Customs Value and Duty Calculation: Base, Adjustments, Rates

Customs value serves as the base for calculating customs duties and, to a large extent, import VAT. It is not systematically the price shown on the commercial invoice: it is a value reconstructed under rules harmonised worldwide by the World Trade Organization's Customs Valuation Agreement.

In the European Union, these rules are incorporated into the Union Customs Code, Regulation (EU) No 952/2013. The main method, known as the transaction value, starts from the price actually paid or payable for the goods sold for export to the Union, then applies a series of adjustments.

The price invoiced by the factory is not always enough. International freight and insurance up to the point of entry into the Union are added to the customs value, if not already included in the price, which depends directly on the Incoterm negotiated. An EXW or FOB quote shows freight to be added; a CIF quote already includes it.

Other elements are added when they exist: selling commissions, royalties or licence fees related to the goods when their payment is a condition of the sale, the value of moulds or materials supplied free of charge or at a reduced price by the buyer for production, and packing costs.

Conversely, certain costs are not part of the customs value, even if they appear on the same invoice. Buying commissions, paid to an agent representing the buyer, are excluded when the contract clearly shows this. Transport costs incurred after entry into the Union, such as final delivery to your warehouse, also stay outside the base if the Incoterm separates them from the export price.

Interest for deferred payment, when shown separately and reasonable, can also be excluded under conditions. These distinctions must be proven with separate documents: an invoice that lumps everything into a single line complicates the declaration.

Reproduction rights within the Union for an imported product, when invoiced separately, also escape the customs value under certain conditions. This distinction mainly concerns products sold under a brand or design licence, where the reproduction royalty is not confused with the price of the goods themselves.

Once the customs value is established, the duty rate that applies to it depends on the goods' customs code, not on their price. Each code in the Union's Common Customs Tariff carries its own rate, which can be zero, expressed as a percentage, or specific per unit or weight. A wrongly chosen code changes the rate, even if the value stays the same.

This rate is then added to any trade defence measures, anti-dumping or countervailing duties, which hit certain Chinese products and are also often calculated as a percentage of the customs value. Import VAT is finally calculated on a base that includes the customs value, customs duties and freight up to the final destination known at the time of import.

The origin of the goods also plays a role, independent of their value: a trade agreement between the Union and a third country can open up a preferential rate, sometimes zero, provided this origin is proven with a recognised document. Chinese goods assembled from components sourced elsewhere do not automatically benefit from that third-country origin.

Take an import FOB Chinese port: the factory invoice gives the price of the goods loaded on board. The customs value adds sea freight and insurance up to the European port of entry, based on the actual invoices for these services, not an estimate.

The duty rate corresponding to the customs code is then applied to this total to obtain the amount of duties. Import VAT is finally calculated on the sum of the customs value, duties paid and freight remaining to the final destination. Each step depends on the previous one: an error on the customs code or the Incoterm carries through the whole calculation.

When the factory invoice is denominated in yuan or dollars, conversion into euros is done at the official exchange rate applicable on the date set by customs regulations, not at the rate on the day of the order nor the one negotiated with the bank. A calendar gap between invoicing and declaration can therefore slightly change the final customs value.

Sorva, a brokerage and sourcing house, builds the customs value of each file from the right documents: factory invoice, freight quote, any contributions, based on the Incoterm negotiated by our Chinese-speaking team in Guangzhou. We also check the consistency between the customs code used and the product actually imported.

In most cases, you pay no fees: you open a file, we negotiate the goods for you, and we take a commission on their ex-factory value, with full transparency on the elements that then feed into the duty calculation.