Archive for the ‘Customs Brokerage’ Category


 

Attn Online Shoppers, A De Minimis Increase Means More Duty-Free Importing

De Minimis Increase

Do you shop online from retailers outside of Canada? Have you ever ordered something online that arrived alongside a sizable Customs duty and tax bill? If so, then the North American Free Trade Agreement (NAFTA) renegotiation may affect you. How? The answer is in Canada’s de minimis threshold. What is the de minimis threshold and why does it matter to Canadian consumers? We have unpacked the details below.

What is De Minimis Threshold?

The de minimis level is the threshold which a package sails through the border with neither tax nor duty applied. In other words, Canada’s de minimis threshold is a duty-free threshold on imported goods.

Up to What Value Can be Imported Duty-Free Under De Minimus?

Under the Canadian Postal Imports Remission Order and Courier Imports Remission Order, the current de minimis level is $20 CDN. Therefore goods with values equal to or less than $20, would not be subject to duties or taxes upon import.

De Minimis and the NAFTA Renegotiation

The U.S. Administration released its wish list for the overhaul of NAFTA in mid-July of this year. This wish list is long with the Canadian de minimis threshold appearing high on the list.

U.S. based couriers and online merchants have been pushing hard for a de minimis level increase. They would like it to be increased from $20 to at least $200 CDN. The U.S. may likely want Canada to raise the threshold to one similar to their $800 USD level.

What is the Case for a De Minimis Increase?

De minimis is a legal maxim: de minimis non curat lex. This translates to the law does not concern itself with trivial things. In this context, de minimis regimes are intended to streamline border clearance. The rationale is that the administrative burden and processing cost does not justify collecting taxes or duties on very small shipments. In other words, if it costs more to collect the duty and tax than the amount collected then it is a financial and administrative burden to the government.

The Canadian Government currently allows goods valued at $20 to enter the country either by mail, courier, or transported by distributors without charging duty or taxes. This Canadian de minimis threshold has not changed in over 35 years. It is one of the lowest in the world. Many other countries have raised their thresholds in response to the growth of e-commerce.

Until last year the U.S. de minimis limit was $200 USD. In March 2016, U.S. President Barak Obama quadrupled the limit to $800 USD. This meant any Americans ordering from a retailer outside of the U.S. could expect any package worth less than $800 U.S. to arrive promptly without interference at the border. Neither would they receive an additional bill to cover duties and taxes and any other fees to process those duties and taxes.

All indications suggest that the Canadian consumer is on board with raising the de minimis threshold. There are many reasons why Canadians shop online, and they are no different than anywhere else in the world. They include the convenience of technology, accessibility, a wider selection of goods, targeted marketing, and sales promotions. Raising the threshold would save the Canadian consumer money they would normally pay for duties and taxes and processing fees.

What is the Case for the De Minimis Threshold to Remain Unchanged or Kept Low?

The de minimis value increase is already a hotly contested issue with retailers in Canada. Domestic retailers are concerned that a higher de minimis threshold would place them at a competitive disadvantage. This is because they would be required to levy Goods and Services Tax (GST) and Harmonized Sales Tax (HST) on the goods they sell. However, foreign retailers would not. Canadian merchants would be required to collect sales taxes on competing items sold in Canada whether in store or online and also pay duties and taxes on the imported goods.

The U.S. merchants on tax alone would have an advantage over Canadian merchants ranging from 5% in Alberta to 15% in Atlantic Canada. The Retail Council of Canada argues the U.S. online merchants would experience a 12.3% (at least) price advantage over the Canadian merchant in Canada.

The Retail Council of Canada fears that an increase in the de minimis threshold would lead to a massive increase in cross border orders with a negative impact to retailers in Canada. U.S. online merchants may start to offer free shipping as they do their U.S. customers. The investment made by retailers in Canada could be in jeopardy impacting wage jobs in IT, logistics, and distribution. The Council argues “Allocation of capital for U.S. and other international firms operating in Canada would be difficult to persuade their headquarters to invest in Canadian online offerings or bricks and mortar where customers could be easily serviced online from outside Canada.”

Some argue that the Canadian federal and provincial governments would experience a significant loss of tax and duties. The Retail Council of Canada argues that Canada and the U.S. are not on a level playing field when it comes to the acquisition of online customers. There is no tax advantage created for inbound shipments as the U.S. does not have a federal sales tax. The U.S. does not collect state and local sales taxes at the border or for interstate shipments. Also, the U.S. dominates its online retail space; with only 22% of the U.S. customers reporting to have purchased from a non-U.S. seller. By comparison, 67% of Canadians report having made online purchases in the U.S.

