What’s the difference between duties, tariffs and taxes? Are these terms interchangeable, or do they represent distinct costs? Beyond understanding these terms, knowing how to calculate the total cost, or landed cost, of your goods—including duties, transportation fees, insurance and other fees—is essential for accurately assessing profitability and avoiding costly surprises.
Whether you’re importing or exporting a finished product, or simply sourcing components from another country, failing to account for all of the costs involved can lead to unwelcome surprises. To help you take control of these costs and account for the changes ahead, this article will explain the terms you need to understand and also share how you can try our Landed Cost Calculator—making it easier to determine the true cost of your goods and ensure you’re making informed decisions.
What Are Duties, Tariffs and Taxes in International Trade?
Here is a breakdown of the fees to be aware of (some of these terms are often used interchangeably):
What Are Taxes in International Trade?
Taxes are charges imposed by governments to fund public services and infrastructure. In the context of international trade, taxes often refer to Value Added Tax (VAT) or Goods and Services Tax (GST) imposed on goods entering a country. For example, VAT is applied at various stages of production and sale in many countries, and even when a product benefits from duty-free status under a free trade agreement (FTA), VAT might still apply. Learn more about VAT in Exporters May Be Eligible for Import Tax Refunds.
What Are Duties in International Trade?
Duties are broader charges imposed on goods crossing borders, encompassing various types of taxes, including tariffs. Commonly referred to as customs duties, these fees are based on factors such as a product’s Harmonized Tariff Schedule (HTS) code and its country of origin.
Duties serve multiple purposes:
- Revenue Generation: Providing income for the importing country.
- Industry Protection: Discouraging imports of goods that compete with domestic industries.
Duties can be categorized as:
- Specific Duties: Fixed amounts based on measurable criteria like weight or quantity (e.g., $5 per kilogram).
- Ad Valorem Duties: A percentage of the product’s value (e.g., 10% of the invoice price).
Import duties are the most common and are levied by almost all countries. Export duties are less common and typically used by resource-rich countries to generate revenue from raw material exports. For example, some countries charge export duties on commodities like oil or minerals.
What Are Tariffs in International Trade?
Tariffs, a term often used interchangeably with duties, are specific taxes applied to imports from certain countries or product categories, typically during designated periods. Tariffs are highly political, often fluctuating based on trade negotiations and government policies. They are used to restrict imports from certain countries, protect domestic industries or retaliate in trade disputes.
For example:
- Currently the United States-Mexico-Canada (USMCA) agreement eliminates tariffs on most products traded between the U.S., Canada and Mexico. However, this may change with the incoming administration.
- Conversely, the U.S. imposes tariffs on certain products imported from China, with rates varying depending on the type of product.
Other Fees and Costs in International Trade
Whether duties, taxes, tariffs or simply fees, clearly there are numerous charges to be aware of before importing or exporting goods. Here are some specific types of taxes and fees you often hear about in international trade:
- Anti-Dumping Duties: Imposed on goods sold below fair market value to prevent unfair competition.
- Countervailing Duties: Levied to offset subsidies provided by foreign governments to their exporters, ensuring a level playing field for domestic producers.
- Demurrage: Fees charged when containers aren’t cleared from ports within the allowed timeframe.
- Customs Clearance Fees: Charges for processing goods through customs.
- Import Processing Fee (IPF): Covers administrative costs related to customs processing (known as Merchandise Processing Fee in the U.S.).
- Excise Taxes: Applied to specific goods like alcohol, tobacco or fuel, either on import or export, depending on the country’s regulations.
- Inspection Fees: Costs for mandatory inspections by government agencies (e.g., phytosanitary or safety inspections).
- Dangerous Goods Surcharge: Additional costs for transporting hazardous materials requiring special handling.
How to Calculate Duties, Tariffs and Taxes: Properly Classify Your Product
Accurate product classification under the Harmonized System (HS) is essential for determining the appropriate tariff and tax rates for your goods. Each item traded internationally is assigned a specific HS code, which customs authorities use worldwide to identify and assess duties and taxes on products.
The HS classification system is based on a standardized six-digit code, known as a subheading, that is consistent globally. However, many countries expand this number by adding additional digits to refine product categories further. These extended codes vary by country and may influence duty rates or other regulations.
Accurate classification is particularly critical when leveraging free trade agreements (FTAs). To learn more read:
Manually identifying the correct HS code for your product can be time-consuming and prone to error. Shipping Solutions Product Classification Software offers a faster, more efficient way to determine your product’s HS code, and it includes an HS Mapping tool to find equivalent 10-digit HTS codes for other countries. The software also displays default duty rates, helping you evaluate whether using an FTA is beneficial for your shipment.
Sign up for a free trial of our Product Classification Software here.
Understanding Landed Cost
Landed cost is the total cost of getting a product from the supplier to your doorstep, including all the expenses involved in shipping, customs clearance and taxes. It’s a critical concept for exporters and importers alike because it determines the true cost of goods—and whether importing a product is financially viable.
When calculating landed cost, you must account for:
- The purchase price of the product.
- Transportation costs, including freight and shipping.
- Insurance charges for protecting goods in transit.
- Customs duties, taxes (like VAT), and fees such as import processing charges.
- Additional charges, such as anti-dumping or countervailing duties, which may apply depending on the product and source country.
Failing to accurately calculate landed cost can lead to unexpected expenses, erode profit margins and even make a seemingly affordable product too costly to import.
The Landed Cost Calculator
To help exporters and importers get a clear picture of their total costs, we’ve developed the Landed Cost Calculator. It takes the guesswork out of estimating expenses by calculating:
- Import duties, VAT and excise taxes.
- Additional government fees.
- Transportation and insurance costs.
But that’s not all—it also allows you to compare costs across multiple sourcing options. For example, you can evaluate whether it’s more cost-effective to source a product locally or import it from China, Mexico or another country. By factoring in all associated costs, the Landed Cost Calculator ensures you make the best decision for your business.
Give it a try here, for free! Or let us show you how it works:
A Note on Incoterms
The Incoterms 2020 rules, published by the International Chamber of Commerce (ICC), are used in international sales contracts to define the responsibilities of buyers and sellers for delivering goods. These rules outline who handles specific aspects of the shipping process and at what point the risk shifts from the seller to the buyer.
For instance, the Incoterm Delivered Duty Paid (DDP) places the maximum responsibility on the seller, including covering shipping costs and import duties. This is the opposite of EXW, where the buyer bears most of the responsibility. The choice of Incoterm directly impacts how landed costs are calculated.
Understanding the various duties, taxes and fees involved in international trade is essential for setting accurate pricing. While all the considerations can seem overwhelming, we hope having the right tools in place—like Product Classification Software and a Landed Cost Calculator—will make a significant difference.
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