This Quick Guide to Customs Valuation introduced the rules and principles governing the value for customs purposes.
Customs Valuation Overview
Customs valuation is the process of determining the value of imported goods. This, for the purpose of assessing customs duties and taxes. The value of the goods is the basis for calculating the amount of duty and tax. Customs valuation is therefore a central part of customs compliance.
Customs valuation is an important part of international trade. It ensures that customs duties and taxes are applied fairly and accurately to all imported goods. It is also a key factor in determining the competitiveness of a product in the global marketplace.
The World Trade Organization (WTO) sets out the rules and guidelines for customs valuation under the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (GATT). The agreement establishes a set of methods for determining the value of imported goods.
Customs Valuation Methods
The Customs value of the goods is the result of a calculation following one of 6 methods. Similar to the General Rules of Interpretation (GRI) for Customs Classification, Valuation methods apply in a hierarchical. The selection of Valuation methods starts at Method 1. If Method 1 can’t be applied, then Method 2 must be considered, and so on until determining the appropriate method.
For instance, under Method 1, the price must be “actually paid or payable” so it won’t apply to free samples. It only applies to transactions where there is a payment in exchange of the goods. Free samples valuation will be according to Method 2 or Method 3.
Valuation Method 1 The Transaction Value
The first and primary method of customs valuation is the transaction value. This is the price actually paid or payable for the goods when sold for export, adjusted, where necessary. The transaction value consists of:
- The price actually paid or payable for the goods adjusted, where necessary;
- The total payment made or to be made by the buyer for the imported goods. It includes all payments made or to be made as a condition of sale of the imported goods.
- The seller is not related to the buyer or the seller or the relationship did not influence the price.
Valuation Method 2: The transaction value of identical goods
The price of identical goods sold in the same quantity and at the same time and place as the imported goods.
Valuation Method 3: the transaction value of similar goods
The price of similar goods sold in the same quantity and at the same time and place as the imported goods.
Valuation Method 4: The deductive method
The value based on the unit price at which the imported goods, or identical or similar imported goods, are sold within the country in the greatest aggregate quantity to persons not related to the sellers;
Valuation Method 5: the computed value
The computed value consists of the sum of:
- The cost or value of materials and fabrication or other processing employed in producing the imported goods;
- An amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of export for export to the UK;
- the cost or value of the elements to be added to the valuation of the transaction value;
Valuation Method 6: Fall-Back method
The Fall-Back method is based of data available in the county, using reasonable means consistent with the principles and general provisions of all of the following:
- The agreement on implementation of Article VII of the General Agreement on Tariffs and Trade;
- Article VII of the General Agreement on Tariffs and Trade,
- The Customs Code.
Impact of Customs Valuation on the business
Applying the correct valuation method and identifying the costs subject to duty and those that are not can result in some substantial duty savings.
The use of cost accounting might be necessary to identify the costs to be included in the valuation of the goods. As well as supporting the valuation decision during a customs audit.
It might necessary to track costs not included in the price of the goods to ensure compliance with the valuation rules. For instance, royalties, that are subject to import duties, are often invoiced separately once a year by the supplier. This cost is therefore not visible on the invoice for the goods at the time of the clearance.
If you need help to determine the valuation method of your transactions, do get in touch. There’s no cost to exploring your options and solutions. Get in touch t info@alegrant.com to arrange an informal chat to discuss your valuation methodology.
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