Duty, VAT and GST on China imports

Customs duty is a tax on the goods entering. It is calculated from the customs value and the classification, it is not recoverable, and it belongs permanently in your cost of goods. A duty rate is therefore a margin question, and a small difference in a rate compounds across every unit you will ever import of that product.

Import VAT or GST is a consumption tax collected at the border. In most systems a business registered for that tax can reclaim or offset it, in which case it is a cash-flow event rather than a cost. In most systems — not all, and not for every buyer. An unregistered business, a business below a registration threshold, or one making supplies that do not carry the tax may not recover it, and then it is a cost like any other.

Budgeting them as one number is wrong in both directions at once. It overstates the true cost of goods for a registered importer, which makes products look unprofitable that are not. And it understates the cash required on clearance day, because both amounts must be paid before the goods are released regardless of what you can reclaim later. Model them separately: one line in cost of goods, one line in working capital.

And the tax is usually charged on the duty. The typical base is the customs value plus the duty — sometimes plus other charges — so the two interact rather than sit side by side. That is why raising a duty rate raises the tax bill too, and why an error in the customs value propagates into both.

There may also be other charges specific to the goods: excise on particular categories, environmental or recycling levies, and in some markets an anti-dumping or countervailing duty that attaches to particular products from particular origins and can be very much larger than the ordinary rate. Those are per-market and per-product; the point here is only that "duty plus tax" is not always the whole list, and asking whether anything else attaches is a question worth putting to a broker in the destination.

Duty is a percentage of a value, and the value is defined by international agreement — primarily as the transaction value of the goods. But the agreement deliberately leaves one large question to each country, and it is the question that decides how much freight is inside your taxable base.

Article 8.2 is worth reading in full because the permission is explicit: "In framing its legislation, each Member shall provide for the inclusion in or the exclusion from the customs value, in whole or in part, of the following: (a) the cost of transport of the imported goods to the port or place of importation; (b) loading, unloading and handling charges associated with the transport of the imported goods to the port or place of importation; and (c) the cost of insurance."

So the split most importers encounter as folklore — some countries charge duty on the delivered value, some on the value at the origin — is a designed feature, not an inconsistency. Both are compliant. And the practical consequence is sharp: in a country that includes freight in the base, your freight cost is taxed. A spike in ocean rates raises your duty bill even though nothing about the goods changed, and an expensive air shipment is taxed at air-freight prices.

Which means a duty rate quoted without its base is not a cost. Before modelling anything, establish two things about the destination: is transport included in the customs value, and is insurance? Those two answers change the arithmetic more than most rate differences do, and they are stable — they are set in the country's legislation rather than moving with a tariff schedule.

It also changes how you should read an Incoterm. A delivered price and a factory-gate price contain different amounts of freight, so under a base that includes transport, two commercially identical deals can produce different duty depending on how the quotation was constructed and what the invoice shows.

The same agreement lists things that must be ADDED to the price paid when they are not already in it. Four of them regularly surprise people who have done nothing wrong.

Packing and containers. The value includes "the cost of containers which are treated as being one for customs purposes with the goods in question" and "the cost of packing whether for labour or materials". So a retail box invoiced separately is still part of the value of what you imported.

Assists — and this is the big one for anyone who has paid for tooling. The value includes tools, dies, moulds, materials, components and engineering "supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods". If you paid a mould cost and left the tool at the factory, you have supplied an assist, and its value is apportioned into the goods produced with it. It does not appear on the goods invoice and it is still dutiable — which is not a trap, it is arithmetic: the goods really did cost more to produce than the invoice shows.

Royalties and licence fees "related to the goods being valued that the buyer must pay … as a condition of sale". A separate licence payment for artwork, a character, a design or a brand can therefore be part of the customs value of the physical goods, even though it was paid to somebody else on a different invoice.

And the exclusion that is worth real money, because it is three words in the middle of the list: the additions cover "commissions and brokerage, EXCEPT buying commissions". A commission paid to an agent acting for YOU, the buyer, is expressly outside the customs value; a selling agent's commission is inside it. Which makes it a documentation question rather than a labelling one: the arrangement has to genuinely be a buying agency, and the paperwork has to show it. Whose agent an intermediary is has consequences beyond the fee, and this is one of them.

Work in this order, because each step depends on the one before it. Classify the goods; establish the duty rate for that code in the destination; establish whether the destination's customs value includes freight and insurance; build the customs value including any additions; apply the duty; then apply the import tax on the base your destination uses, which normally includes the duty.

Then split the result into two lines that behave differently: duty and any non-recoverable charges go into cost of goods, and recoverable import tax goes into working capital with a note of when you expect to recover it. The gap between paying it and reclaiming it is real money for a growing importer, and it scales with your order size at exactly the moment cash is tightest.

This page publishes no rates, no thresholds and no worked example with figures. A worked example is a rate table in disguise: it would be lifted out of context, applied to the wrong country and quoted back long after the numbers had changed. The destination-market guides carry the real figures, one market at a time, each read from that market's own authority.

Two practical habits worth forming. First, ask the broker in the DESTINATION, not the supplier or their forwarder — the questions here are about your country's legislation, and your supplier has no reason to know it. Second, get the answers at quotation stage rather than at shipment: every one of them is free to establish in an email and expensive to establish with a container standing still.

And revisit the classification occasionally. An over-classification quietly overpays on every consignment and nobody will tell you, while an under-classification accrues a debt that is recovered across the audit period. Both are cheaper to find on a review than on an audit.