The recent trade wars and resulting rising costs of duties and tariffs are affecting companies that import and export goods. As a result, customs refunds are becoming hot topics at companies nationwide. Here are five ways companies can minimize duties and expenses imposed by U.S. Customs and Border Protection (CBP).
1. Duty drawbacks: Get refunds on imported goods
A duty drawback is a customs refund on goods imported into the United States.
There are two situations where an organization can claim a duty drawback:
- Export unused goods in the same condition as when the goods were imported
- Use imported goods to manufacture a product and then export that product
Pete Mento, managing director in global tax services at Crowe, explains that many companies don’t realize they have several opportunities to claim duty drawbacks. Transactions eligible for a customs refund have a five-year grace period from the date of exportation to claim a duty drawback. Technology delays often result in long waits for refunds even if an accelerated payment agreement exists.
2. The de minimis value: Stay within thresholds to avoid duties and taxes
“De minimis” is a Latin phrase used to refer to goods that are too small or trivial to justify a duty or tax. Each country sets its own de minimis value threshold for imported goods based on when it no longer is profitable to spend time and resources on low-value shipments.
In the United States, a company can import up to $800 worth of goods per day and not pay duties or taxes. This policy is particularly beneficial for e-commerce businesses looking to expand internationally.
3. First sale: Reduce duty rates by being selective with invoices
First sale is a rule that permits a U.S. company to change where it calculates the value of its goods.
Companies can take advantage of first sale if they bring goods into the country using a multilayered transaction. For example, a multilayered transaction would exist if a company in the retail industry wants shoes made and finds a foreign supplier that subcontracts the production of the shoes to a third party. The arrangement includes an importer (company in the retail industry), a middleman (foreign supplier), and a manufacturer. Two transactions would be involved: one between the company in the retail industry and the middleman and one between the middleman and the manufacturer.
First sale allows a U.S. importer to use the lesser of the two invoice values to determine the duty owed. Proof and documentation are needed for CBP to approve the duty owed.
4. Tariff engineering: Reclassify goods for more favorable rates
Tariff engineering is a method that allows companies to reclassify or restructure a good to get the lowest duty rate possible. Companies should look at the classifications with the highest duty rates and determine if their products are categorized correctly. Sometimes products can be changed slightly without altering their effectiveness. The altered products then might classify as products with a lower tariff rate. The key is to be involved as far upstream as possible with engineering and production departments.
5. Legislative relief: Get congressional approval to suspend tariffs
The Miscellaneous Tariff Bill Act of 2018 temporarily suspended tariffs. Here are a few questions companies should be asking themselves:
- Is there a product that we import from a country where there is no domestic competition?
- If so, do we pay $500,000 or less in duties on that product?
If the answer to these questions is “yes,” there’s a chance the product in question can be added to list of products for which tariffs are suspended. However, Mento cautions this is difficult work. Companies will have to come up with a new, incredibly detailed description of their goods. Additionally, the U.S. International Trade Commission will have to agree that the description is specific enough and that it fits the statistical analysis for the product to be included.