The recent Auditor General of Canada Report concluded that the Canadian federal government is spending more money collecting duties and taxes on shipments than those duties and taxes are worth. Simply put the government spends two dollars to collect one dollar.

The C.D. Howe Institute released a report in 2016 stating the Federal Government would save $161 million per year by raising the de minimis threshold to at least $200. The report also stated there would be a net positive benefit to Canadian consumers, governments, and businesses combined of $648 million. The C.D. Howe Institute is an independent nonprofit research institute in Canada. They are considered one of Canada’s influential think tanks on essential economic policy.

What Happens Next?

Canadian consumers appear to be on board with raising the de minimis threshold. According to the Nanos Research Poll, 76% want it raised to at least $200. Thousands have also signed a petition organized by the Canadian American Business Council pushing for change.

What will the Federal Liberal Government do? Well, we will have to wait and see for when NAFTA renegotiations conclude.

Do you have a questions or comments regarding Canada’s de minimis threshold? Share them in the comment section below and I will be happy to respond.

 

 

 

 

 

 

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Why Do I Need an IRS Number When Importing Into the U.S.?

{This post was last updated on August 9, 2017}

You have made your sale, shipped the goods to the U.S. buyer, and the shipment is on its way to the border. And then, without warning, the goods get stopped at the port of entry, and the customs broker for this shipment requests an IRS number. At this point, you are likely wondering what an IRS number is and why it’s needed. To help you understand, let’s dive into this scenario a little deeper.

What is Internal Revenue Services (IRS) Tax Number and Why is it Required?

First off, all goods entering the U.S. from overseas are considered Imports and U.S. Customs and Border Protection (CBP) must approve all Imports for entry. CBP requires documentation which includes shipment details such as the identification of the Ultimate Consignee. An Ultimate Consignee is a person, party, or designee that is located in the U.S. and will receive the shipment (which is usually the buyer of the goods). An Internal Revenue Service (IRS) number, is used by CBP to identify the Ultimate Consignee.

There are two types of IRS numbers:

  1. Employer Identification Number (EIN): Issued to business entities
  2. Social Security Number (SSN): Issued to individuals

 

Without an IRS number, CBP does not know who the Ultimate Consignee is and therefore will not accept the shipment into the U.S.

U.S. Customs states the following.

 

(Source: CUSTOMS DIRECTIVE NO. 3550-079A )

 

Will One IRS Number Cover a Host of Different Goods Sold to One Consignee?

The IRS/EIN or SSN is specific to the Ultimate Consignee as the IRS issues these numbers directly to the company or individual. Therefore, if someone in the U.S. buys a host of products from you, you would declare the IRS number for that buyer on the entry declaration to U.S. Customs.

If you have more than one buyer, then it is best to make a declaration per transaction and declare the IRS number for each buyer in each transaction.

My Shipment DID Have an IRS Number. Why Was it Stopped?

If you run into this scenario, and your import documentation included an IRS number, it could be for one of two reasons. First, the Ultimate Consignee of the shipment had never purchased goods from a foreign party and therefore is not in U.S. Customs database.

Another likely culprit for this delay could be a deactivated account. Deactivation happens when more than a year has passed since the Ultimate Consignee last received an import.  

If the IRS number is not on file or has been deactivated by U.S. Customs, then it will need to be added to their database by filing a Customs Form 5106.

What is a Customs Form 5106?

A Customs Form 5106 is used by U.S. Customs to input the name, physical address, and IRS number of the Ultimate Consignee into their database.  The Customs Form 5106 must be on file for all consignees at the time of entry.

Is a 5106 Required for Every Shipment I Send to the U.S.?

U.S. Customs states that “An importer identification number shall remain on file until one year from the date on which it is last used on Customs Form 7501 or request for services.” This means that as long as the Ultimate Consignee continues to receive goods on a regular basis, this form will only have to be completed once.  If their 5106 importer record is not used for over a year, then they will have to reactivate their number.

How Can I Determine if the U.S. has a Customs Form 5106 on File for the Consignee/Buyer?

Your customs broker can query the Ultimate Consignee information with U.S. Customs and advise you if they have an active 5106 on file.   This is a simple, and proactive step that can save you a lot of hassle.

