One of the biggest challenges for importers is clearing customs for their products once they arrive in their home country. This guide will give a solid overview of how to clear customs into most countries, including Canada and the United States.
I am not a customs broker; however, I've imported hundreds of shipments over the years and can provide some down-to-earth advice.
There are a number of excellent guides produced by countries for importing commercial goods into their country. These include:
We also have an excellent guide on How to Import from China.
Related Podcast: Episode 260: Ecommerce Accounting Essentials for Online Sellers
- What is Clearing Customs?
- What are HS Codes and How Do You Determine Them?
- Customs Clearence Paperwork
- Paying Duty and Taxes on your Product
- Other Information Required in a Customs Form
- Presenting Your Paperwork and Finally Clearing Your Goods
- Should You Use a Customs Broker
What is Clearing Customs?
Clearing customs is two-pronged. It involves preparing the necessary paperwork to import your products and also paying any applicable duty/tariffs that need to be paid. Each country has an agency to facilitate this. In Canada, it is the Canada Border Services Agency(CBSA) and in the United States, it isU.S. Customs and Border Protection (CBP).
It's pretty straightforward for the most part. But some products may also require you to submit additional, required documentation (normally related to safety).
When your products arrive into your home country (for example, via a seaport) they will not be released to you until the appropriate paperwork is filled out, along with paying any necessary duties.
The import procedure should be fairly analogous for anyone who has ever travelled 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 paperwork is slightly less user-friendly.
The De Minimis Level
Almost all countries have something called a de minimis level. This means that any imports below a certain dollar value are not required to have formal customs clearance and/or have duties/taxes paid.
In most countries, this level is under $100. However, in Canada, this level is now $150 and in the United States, it is a whopping $800.
What are HS Codes and How Do You Determine Them?
The single most important thing that all importers must know when importing is the 10-digit Harmonized Item Description Code, better known as an HS Code. Almost every time you import items you will need to know the HS code of your item.
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 product imaginable. Almost every single country in the world uses this system.
Product classifications do not change (for the most part) from country to country. The only thing that countries change is how much duty they will charge. For example, we import a particular bag from China for off-road vehicles. In Canada, the duty rate is 10% but in the United States, it is 0%.
Below is an example of a classification for different types ofgolf shoes.
The HS Code breaks down as follows:
7318.104.22.168 << This is the complete HS Code
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 another country's 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's also something called Most Favored Nations which we'll get into below.
Pro-Tip: Simply ask your supplier what the HS Code of your item is – they'll probably know!
There are a number of good tools for determining your product classification code. The United States has a fairly handySchedule B Search is also a 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.
What Happens If More Than One Code Describes Your Item?
Are you finding that more than one classification code describes your item? You're not alone!
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 should apply?
Often you have to make a judgement call. If in doubt, choosing the higher duty classification will save you any potential negative ramifications from underpaid duties.
Your other alternative is to seek out a professional customs broker classification. You can also request an official classification from the government customs agency. Both will normally cost you some nominal fee (although many customs brokers will classify items free of charge for current clients).
Remember that most countries' customs procedure is based on a ‘random audit' system justlike your taxes.Deliberatelymisclassifying items will work most of the time, but when you do get caught the fines can be very punitive.
Customs Clearance Paperwork
When importing goods, almost all countries require, at a minimum, two pieces of paperwork:
- A commercial invoice from your supplier
- Some official customs form
A commercial invoice is simply an invoice your supplier will give you itemizing each product you ordered and how much you paid for it.
This is nothing special and it can be a PDF, an Excel document, or handwritten on a napkin. If you're importing from China, your supplier should provide this invoice to you without you even asking.
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. In the United States, it is called aCBP Form 7501 “Entry Summary”.
These forms may look complicated but are actually only looking for 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 (such as the FDA in the case of America). 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 any special documentation. Call your local commercial customs office and tell the official exactly what product you are importing (ideally with an HS code) and they will tell you what is required.
A packing list is simply 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.
Paying Duty and Taxes on Your Product
Your HS Code will determine the rate of duty on your product.
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 0-20%.
The second determination of how much duty you will pay is the country of origin for your product. Most countries fall under a somewhat misleading classification ofMost Favored Nations (including China for most countries). These countries will all have the same duty rate applied.
Refer back to the HS classification for golf shoes. You'll see it has three columns for the three classifications a country can fall under.
The exception to Most Favored Nations are countries that have other trade agreements (such as NAFTA in North America) or enemies, such as North Korea (in these cases, duty rates are often 100% or more).
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.
Using Import Records to Find and Vet Suppliers and Snoop Competitors
One of the best things an importer can do is to use import records to help them find products to import and vet suppliers.
As mentioned, in America, import and export records are public information, however, the government does not catalog or give easy access to this information. However, there are tools that do allow you to easily search this information, the most popular and cheapest being Jungle Scout (others include Import Genius and Panjiva).
These tools allow you to:
- Find out what Chinese supplier a competitor is using (great for finding products)
- See how much a supplier exports
- Find out what suppliers export specific products
See our article A Secret Weapon for Doing Supplier Research
Other Information Required on a Customs Form
Outside of the HS Code, most of the information required on a customs declaration form is rather straightforward. Things like your company name and address, date of import, the 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).
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 points of entry, 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 cards and many will only accept cash or cheque for payment (ask in advance).
Paying your duties is generally the last step before your goods are released to you. Once they are removed from bond, 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.
Should You Use 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, it is not much different than using a post office. Clearing customs is not dissimilar to coming back to airport customs after travelling 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.
- Signed invoice.
- Packing list.
- Bill of Lading or Delivery Order/Airway Bill.
- GATT declaration form duly filled in.
- Importers/CHA's declaration.
- License wherever necessary.
- Letter of Credit/Bank Draft/wherever necessary.
- Insurance document.
- Canada is Second Largest U.S. Import Supplier.
- Obtain Your PAPS Number.
- File the Correct U.S. Customs Forms.
- Import Duty Rates Must be Correct.
- Your Canadian Goods May be Duty Free.
- Connect With a Customs Broker.
There is no legal requirement for you to hire a Customs Broker to clear your goods. However, many importers opt to do so for the convenience. Customs Brokers are licensed by U.S. Customs and Border Protection (CBP) to conduct CBP business on behalf of importers.What are the requirements for importing into the United States? ›
- Commercial Invoice (Invoice from seller to buyer)
- Packing List.
- Bill of Lading.
- Entry Manifest (CBP Form 7533) or Application and Special Permit for Immediate Delivery (CBP Form 3461)
- Evidence of Bond.
- Entry Summary (Form 3501)
- Import Declaration.
- Bill of Lading (B/L) or Air Waybill.
- Packing List.
- Import License (if applicable)
- Certificates of Origin (if applicable)
- Other relevant documents such as catalogue, product ingredients, etc.
- Commercial Invoice. This document is used for foreign trade. ...
- Packing List. Provided by the shipper or freight forwarder, the packing list may be used by customs to check the cargo. ...
- Bill of Lading (BOL) ...
- Arrival Notice.