Importing inventory is all fun until your product lands in the customs clearance queue. Every country has a different clearance rate and procedure for products entering their borders, which helps them boost their economy and maintain security. Therefore, all your international orders must pass customs clearance upon arrival at their destination before the customer receives them.
However, if you are not aware of how to clear customs, then this guide is for you. Here, we will thoroughly explain the customs clearance method, especially in the USA and Canada, and also the factors you must consider when applying for clearance. So, let’s get started!
- What is Customs Clearance?
- What is an HS Code and How Can We Determine It?
- What Paperwork is Needed for Customs Clearance?
- How Much Duty and Taxes Apply on Products?
- What Additional Information is Needed on a Customs Form?
- Paperwork Presentation and Final Clearance of Your Products
- How Long Does it Take a Package to Clear Customs?
- Should I Use a Customs Broker for Clearance?
- Wrapping Up
What is Customs Clearance?
Customs clearance is the process of permitting goods that are carried by an authorized customs broker to a country. This procedure involves sharing information about the two parties and the shipment.
Clearing customs requires preparing the mandatory paperwork for transporting them internationally and paying the taxes or duties that may apply to those goods.
Almost every country has an agency that deals with these shipments and helps in the process. U.S. Customs and Border Protection (CBP) and the Canada Border Services Agency (CBSA) facilitate customs clearance in the U.S. and Canada, respectively.
The process is simple for most products. However, you may have to provide extra information and documentation for the safety of some products. For instance, when your goods reach (via seaport) your home country, they will not be handed over to you until you get the complete paperwork filled out and pay the applicable taxes.
If you have ever traveled internationally, you have to declare the goods you bring with you on reaching your home country. You have to pay tax or duty on the products if you exceed the exemption. The same procedure works for importing products even with no exemption and an additional load of paperwork.
What is an HS Code and How Can We Determine It?
HS code also known as the Harmonized Item/Commodity Description Code is a standard format for categorizing different shipments globally. This 10-digit code helps custom distinguish millions of items and also makes it easy for you to import.
The harmonized system is like a huge encyclopedia, listing item descriptions of every possible product. Interestingly, this system is used by every country and most of the product classifications do not vary from country to country. The only change is the rate of duty they charge on different products.
For instance, if you import a cover for your car from Japan, you may have to pay a 10% duty in Canada and 0% in the U.S. The below figure shows an example of classification of various gulf shoe types.
To understand the HS code, you can break it down as:
- 8315.22.21.80 (complete HS code)
- 8315 International heading (All countries share this code)
- 22 International Subheading (All countries share this code)
- 21 Tariff Item (Each country sets it individually)
- 80 Special Statistical Tracking Number (Each country sets it individually)
From the description we shared above, we can see that all countries share the first six digits of the HS code and the next four digits are set by each country individually.
You can use the HS codes of another country as an offset for your country’s classification codes. However, it is not advised to completely rely on any country’s HS codes.
Fortunately, you can use several good tools to determine the classification code of your item. For example, the United States brings a simple Schedule B Search, which is a good starting point. You only need to enter a number of keywords to describe your product and it provides you with a list of results that you can use to narrow down.
Most countries maintain lists of classification codes in the form of PDF documents. You can go through these documents to discover the code that best describes your product.
In a nutshell, you can either search the PDF file to find keywords for your product or use the Schedule B Search to discover the specific section you should search in. Other than these two methods, you can’t accurately find the classification codes for your products.
What Paperwork is Needed for Customs Clearance?
Almost every country needs at least two types of paperwork while importing goods. This includes official customs forms and a commercial invoice provided by the supplier.
If you don’t know what the commercial invoice is, let us explain it in simple words.
A commercial invoice is a document that your supplier provides with the complete list of details of all the products you ordered and the amount you paid. It doesn’t have to be anything formal or fancy necessarily. It can be in the form of an Excel file, a PDF document, or even a handwritten note on tissue paper.
The commercial invoice is necessary for the export/import clearance process and your supplier must provide it to you without you having to ask for it.
Every country has a unique customs official form. It is even more complicated in some countries than in others. For instance, the customs form in the United States is called a CBP Form 7501: Entry Summary, whereas it is a Form B3 in Canada for importing goods.
Here’s what the Form B3 looks like:
This form initially may look complex but it only needs some basic information. We will cover these points in the sections ahead.
Some other paperwork that you may need to provide:
- Packing list, which includes a document describing the way a box has been packed. For example, 5 pairs of shoes in a Box 2a.
