There are so many things to think about when you are running a business. And if you are a U.S. business looking to sell into Canada, or you are a business importing into Canada, the task list gets even longer. But many entrepreneurs do not know the first step to importing. That is why we have created The 10 Easy to Follow Steps to Importing Into Canada for Entrepreneurs.
As a prospective entrepreneur or new business owner, use these steps and links to external resources to navigate through the complexities of importing into Canada.
Determine if the Goods can be Imported into Canada
We often help first-time importers get out of a Customs jam as a result of not first checking eligibility of the imported goods. because of this, we recommend knowing what can and cannot be imported into Canada as step number one.
To start, you need to
- Obtain an accurate description of the goods you plan to import or export.
- Identify the country of origin, manufacturer, and export of the goods.
- Canada has a range of goods over which it imposes import controls. The Import Control List (ICL) of the Export and Import Permits Act lists these goods.
Next, you will need to determine whether the goods are controlled, regulated or prohibited by any Other Government Department (OGDs). OGDs regulate groups of commodities relating to their agency (Health Canada, Environment Canada, and the Canadian Food Inspection Agency are a few).
There are over 10 OGDs that are involved in the importation, in-transit movement, and exportation of various commodities. If your goods are regulated, they may require special permits, certificates, licenses, special labeling, or a specific type of packaging (i.e. child resistant) depending on the commodity.
To understand OGDs in more detail, read our post on how OGDs regulate the flow of your goods.
Determine the Tariff Classification, Rate of Duties and Taxes, Value for Duty
Once you have ensured you can import your goods into Canada, you must determine the:
- Tariff classification;
- Applicable tariff treatment;
- Rate of duty; and
- Taxes payable when importing goods.
The fact that every commodity that clears through Customs must have an accurate and correct Harmonized System Classification (tariff classification) applied to it is especially important. This classification comes in the form of code which identifies the item and rate of duty to CBSA.
While correctly classifying your commodities is key to avoiding under or over payment of duties and possible, it also reduces the possibility of Administrative Monetary Penalty System (AMPS) penalties, or seizure of your goods.
Visit the Canada Border Services Agency website to determine how to calculate duties and taxes.
Determine if you can Take Advantage of a Free Trade Agreement
Free Trade Agreements are agreements made between countries that desire to reduce trade barriers on goods manufactured in their respective countries. They allow for preferential duty treatment to items that qualify from certain countries. They can also impact exports by reducing or eliminating duty rates for qualifying goods.
Canada has free trade agreements with several nations. For more information on the respective Canadian Free Trade Agreements, visit the Trade Negotiations and Agreements section of the Department of Foreign Affairs and International Trade Canada.
Understand Your Import Responsibilities and Opportunities
We highly recommend that you gain a good understanding of customs regulations and requirements. Enrolling in trade compliance education will teach you:
- What documents need to be created (and how to spot an error if created by a vendor)
- Key trade topics such valuation, tariff classification, free trade agreements, emanifest, etc.
- How to manage trade compliance
The substantial knowledge you receive help you in understanding logistics and getting a feel for how transactions move through the regulatory process.
Register Your Business for Import or Export
Before you can import into Canada, you must obtain an import/export account (commonly referred to as an import/export license). To do that you must complete several registration and licensing requirements with municipal, provincial and federal governments early in the process.
Once you complete these steps, you will have the necessities such as a Business Number (BN), registered business name and a GST/HST account. Your Business Number is your single account number for dealing with the federal government regarding taxes, payroll, import/export and other activities.
Canada Revenue Agency’s Business Registration Online is the one-stop-shop for all of your federal business registration requirements.
- Call 1-800-959-5525; or
- Visit Business Registration Online
Determine How You Will Submit Your Entry Declaration to Customs
Businesses have many options to communicate import declarations to CBSA. Some are:
- Using a courier broker of freight forwarder who both ships your goods and submits the customs declaration on your behalf.
