How to calculate import taxes
How to calculate VAT and import duty
Goods imported from outside the European Union must be cleared in order to be ‘nationalised’ (there are exceptions depending on the purpose of the import, i.e. the tariff to be applied, for example, inward or outward processing, temporary admission, etc.).
As a result of customs clearance, the importer will have to pay VAT and duty but what are the calculations for these taxes based on?
The origin of the goods and the Combined Nomenclature
The first step is to identify the origin of the goods and classify them according to the Combined Nomenclature of the TARIC system (the European Union’s integrated tariff system).
The tariff heading indicates the tariff and VAT percentages to be applied. It also indicates other requirements to be fulfilled such as proof of import licence, prior inspection services (SOIVRE: the Spanish official export inspection service, pharmacy, etc.) and presentation of original documents along with the SAD, etc.
The supplier will usually provide the tariff heading. However, we always recommend our importing clients to review the information provided to them with their customs agent in order to prevent clearance problems.
The customs value or Cost, Insurance and Freight (CIF) value of the goods
Once we have identified the origin and the tariff heading we can then determine the customs value or the CIF value of the goods. The tariff percentage can then be applied to this figure to obtain the import duty amount.
Using these values, we can then calculate the VATable amount which is the sum of the following:
- Customs value.
- Import duty.
- Port charges (T3).
- Unloading and handling (THC).
We can then apply the VAT percentage to the VATable amount.
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EXAMPLES OF CALCULATING TAXES ON IMPORTS
Here are some examples to illustrate the theory.
TAX CALCULATIONS FOR AN FCL SEA FREIGHT IMPORT FROM CHINA
Supposing we have an FCL sea freight import from China with the following costs:
- In China: 450 USD (from the supplier’s premises to loading the container onto the ship).
- Sea freight: 1000 US.
- Costs in Spain.
- THC: 170 EUR.
- T3: 50 EUR.
- Transport to the importer’s premises: 200 EUR.
- Insurance: insurance has not been taken out with the freight forwarder organising the transport.
- Other costs at destination (documentation, customs clearance, etc.): 150 EUR.
We also have the following details:
- Amount according to the sales invoice: 7500 USD.
- Goods: long cotton trousers.
- The customs agent informs us that the applicable tariff heading is 6103.4200/00 which, with China as the country of origin, has an associated 12% tariff and a 21% VAT rate.
Foreign currency amounts must be converted into EUR using the exchange rate supplied by the customs authorities on a monthly basis. For the purpose of the following examples, we will assume an exchange rate of: 1 USD = 0.72 EUR.
With respect to transport insurance, the following will be taken into account: (i) any insurance taken out with the freight forwarder, or the amount resulting from the importer’s own insurance policy, (ii) if neither of the above are applicable the ‘customs insurance’ will be taken into account and calculated at 3 per 1000 of the sales invoice value.
Let’s look at the tax calculation for an FOB import based on the previous details:
Item | USD Amount | EUR Amount |
Value of goods | $7.500,00 | 5.400,00 € |
Freight | $1.000,00 | 720,00 € |
Insurance (3/1000) | $22,50 | 16,20 € |
Total | 6.136,20 € |
We apply the tariff percentage which corresponds to the tariff heading and the origin of the goods:
Customs value | 6.136,20 € |
12% tariff | 736,34 € |
Total | 6.872,54 € |
We calculate the VATable amount by adding together the necessary items:
Customs value + tariff | 6.872,54 € |
THC | 170,00 € |
T3 | 50,00 € |
Total | 7.092,54 € |
And we can apply the VAT percentage to the taxable amount.
VATable amount | 7.092,54 € |
21% VAT | 1.489,43 € |
The taxes on this import would amount to 736.34 EUR in tariffs and 1489.43 EUR in VAT.
If the import were under EXW conditions, we would have to add the costs in China. The rest of the process would be the same as for the FOB import:
Item | USD Amount | EUR Amount |
Costs in China | $450,00 | 324,00 € |
Value of goods | $7.500,00 | 5.400,00 € |
Freight | $1.000,00 | 720,00 € |
Insurance(3/1000) | $22,50 | 16,20 € |
Total | 6.460,20 € | |
Customs value | 6.460,20 € | |
12% tariff | 775,22 € | |
Total | 7.235,42 € | |
Customs value + tariff | 7.235,42 € | |
THC | 170,00 € | |
T3 | 50,00 € | |
Total | 7.455,42 € | |
VATable amount | 7.455,42 € | |
21% VAT | 1.565,64 € | |
The taxes on this import would amount to 775.22 EUR in tariffs and 1565.64 EUR in VAT.
For imports under CIF conditions, we would not need to do any prior calculations other than adding the THC and the T3. The same would be true for a CFR import and we would also need to add the cost of insurance.
TAX CALCULATIONS FOR AN AIR FREIGHT IMPORT
Now let’s look at an air freight import from China with the following details:
- Air freight: 4500 USD.
- Amount according to the sales invoice: 25,000 USD.
- No insurance taken out.
- The tariff heading, with China as the country of origin, has a 12 % tariff and a 21% VAT rate.
As we have seen in the post about import taxes on air freight, in order to calculate the customs value when freight charges are payable at destination, we need to adjust the freight amount.
We will now look at the tax calculation, with and without the adjustment, although it should be made clear that the correct (legal) way to proceed is with the adjustment.
Calculation with freight adjustment:
Item | USD Amount | EUR Amount |
Value of goods | $25.000,00 | 18.000,00 € |
Freight at 100% | $4.500,00 | 3.240,00 € |
30% Inland transport | $1.350,00 | 972,00 € |
Insurance(3/1000) | $75,00 | 54,00 € |
Total | 20.322,00 € | |
Adjusted CIF value | 20.322,00 € | |
12% tariff | 2.438,64 € | |
Total | 22.760,64 € | |
Customs value + tariff | 22.760,64 € | |
30% Inland transport | 972,00 € | |
Total | 23.732,64 € | |
VATable amount | 23.732,64 € | |
21% VAT | 4.983,85 € |
Calculation without freight adjustment:
Item | USD Amount | EUR Amount |
Value of goods | $25.000,00 | 18.000,00 € |
Freight at 100% | $4.500,00 | 3.240,00 € |
Insurance (3/1000) | $75,00 | 54,00 € |
Total | 21.294,00 € | |
Customs value | 21.294,00 € | |
12% tariff | 2.555,28 € | |
Total | 23.849,28 € | |
VATable amount | 23.849,28 € | |
21% VAT | 5.008,35 € |
With tariff headings that have high tariffs, or in cases where freight costs and sales invoice values are high, the resulting differences in tariffs and VAT can be considerable. We recommend that you check with your customs agent to ensure they are calculating the taxes correctly.
By Blanca Romeu
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