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Learn the customs clearance process for international ecommerce shipments
If you have ever or are currently thinking about exporting or selling goods to another country, those products have to go through the customs clearance process for the country of import before they can be delivered/transported to their final destination.
Whether it is country-specific required paperwork, duties and taxes, or product restrictions, there are many factors that can cause delays or surprises during customs clearance. Therefore, familiarizing yourself with the customs clearance process may help importation go more smoothly than it otherwise would.
To better understand customs clearance, this guide will discuss the following:
- What is customs clearance?
- What are the steps of the customs clearance process?
- How can you avoid customs clearance delays?
What is customs clearance?
Terms to know:
- Importer of record (IOR): The individual or business that is responsible for ensuring that a shipment of goods is imported in accordance with the laws of the country. Generally, the IOR is the recipient or purchaser of the goods.
- Customs: The government service that is responsible for the assessment of import and export duties and taxes and administration of other laws and regulations that apply to the importation, transit, and exportation of goods.
When a package arrives at a country’s border for importation, it goes through the customs clearance process. Clearance can also occur in transit remotely for low-value shipments. This is called express clearance and it happens when the air waybill (AWB) and commercial invoice satisfy all the import requirements. For example, the AWB and commercial invoice are complete, and accurate, and show that the shipment does not violate any import regulations or require additional inspection due to factors like restricted or prohibited goods.
The customs clearance process will be explained in detail in the next section, but here is a high-level overview of the customs clearance process:
Customs officials oversee and inspect the shipments entering and leaving the country for compliance, e.g. ensuring there is proper documentation, costs are properly assessed, applicable import licenses are supplied, there are no prohibited goods in the shipment, etc. This may involve a thorough inspection before either clearing the shipment to be released to the carrier for delivery, holding it for further inspection, or rejecting it entirely.
Customs officials are generally known to be stringent when it comes to upholding their country’s trade regulations; therefore, it is important to ensure that customs has no reason to hold or reject your import so that the recipient, as the importer of record (IOR), does not have to face the repercussions of issues with the import.
Knowledge is power; the more you know about the steps involved in the process, the better you will understand how to successfully fulfill the requirements so that your import passes through customs with minimal or no difficulties.
What are the steps of the customs clearance process?
Before diving into the specific steps involved in the customs clearance process, it is important to note that these are generalized and not country specific. Many countries differ in the way they handle customs clearance, including extra steps they may take, different documents they require, and more.
Therefore, we recommend checking our country guides for country-specific trade regulations or doing research on a country’s customs requirements by inquiring through the country’s customs authority’s email address (usually provided on their website).
Here are the general steps involved in the customs clearance process:
1. Document inspection
The first step in the customs clearance process is the customs officer checking the documentation associated with the commercial invoice (CI). The document inspection is most often done for a shipment electronically and remotely before the goods even arrive at the border.
The documents almost always include the CI, BOL or AWB, and packing list, but document requirements differ by country. For example, in South Korea, the minimum required documents are as follows:
-
Bill of lading (BOL) or AWB
- Filled out by sender
-
- Filled out by sender
-
Packing lists
- Filled out by sender or packer of goods
-
Maritime insurance
- Purchased by sender or buyer
-
Import declaration
- Filled out by sender or buyer
In addition to the minimum requirements, other documentation may be required in special circumstances. For example, most countries' agricultural products require special documentation or licenses.
Because the commercial invoice is always required, here’s an example of what that may look like:
If any required documentation is missing from the shipment, it will likely be rejected or held until the proper documentation is provided.
2. Duty, tax, and fee calculation
After the customs officer inspects the import documents, they must now assess any applicable duties, taxes, and fees associated with the imported goods. These fees are based on the goods' Harmonized System (HS) code classification, the country’s duty calculation method, preferential origin or lack thereof, the value of the goods compared to the country’s duty and tax de minimis value(s), Incoterm assessment, and more.
There are many factors that need to be taken into account when calculating import duties, taxes, and fees, i.e. the import’s total landed cost. Here’s an example of a landed cost breakdown for an import to Panama:
3. Incoterm assessment
Delivered Duty Paid (DDP) and Delivered at Place (DAP) are International Commercial Terms (Incoterms) used in the global trade industry to define who is responsible for the payment of duties and taxes.
Once customs officials calculate the duties and taxes, the carrier and/or broker will bill the duties and taxes to the designated payer, registered VAT ID (GB VAT, IOSS, AU, NZ, etc.), or carrier account number based upon Incoterms.
- If a shipment is labeled Delivered Duty Paid (DDP), this means the duties and taxes have already been accounted for. This streamlines customs clearance and can be carried out by charging the full landed cost in your checkout and selecting the billing option with your carrier that supports DDP. The carrier usually refers to this option as bill sender or bill third party.
- If a shipment is marked Delivered at Place (DAP), this means that the duties and taxes have not yet been paid, in which case, the carrier will usually front the money to customs for the duties and taxes assessed, and then present a bill for duties, taxes, and applicable carrier fees to the customer before delivering the package. This takes longer and makes for a poor customer experience because the customer does not always know they will need to pay more to receive their package.
Because the duties and taxes must be paid before the import is released from customs (if you do decide to ship DAP), it is worth double-checking to make sure a specific carrier offers this service to your destination country.
For tax-registered businesses sending shipments into countries with low-value tax schemes, the shipment is typically marked DAP because the seller remits the tax to the country’s tax authority themselves. The package is not held by customs because they see the tax ID number and know the taxes will be paid even though it was sent DAP. This also avoids the carrier disbursement fees.
As mentioned above, the Incoterm can influence the fees levied on a shipment. In the landed cost quote in step 2, the “Carrier Deferment Fee” is a cost applied by some carriers to shipments sent DDP.
4. Decision about the shipment (clear, hold, or reject)
Once steps one through three are complete without any infractions, customs releases the shipment so that the carrier can deliver it to the final recipient.
However, if there is missing or incorrect paperwork, prohibited or restricted items in the shipment, or anything that seems suspicious to a customs official, they may hold the shipment until the issues are sorted out or reject it altogether.
How can you avoid customs clearance delays?
To avoid delays at customs, the answer is simple:
- Ensure you follow all of the destination country’s trade regulations
- Send packages as DDP
- Be registered with a tax ID for countries with taxation schemes
While the answer is simple, the process of actually doing this is hard. See how Zonos can manage any country’s compliance for you and make shipping DDP easy.
Next steps
- UK VAT scheme - Learn about the changes in UK VAT for low-value orders and how they affect your business.
- EU VAT scheme - Learn about the EU’s low-value VAT scheme and how it affects your business.
- New Zealand import taxes - Learn about the recent New Zealand law and how it affects import taxes and your business.
FAQ
Is the customs clearance process the same for personal shipments (from individuals to individuals)?
The only difference is the possibility of a gift allowance for a personal shipment, which varies by country.
Is the customs clearance process the same for business-to-business (B2B) shipments?
The recipient business has the opportunity to reclaim VAT at the time of clearance or when they file their income taxes.
Does all clearance take place at the importing country’s border?
Clearance can also occur in transit for low-value shipments. This is called express clearance and happens when the air waybill and commercial invoice satisfy all the import requirements.
Questions about this document? Email docs@zonos.com.
Everything you need to know about customs clearance