- Creating an in-house team that submits it directly from your business to Customs via Electronic Data Interchange (EDI).
- Doing it yourself; arriving at the port of entry to meet your goods and make the declaration.
- Hiring a customs broker. A customs broker can help you:
- Obtain shipment and contract documentation
- Review the prepared documentation for completeness and compliance with customs regulations
- Prepare and submit a declaration to Customs on your behalf at the port of arrival
Aside from submitting a declaration on your behalf, customs brokers can also help your company reduce costs, improve efficiency, and mitigate risks related to cross-border trade.
Most companies who import goods into Canada find that it is far too expensive and time-consuming to travel to the facility or port of arrival and await clearance, prepare a formal declaration, pay the charges due and then anticipate delivery of their product. Even more expensive is an in-house team.
It can be worth the investment up-front, to at least consult with a customs broker in the planning stages, so that you can have a clear understanding of your risks and proper tariff classifications.
Determine How You Will Pay Duties and Taxes
Just like there are many options for submitting your entry declaration, there are a couple of options for paying duties and taxes. You may:
- Prepare the release and accounting documents yourself, or
- Hire a licensed customs broker to do so on your behalf and therefore, services fees would apply
There are three different payment methods available:
- Direct security – this is where you would have your bond and security posted with Customs, but this may not be a viable option if you are a new company. When this is in place, you will pay Customs on the last business day of the month for amounts owing on your statement. If payment is late, penalties will apply and possible suspension of deferred payment privileges.
- Goods and services tax (GST) direct – Once you are a GST Direct Registrant, you can opt to pay Customs on the last day of the month, but without posting a bond and obtaining your security. This does not cover duty, only GST. The same conditions apply as above for late payment.
- Use of a customs broker’s bond – Customs brokers already have bonds in place with Canada Customs, but would charge a fee for the use of their bond. You may need to post a deposit or meet other criteria for this to happen. If you think this is the right option for you, speak to a customs broker to find out their requirements.
Plan for the Shipping of Your Goods
Another important aspect is arranging transportation of the goods. At this stage, you will need to determine how involved you want to be in the process of getting the goods from source to destination. Here again, you have many options including using the services of:
- A freight forwarder who will manage the entire transportation process including multiple carriers and modes.
- Carriers directly. If your shipment is only using one mode of transport, this can be an easy option to manage.
Additionally, you will need to identify the mode of transportation that will be used. Various modes area available including highway, marine, rail, air, postal or courier service. Choosing a mode will lead you into selecting the best method of shipping and therefore communicating with the transportation company on cross-border requirements.
Identify Your Terms of Sale
It has never been easier to find sources for goods worldwide and then sell directly to your clients. However, before you embark on this journey, you will need to know the rules of international commerce otherwise known as Incoterms®. It is important to identify your terms of sale as they clarify your shipping responsibilities and iron out your landed costs.
To learn more about Incoterms®, visit the Incoterms® Rules for a short description of the 11 rules from the Incoterms® 2010 edition.
Build a Customs Compliance Program
Especially relevant is the need to build a customs compliance program that works best for you. The key to maintaining customs compliance of your business is to be informed. It is good practice to know how customs regulations apply to your business. While customs brokers can review your business activity, assuming that do so often is an oversight by importers. Therefore, it is important to designate a company representative to monitor Customs activity and work with your customs broker directly. This person would monitor Customs process, stay up to date with changing regulations and prepare to withstand a Customs audit.
In addition, make sure your internal procedures, documents, tariff classification, free trade agreements, valuation, and origins are in compliance with Customs requirements. Also, understanding the links between your internal operations, accounting and Customs procedures can help address any shortcomings. Part of a winning formula is to ensure that your business plan includes a strategy for monitoring compliance over time.
In conclusion, as you prepare to import into Canada, know that there are many resources available to help you. We hope this information will help you plan for a successful start to your entrepreneurship journey.
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