Import Duty Reduction: Not Just for Large MultiNationals Anymore

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CFO recently had a great article on how small and midsize business can use the same customs-duty strategies large multi-nationals use to save a hefty chunk of change in a recent provacatively titled article. As larger companies well versed in global trade know, import duties, unlike income tax rates, can change dramatically depending on the way goods are described or the way the products are packaged and assembled. The article gives the classic case of microscopes used for surgery. In the early 1990s, they were lumped in with laboratory microscopes, which meant the device carried a 7.2% import duty. However, once manufacturers argued that the device was a surgical instrument, it became duty free. In other words, intended used can often be used to recategorize an item into a lower duty bracket. Another example is a woman’s cotton T-shirt. As sleepware, it carries an 8.5% duty, as swimwear, it carries a 14.9% duty.

Also, retail sets can sometimes carry a lower effective duty than the individual items they contain, and sometimes carry a higher effective duty. Thus, if you plan to combine the items into a set, you should do the import math and determine if it’s more cost effective to assemble the items before, or after, import.

Another great piece of advice from the article is keeping full documentation of the entire trade cycle. If you use a distributor (to purchase goods from a manufacturer on your behalf), that distributor will apply a markup to the goods. However, if you retain the documentation necessary to show the purchase by the distributor was an arms-length purchase and that the goods were clearly destined for the US, you can have the import duty assessed at the cost to the distributor, not the cost to you, which could save you 10% to 20% of the duty cost.

And don’t forget about how FTZs help U.S. companies save millions during tough economic times.