If you are a business involved in importing and exporting goods, you’ve probably been very familiar with the term Customs Clearance, as customs plays an important role in cross-border trade. For those who are just beginning to dip their toe into import-export business, it is a new concept and presents real challenges for small businesses due to its complexities.
So, what is customs clearance?
In a nutshell, customs clearance is the procedure of procuring permission from a country’s governing administration, through its customs authority, to either take goods out of its territory (export) or have goods enter its territory (import)
Here we’ve collated some of the most asked questions about customs clearance into a handy FAQ to help prepare you with the knowledge needed to venture into the import-export trade business.
Let’s dive in!
Table of Contents
The action of customs clearance is a compulsory process when a company ships internationally, whether by air or sea freight. The transporter has to acquire export clearance before any cargo can leave the port or airport of origin. Upon arrival at the destination country, import clearance is required before the freight can be delivered to the consignee.
In terms of customs clearance, the process for export and import clearance is very similar. However, importing materials and products will involve an assessment of the goods and payment of import taxes and duties.
For the most part, customs clearance is compulsory whenever you transport commercial goods from one country to another by land, air, or sea. There are certain exceptions though. For example, conveying goods between countries in the Schengen Area in Europe is possible without customs clearance as borders have been removed.
Also, smaller shipments may be exempted from the need for a formal customs clearance process. For instance, if you are shipping to the United States and your goods are valued less than $800, the shipment can declare Section 3211 to be exempted from the clearance procedure and payment of duties with some restrictions.
As import and export clearance procedures are rather country-specific, it’s essential that the trader does the necessary research or consults an expert, (normally a customs broker or freight forwarder).
As with the rest of our advice, documents can also be country or area-specific. Here we offer advice on the most universally important documents that customs authorities are most likely to request.
The supplier of the goods issues the commercial invoice to the buyer. This is a legal document that serves as proof of sale between the two parties. When importing, the customs representative uses the commercial invoice to determine the true value of the goods and to evaluate the duties and taxes payable. Listed below are some of the details that customs authorities look for on commercial invoices:
Customs authorities in some nations may permit pro forma invoices (preliminary invoices) to govern the import duties and taxes. Other nations may need a separate customs invoice, which basically has the same information as a commercial invoice, but in a specified format. Regardless, the customs broker can help you clarify what type of invoice is needed to clear your shipment.
The packing list consists of all specifics about the contents of a shipment and plays an important role in the shipping procedure. As well as being used by the customs broker for the clearance, freight forwarders need the details to create a booking with a carrier and issue the bill of lading. Listed below are some of the details that frequently appear on packing lists:
The certificate of origin states which country a material has originated in or a product was manufactured. This document typically contains information about the goods themselves, their destination, and country of origin. In certain countries, it’s required in every case and in others only for specific products. The certificate of origin helps determine whether your goods are eligible for import, subject to duties, and entitled to any preferential treatment.
There is no standardized form for a certificate of origin. Usually, the exporter or the manufacturer prepares the document. It might require an official certification by an authorized third party, such as a chamber of commerce. It is recommended that the exporter verifies with the buyer and/or an experienced freight forwarder whether a certificate of origin is compulsory.
A letter of credit is basically a letter from a bank ensuring that the seller will receive his payment on time and will receive the correct amount. If the buyer is unable to pay, the bank will be obligated to cover the full or remaining amount of the purchase, hence protecting the seller. While letters of credit are still extensively used, other payment systems are obtainable including:
The bill of lading is a legally binding document supplied by a carrier to a shipper. Its frameworks details such as the type, quantity, and destination of the goods being carried. The bill of lading serves as a contract between the freight carrier and the shipper. It’s a document of title and can be transferred by endorsement. No matter what the mode of transportation is this document must always accompany the shipped goods. The term bill of lading is typically used for goods transported via sea. For air cargo transport, the term airway bill is more common. Both documents serve the same purpose.
Occasionally, customs authorities request other documents to complete the procedure. Here below is a list of some of them:
Your customs broker will inform you if this is the case in due time and provide further guidance if needed.
In the majority of international shipping situations, the seller is responsible for export customs clearance and the buyer for the import clearance. However, the exact prearrangement will depend on the agreed Incoterm for the sales transaction.
The customs procedure itself is completed by a customs broker who is a logistics expert and ensures that shipments meet all standards, laws, and regulations for the import and export of the goods. The customs broker creates the customs entry and assists with all necessary administration, calculation of duties and taxes, and the payments thereof.
For many countries, there is no legal requirement that you must hire a customs broker to clear imports. However, we recommend you working with a licensed customs broker because only customs brokers have the knowledge and experience to complete the duties of clearing goods through customs. Engage with an experienced customs broker to avoid mistakes, delays, or extra costs.
The easiest option is to let your freight forwarder handle the customs clearance for you, a service for which you will need to pay a customs fee. Freight forwarders have licensed customs brokers all over the world to clear clients’ freight.
Even when working with a freight forwarder you can choose to engage your own customs broker. Remember that you will need a customs broker at the port of origin for export clearance and at the port of arrival for import clearance. You will also need to be aware that your freight forwarder won’t be liable for any additional costs that you might incur if the third-party customs broker causes any delays in the shipment process.
There are two key portions of the customs cost. The first is the customs clearance fee. This is the cost of preparing and submitting the customs entry. The fee has to be paid to the customs broker—or freight forwarder if the brokerage services are part of the service.
The second part contains the duties and taxes. These are calculated by the customs broker and are frequently a percentage of the value of the goods and the transport charges. Duties and taxes generally have to be paid directly to the customs authorities.
The kind of goods you are importing will govern the charge that the customs broker has to apply. The broker will find the correct tariff via a customs code lookup based on the description of your goods. Be mindful that tariffs are country-specific and can vary meaningfully from nation to nation. Frequently, certain goods can be imported into a country without having to pay any import duties. Check with your customs broker beforehand to see if your products are imported duty-free.
Custom inspection payments might apply if the authorities subject your shipment to a customs concentrated exam; it’s not possible to know beforehand if your goods will be selected for such handling.
Forecasting the extent of the customs clearance procedure is problematic due to the great variety of systems and protocols globally. Typically, the import customs clearance can commence when goods are still in transit and prior to their arrival in the destination country, assuming that all the necessary documents are in place. Many nations offer online systems for submitting customs entries, permitting the authorities to release the goods in as little as 24 hours.
If customs authorities have questions, request additional documentation, or insist upon an inspection of the goods, the duration can be extended to a few days and even weeks. To avoid storage charges at the port or airport of arrival, it is important that the seller and buyer cooperate to provide the necessary documents.
Your customs broker or freight forwarder should be able to keep you up to date with the status of your customs clearance. They should immediately inform you if there are any holdups or delays and many customs brokers and freight forwarders have online/ digital services from which you can track your cargo to the completion of the journey.
Although the advice given is a varied and rudimentary summary of the procedures needed for customs clearance, it can act as a fundamental guide to what you will have to look in to in more detail.
With that in mind, we will continue to provide more custom clearance advice looking further into the individual concepts connected to freight forwarding, cross-border trade, and customs clearance that we have featured here.