercial Invoice (Link to PDF)
Example 4 – Import DHL Air waybill (Link to PDF)
About the Examples
Another word regarding the HTS codes (A.K.A. Schedule “B”), and the H.T.S.U.S. codes. You understand how important it is to have the correct HTS or H.T.S.U.S. code, but did you know that there is a special HTS / H.T.S.U.S. code specifically structured to cover returns? Using this code where appropriate on the shipment’s paperwork will further ensure that the correct level of duty and tax are assessed on your shipment.
U.S. Import — in the snip below, you’re looking at the H.T.S.U.S. In the above examples, the shipper in Germany would have used this H.T.S.U.S. code for the PLC power supply board and U.S. customs would understand the commodity. In addition, it just so happens that this commodity is duty-free, no matter the reason, for import into the U.S.
U.S. Import — In this snip, let’s say that the shipper in Germany is your customer, and is returning the PLC power supply board for repair or replacement. You are the U.S. manufacturer. You would have your customer in Germany use this H.T.S.U.S. code. This code is a special code specifically meant for returns. This will help ensure duty-free clearance.
U.S. Export — In this snip you’re looking at the HTS codes (A.K.A. Schedule “B”). As in our export example, you’re returning the PLC power supply board back to the manufacturer in Germany. You would use this HTS code to ensure that customs understands the commodity.
U.S. Export — This snip contains a special HTS code meant for returns that you can use if you are the U.S. manufacturer, and you’re returning the PLC power supply board, after repairing or replacing it, back to your customer in Germany. This will help ensure the correct amount of duty is accessed at clearance.