- Copies of appropriate memorandums, certificates, and permits.
- Cargo control document, which includes a document provided by the freight forwarder that assigns a unique ID to the shipment. This is used particularly in Canada but some other countries have certain similar documents that help in tracking and locating the shipments.
Additionally, some products may need unique permits in the process. For instance, drugs and some food items need certain certifications from the relevant national agencies, like the FDA in the United States.
There are some other ordinary forms including simple promises confirming that the goods are manufactured 100% in a particular country or they contain no wood items.
Normally, most items don’t need any special documentation. In case, you need any information, you can call your local commercial customs office and tell the item (with the HS code) that you want to import and they will guide you on what is needed.
How Much Duty and Taxes Apply on Products?
The rate of duty that applies to your products is determined by the HS code. Since every country decides and sets individual duty rates on products, the prices for each product vary from country to country. Therefore, the amount of duty you have to pay mainly depends on the country of your item.
Most Favored Nations is a clause designated for countries that promise to treat other countries with the same trade terms. Many countries including China fall under the Most Favored Nations category and apply the same duty rates.
Let us go back to the golf shoes HS classification case. We can see three different columns specifying the types of classifications a country can qualify for:
The countries that follow other trade agreements are not part of the Most Favored Nations, such as NAFTA in North America or North Korea (having 100% or more duty rates).
Additionally, you will have to pay the taxes that apply to your shipments depending on the taxation system in your home country. Moreover, getting those taxes back again depends on the taxation system of your country.
What Additional Information is Needed on a Customs Form?
Other than the HS code, most of the information needed on the customs form is fairly simple. The standard details include the date of import, the name of your company and address, the name of the supplier, etc.
You must be careful about some other things during this process, such as the currency you pay for declaring the goods should be your home currency. For instance, if you purchased the product in USD from a supplier in the U.S., you will have to convert the same price in your home currency using the official exchange rate.
Also, you might have to provide some sort of business identification number, which is a Business Number in the case of Canada.
Paperwork Presentation and Final Clearance of Your Products
After you have completely filled out the paperwork, you need to present it to the customs officials.
You will have to present the paperwork at the land borders where the shipment arrives if your goods are being shipped through land. But if your shipment is booked via sea, you can submit the paperwork to any customs official office operating usually at the entry points. For instance, British Columbia has more than 200 entry points with most not being actual points of entry.
You can easily search for the Customs office in your region on Google and get the list of offices from your government. For instance, Points of Entry is the office in the U.S., and if you are from Canada, you can contact the Customs Offices Canada.
After you receive approval on your paperwork from the customs officials, you need to pay any outstanding duties. Make sure you confirm the mode of payment in advance as most officials accept cash or cheques and don’t entertain credit cards.
You pay the duties in the last step before getting your products released. You receive a call from the customs officials informing you about the release of your products. Finally, you can pick your goods.
Read more: Top 10 most popular imports from China
How Long Does it Take a Package to Clear Customs?
The exact time a package requires to clear customs can vary from case to case. If we talk about the United States, then the package can clear within 24 hours or it can take a few days or weeks. Some of the factors that can increase the time to clear customs include:
- High volumes of incoming packages
- Nature of goods
- Incomplete/inaccurate documentation
- Weather conditions
- Security concerns
All the above factors can lead to unintentional delays in customs clearance of packages.
Should I Use a Customs Broker for Clearance
Having gone through the previous sections, you must have got an idea of how to clear customs. If the process seems daunting and it is something you don’t want to deal with, you can go for a shortcut to get your shipment cleared and released easily. The magic trick is to use a customs broker.
A customs broker is an agent who helps importers release their goods from customs. This agent can be a private individual or a firm that can get all your paperwork done for you without you having to step out of your house.
But just like all other services, it comes with a cost. You may have to pay something between $100-250 to the customs broker.
If you are a new importer and have no idea on how to clear customs, then we highly suggest you use a customs broker for clearing your first shipment. In this way, you can approach an affordable customs broker and prevent all the obstacles.
However, all regular importers with successful customs clearance cases must get it done themselves at least once to practically understand how the process works.
Wrapping Up
Customs clearance is an exhausting process worldwide. Whether you are an expert importer or just a beginner trying to import your first shipment to your home country, you have to go through different stages and obstacles. Therefore, keep this guide with you as a reference to understand how to clear customs and keep learning about the relevant factors before jumping into the process to minimize the challenges.