5 Ways to Eliminate Overpayment of Import Duties

In today’s fast paced business environment it is easy to overlook the small details on a daily basis. The reality is that small details may be adding up to significant additional unnecessary expenses that cut into your annual bottom line.

If you are an importer, one HS (Harmonized System) sub-heading that is missed can result in an over-payment of duties.  Once you submit your customs entry with your declaration, you are subject to the duty amount based on the HS code.  Even though there is a post-audit review by the CBSA (Canada Border Services Agency), it is unlikely that the review will catch an over-payment of duty.

Best Ways to Avoid Over-payment of Customs Duty

  • The most common duty over-payment of import duties is inaccurate HS classification. The first 6 digits of the HS code are universally recognized in most countries.  But the subsequent 4 numbers in Canada are based on sub-headings that more clearly define the components of the commodity as well as its end use.  Each of these sub-headings need to be explored to see if you are eligible for a lower duty rate.  If there is a question of interpretation, your customs broker can apply for a written customs ruling.  Note, that the rules of classification can be interpreted differently and subsequent reviews by customs can revoke or alter the ruling.
  • Importers do not always take advantage of preferential duty rates depending on the country of origin. Canada has trade agreements (example: NAFTA) with several nations including Mexico and the USA, Israel, Korea and others.  In order to benefit from the reduced rate, a certificate of origin must be attested to by the exporter or for some countries, a Form A Certificate of origin can be obtained through the Chamber of Commerce in the originating country.  Again, the interpretative rules of origin are complex and your customs broker can walk you through the process. We recently wrote an article about how to better streamline your Canada – USA cross border moves.

Import Checklist

  • Remission orders are available on certain products such as machinery required to produce finished products. The idea behind them is to allow the Canadian manufacturer to produce finished goods for export and domestic use thereby increasing employment opportunities and generating revenue for Canadian manufacturers.  If a remission for a particular machine does not exist, you can apply for remission status.
  • Temporary importation of some products allow you to defer duty for the period of time that the products remain in Canada (1/60th). In the case of trade shows and entertainment equipment, duty can be posted in the form of a bond (E29B) which can be cancelled upon proper proof of export. For instance, a mold that is required to fabricate car parts may be needed in Canada for only 1 year.  The duty payable may be pro-rated for the length of the time that the mold is used.  Materials for trade shows or musical/stage equipment for entertainment purposes that will ultimately be exported may have the privilege of deferring the duty amount in the form of a bond that costs less than the total duty assessment.
  • Duty drawbacks are available for those importers that bring in raw materials and component parts for further manufacture and ultimate export sale. While duty is payable at the initial time of import, once the manufacturer can provide proof of the quantity of materials used and evidence of the export sale, a duty drawback can be processed.

When an importer finds that they may have overpaid duties, a refund process can be initiated by their customs broker to apply for compensation.  Time limits are in place so it is important to scrutinize all of your customs entries as quickly as possible.

The best approach to avoiding these 5 duty pitfalls is to consult with your customs broker to ensure that you are taking advantage of the most favorable duty rate and explore any of the duty deferrals and refund processes. If you want to know more, we had previously written a related article that outlines the best ways to ensure that your value for duty is correct.

Mantoria Inc. has a large team of licensed customs brokers and consultants on staff to assist you with correct HS classifications.  When in doubt, a request for ruling from the CBSA can fix your duty rate and put your mind at ease.


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