Last week, we discussed the difference between freight forwarders and freight brokers and how each of their services could be useful for your business. However, before starting any international commercial transaction, you must determine the value of your merchandise.

Accurately determining customs value is a crucial step for businesses engaged in international trade. Miscalculating this value can lead to delays, fines, or even legal disputes with customs authorities. 

As mexican customs brokers we have the expertise to determine their value, considering the calculation of duties and taxes on imported products. Getting it right ensures smooth transactions and compliance with regulations. 

In this article, we will explore the key components of customs valuation, how to calculate it correctly, and common errors to avoid so you can prevent unnecessary complications and ensure your shipments move efficiently across borders.

What is customs value?

Customs value is the monetary worth of imported products as determined by customs authorities, which serves as the basis for calculating duties, taxes, and other fees at the border. 

It is a critical figure in international trade, as it directly affects the import duties and taxes businesses must pay when bringing merchandise into a country.

The customs value is typically based on the transaction value —the price paid or payable for the products sold for export to the country of importation. However, other factors such as transportation costs, insurance, and handling fees up to the point of entry may also be included in the calculation.

If the transaction value cannot be determined, or customs authorities question its accuracy, alternative methods such as the deductive value, computed value, or fallback methods may be used to determine the customs value.

Ensuring the correct customs value is important for avoiding penalties and guaranteeing smooth merchandise processing through customs.

How to calculate customs value?

Calculating customs value involves several key components, as we mentioned, primarily based on the price of the products and other associated costs. The most common method for determining customs value is the transaction value method, which is the price paid or payable for the imported merchandise. Here’s a step-by-step guide on how to calculate it correctly:

1.- Determine the transaction value

The starting point for calculating customs value is the transaction value, which is the price paid or payable for the imported goods when sold for export to the country of importation. 

This is the most commonly used method and the foundation of customs valuation. The transaction value should reflect the actual price the buyer and seller agreed upon in their contract. However, the transaction must be a bona fide sale, meaning that it is an arms-length transaction, free from manipulation or conditions that could affect the price. 

Customs authorities expect transparency in this regard, so you need to ensure that the price reflects what is actually paid or payable by the importer, without hidden terms that could alter the value.

2.- Include additional costs (if applicable)

Sometimes, several costs may need to be added to the transaction value. These additional charges are essential because they reflect the true landed cost of the products. 

Freight or transportation costs are among the most important additions, especially when the buyer pays for the shipping. This includes all expenses for moving the goods from the seller’s premises to the entry point in the importing country.

Insurance costs for covering the merchandise during transit must also be included, as they contribute to the value of the shipment. Additionally, any handling charges incurred while moving the products to the importation point, such as loading or unloading fees, should be factored in. 

Finally, special fees, like commissions paid to brokers, provided not for purchasing agents, and royalties or licensing fees linked to the sale of the products may also be added to the customs value. These additions ensure that the customs value reflects the full cost of importing the goods.

3.- Exclude certain costs

Another thing to consider is that not every expense associated with an import transaction needs to be included in the customs value. It’s important to know which costs to exclude to avoid overestimating it. As this can result in paying more in duties and taxes than necessary. 

Post-importation costs, for instance, do not form part of the customs value. This includes costs like inland transportation within the importing country, as well as installation, assembly, and maintenance costs that arise after the products have been imported.  

Additionally, any duties, taxes, or charges incurred after the merchandise has entered the country, such as import duties and internal taxes, are excluded. Keeping these expenses separate ensures that the customs value remains focused on the costs up to the point of importation.

4.- Use alternative valuation methods (if necessary)

If the transaction value cannot be determined or is not acceptable (due to a lack of sales documentation, for example), customs authorities may use one of the following methods:

• Deductive value: Based on the resale price of the goods in the country of importation, with deductions for certain costs.
• Computed value: Calculated by adding the cost of production, profit, and general expenses.
• Fallback method: A flexible method that allows customs to determine a fair value using any reasonable means, based on available data.

Important tips

When calculating customs value, accurate documentation is key. Importers should ensure that all relevant invoices, shipping receipts, and agreements are clear and complete. Any errors or omissions in documentation could raise red flags with customs authorities and lead to delays or fines. 

It’s also crucial to understand the specific customs requirements of the importing country, as different countries may have unique rules or standards regarding customs valuation. 

By maintaining proper documentation and staying informed about local customs regulations, importers can ensure smooth customs clearance and avoid costly complications. That’s why we recommend you hire or partner with a customs broker to ensure the correct procedure on any international trade.

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