Understanding Customs Duties: Buyer or Seller Liability?

The responsibility for paying customs duties often depends on the terms of the transaction. This can vary based on whether the goods are imported for personal use, commercial purposes, or sold through e-commerce platforms. Let's explore the intricacies involved and clarify who ends up footing the bill.

Customs Duties: What Are They?

Customs duties, also referred to as import duties, are taxes imposed on goods that are imported into a country. These duties are levied by the national customs authority to regulate trade and generate revenue. The payment is made by the importer of the goods at the port of entry. Import duties are calculated based on the contracted purchase price of the goods, which is a key factor in determining the final cost.

Example Scenario: Costco and Samsung TVs

Imagine a scenario where Costco contracts with Samsung or LG to purchase 1000 TVs at a price of $400 each. Here’s a breakdown:

If Samsung agrees to pay the tariff, the cost of the tariff is built into the final selling price of the TV. In this case, each TV would be sold for $325 without the tariff. If Costco bears the brunt of the tariff, the cost of the TV would instead be $500 at the customs house.

In both cases, the wholesale price to Costco has increased by $75. This $75 cost will be passed along to the consumers, so the end price of the TV will be higher regardless of who initially paid the tariff.

Final Cost to Consumers

Regardless of who pays the customs duty, it ultimately gets passed on to the consumer through increased product prices. As a general rule of thumb, the price of imported products will rise by the percentage of the tariffs.

E-commerce and Personal Shipments

The responsibility for paying customs duties can also vary depending on whether the goods are being shipped for commercial or personal use.

If the seller is sending goods to a buyer in an e-commerce setting: The seller may either include the cost of the tariff in the product price or specify in their terms that the buyer will bear the cost. If the shipment is a personal item: The receiver is responsible for paying any customs duties when collecting the parcel.

Incoterms and Customs Duties

The terms of the sale agreement, particularly the Incoterms (International Commercial Terms), significantly influence who is liable for paying customs duties. Here’s a brief overview:

Buyer Responsibility: Under terms like DAP (Delivered at Place), the buyer is responsible for all import duties and taxes once the goods reach their country. Seller Responsibility: With DDP (Delivered Duty Paid) terms, the seller covers all costs, including customs duties, up until the goods are delivered to the buyer's location.

Both parties must clearly define these responsibilities to avoid any confusion and ensure compliance with customs regulations. Clearly stipulating the terms in the sales contract also helps mitigate disputes and reduces the risk of extra costs being incurred.

Conclusion

Whether the customs duty is paid by the buyer or the seller, it ultimately gets absorbed by the consumer through higher product prices. The incidence of customs duties depends largely on the specific terms and conditions outlined in the sale agreement. Understanding and clearly defining these terms can help ensure smoother international transactions and prevent any unwanted surprises for both buyers and sellers.