How Do I File a Customs Form 5106?

If a 5106 is not on file,  you need not worry as your customs broker can supply you with one. You can then ask your buyer to fill it out. One you have received it back from your buyer, you can provide it to your custom broker, who will then submit it to Customs. CBP will then add it to their database.

In summary, if you are selling to U.S. buyers from outside of the U.S. and you are responsible for declaring the goods at the port of entry, you must ensure your buyer has an IRS number. If they do not, work with your customs broker to get one. We are here to help!

 

 

What to learn more about importing into the U.S.?

Get a comprehensive understanding of the process involved with our webinar on U.S. Importing for Beginners [Part 1] (just so you know…it’s free!). Take your learning a step further by attending the U.S. Importing for Beginners [Part 2] webinar and delve into the details previously touched upon in part one of the series.

 

Do you have questions or comments regarding importing to the U.S.? Please leave them in our comments section below and I will be happy to provide an answer.

 

 

 

 

 

6 Methods of Determining Customs Valuation

Six Methods of Determining Customs Valuation

 

 

 

 

 

 

 

 

 

 

 

Are you uncertain of how to properly declare the value of your goods when importing into Canada? You are not alone, many importers are. This lack of clarity is partly due to the many rules and factors when determining value for duty. With an expectation to be compliant,  customs valuation is one of the three main targets for a Canada Border Services Agency (CBSA) audit. Unfortunately, we see many importers spending the least amount of attention to this area. Valuation can be an intricate area to navigate if your foreign purchases involve situations which could change the declared value to CBSA.

So, let’s take a look at the 6 Methods of Determining Customs Valuation by first understanding what valuations are.

What is Valuation?

Valuation is the determination of the correct value of goods. CBSA requires all goods imported and declared into Canada have a value for duty which is the base figure on which you must calculate the duty and taxes you may owe the CBSA on your imported goods.

With items like samples, replacements, warranty items, short-shipped goods, you are still required to declare a fair market value although in the end payment of duties and taxes may be unnecessary.

How is Customs Value Determined?

The Customs Act identifies six methods of customs valuation.

The World Trade Organization’s Valuation Agreement is the basis of the requirements of each of these methods. These rules ensure the value of the imported goods are in accordance with commercial reality, and they prohibit the use of arbitrary or fictitious customs values.

 

 

 

 

 

 

What is Transaction Value?

Importers should use this method when determining the value for duty on the price paid or payable for imported goods with consideration to certain adjustments. This method is the most commonly used. When selling goods for export to Canada to a purchaser in Canada, the Transaction valuation applies. We have outlined the difference between the price paid and payable below:

Price Paid is the total of all payments made directly or indirectly by the purchaser to the vendor.  Price Payable, however, is the total of all payments that are owed and made directly or indirectly by the purchaser to the vendor.

You must use the transaction value method whenever possible to determine the customs value of imported goods.

What is Transaction Value of Identical Goods?

When you cannot use transaction value, you must use an established value for duty of identical goods. Identical goods are considered the same in all respects as the goods being appraised. They have one exception however and that is for minor differences in appearance. These difference cannot affect the value of the goods. For goods to qualify, production would have to be in the same country as the identical goods.

What is Transaction Value of Similar Goods?

When you cannot use transaction and identical goods, you must use an established value for duty of similar goods. For goods to qualify, the value of goods must be:

  • Closely resembling the similar goods
  • Capable of performing the same function
  • Commercially interchangeable
  • Produced in the same country and by the same manufacturer as the similar goods

What is Deductive Method of Valuation?

If none of the above methods apply, the deductive value method is the next method to consider. The basis of this method is on the Canadian importers most common selling price (per unit) of the goods sold to Canadian customers.

What is Computed Method of Valuation?

The computed value is the cost of production, profit and general expenses of the imported goods. These must be realized by producers in the exporting country when selling the same type of goods to Canadian importers.

What is Residual Method of Valuation?

The residual method does not identify specific requirements for determining a value for duty. Instead, the value is based on one of the other methods (considered in sequence). It also requires the least amount of adjustment. The value must be fair market, and reflect commercial reality.

In the end, the final value for duty can also be influenced by:

  • The relation between the parties involved.( i.e. a related buyer and seller)
  • Condition where the goods were provided to the Canadian consignee at no charge (i.e. consignment)
  • Allowable additions or deductions to the value of the goods
  • Used goods
  • Goods not sold in Canada (i.e., for rent or lease)

Now that you understand the 6 different methods of determine value for duty, the next step is to learn how to calculate your value for goods and why it’s important to get it right. Receive in-class training from one of Sr. Trade Advisors. To be notified of the next Customs Valuation seminar, you can subscribe to our mailing list below. 

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If you have reason to believe that you have valuation situations which have the potential to raise flags during an audit leave a comment below and I will be happy to reply.

 

10 Easy to Follow Steps to Importing Into Canada for Entrepreneurs

Image: 10-Easy-to-Follow-Steps-to-Importing-into-Canada-for-EntrepreneursThere 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.

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:

  1. 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.
  2. 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.
  3. 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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Enjoy Duty-Free Imports With A Free Trade Agreement

Duty Free Free Trade

 

With relative ease, you can benefit from free trade. Free Trade Agreements allow you to import certain goods duty-free or at a reduced customs duty rate with participating countries.  To determine if you can benefit from one, let’s first take a look at the definition of a Free Trade Agreement (FTA).

What is a Free Trade Agreement?

Free Trade Agreements are agreements made between countries who want to reduce trade barriers on goods manufactured in their respective countries. Canada has entered into agreements with several countries including Colombia, Peru, Panama, Chile and most recently the European Union to name a few.

Free Trade Examples

Now that we understand the definition, let’s take a look at some examples.  A popular agreement is the North American Free Trade Agreement (NAFTA) which includes Canada, the United States, and Mexico. A more recent example is the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union.

4 Considerations When Evaluating Free Trade Benefits

 Now that we understand what a trade agreement is and examples of how they are used, lets take a closer look at the responsibilities you would be assuming.

In the case of NAFTA, eligible goods must be:

  • Manufactured in one of the respective countries (Canada, the U.S. or Mexico)
  • Qualify under the Rules of Origin
  • Shipped directly from the foreign country to the importing country (Canada, the U.S. or Mexico)

The following 4 areas require additional consideration:

1. Ensuring the items are shipped directly from a foreign country

In some instances, it is necessary to move the goods through a third country. A transportation scenario like this can still fall within the Free Trade Agreement rules by meeting certain conditions. In these instances, if the importer wishes to claim reduced or duty-free benefits, they will need to have proof that the goods were moved “in bond” through another foreign country and were never entered into the commerce of that country.

2. Accurate application of the tariff classification

Also of note is the common assumption that all Free Trade Agreements imported goods are all duty-free. This unfortunately, is incorrect.

Although some goods are entirely duty free, others are not.  Establishing the rate of duty for an imported good depends in part on determining the proper H.S. Tariff Classification. This classification must be accurate.  Furthermore, Tariff classification can be very complex and speaks to the essential character of the imported article including the following:

  • Description
  • Composition
  • End use

Additional questions about the product will need to be answered once the essential character has been determined.

To learn more about The Harmonized Commodity Description and Coding System sign up for our next H.S. Tariff Classification Workshop.

3. Comply with rules of origin

Another vital aspect of compliance are the Rules of Origin.  For example, if the product you are importing has any foreign content you must ensure it complies with NAFTA’s Rules of Origin to be eligible. Some goods containing foreign materials may qualify depending on the rules for those tariffs or the Regional Value Content (RVC). 

4. The party completing the documentation has sufficient knowledge

A further area of consideration relates to the party responsible for completing the shipment documentation. It is imperative that your foreign supplier has sufficient knowledge of the goods to support the completion of the Free Trade Agreement you will be using. Using the example of NAFTA, the person completing and signing the NAFTA Certificate of Origin is declaring that all statements are true and accurate. In other words, this person is attesting to due process and confirms that the goods listed qualify. 

Additionally, while the foreign supplier is responsible for supplying the respective FTA Certificate of Origin, the importer of record is ultimately responsible for the payment of duties, taxes and penalties if at a later date the goods are discovered not to qualify.

If you have reservations regarding the validity of a free trade certificate, you may better choose to pay the regular rate of duty.

In conclusion, not all Free Trade Agreements are the same. They provide importers and exporters  advantages such as duty-free or reduced customs duties. The best way to maximize the financial benefits of using an FTA is to ensure you understand your responsibilities.

Looking to learn more about how your company can benefit from free trade? Sign up below to be notified of our complimentary NAFTA for Beginners webinar.