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Import from China Mini-Course - Part 4 - Section 4

"How Can I Pay Less Tax?!"

No one likes paying taxes, and if there is some way to reduce import taxes, you want to know about it, right?

In fact, after "Can you send electronics to Brazil?", tax questions are the most frequently asked questions for me and the customer service team here at Chinavasion.

First, I just want to point out that there is a difference between 'avoiding taxes' and 'evading taxes'. Tax evasion by definition is a crime and I don't think I'll cover advice for that in this mini course!!

However there may be many ways you can find -- legitimately -- to reduce or eliminate the taxes you pay on imported goods and improve the profit margins for your import business.

The majority of countries have some kind of threshold for goods value under which you won't pay any tax. If you are a small scale importer, e.g. for EBay items, this will be very important to discover. In most countries there are also certain types of goods which don't get taxed - they are exempt. You may be able to find two different allowable categories in which to declare a certain product -- one description would incur a tax, and the other might not.

Of course, tax classifications are designed so as not to allow for this sort of thing, but there are an infinite number of different goods being imported so there are always huge grey areas. But I can't get into details here of all the tricks and loopholes which exist in every country.

It will pay YOU to spend time researching YOUR country's systems so you know how to get through the tax minefield. Even if you don't find out any special tricks to reduce your taxes, you will at least know enough about how to avoid making mistakes and breaking the rules, which could land you with fines and unnecessary delays.

What is the value of these imported goods?

 

If you import goods worth $5,000 you are typically going to pay more tax than if this shipment was worth $2,500. Naturally.

But maybe you are already thinking you could import that $5,000 order and simply declare it to be worth $2,500, and pay less tax. Clearly there is an advantage to declaring a lower value, and you may ask "Who decides the value anyway? -- Can't I decide on my own how much these goods are worth?" Well, the declared value of imported goods is always supposed to match the "transaction value". What does this mean?

THE VALUE MIGHT BE JUST A MATTER OF OPINION

According to what I have read about practices in the USA (and as usual this is not formal advice!), a shipment of goods can be declared at the "wholesale price". This could be a lot lower than the actual price paid by the recipient for the goods. "Wholesale price" is defined in the US as "the reasonable cost of the manufacturer to produce it" which could be a lot lower than what was paid and mean a lot less tax!
 

HOWEVER !

That US concept of declared goods values won't necessarily apply in any other country.
 

IN FACT :-

The rules for arriving at the customs value in most countries are based on the "WTO Valuation Agreement" (previously known as the "GATT Agreement"). According to the WTO the declared value of the goods must be, pure and simple, exactly the same as the amount of money paid by the buyer for the goods.

According to the World Trade Organization, it's not supposed to be a matter of opinion!

Read the full WTO wording here: http://www.wto.org/english /docs_e/legal_e/20-val_01_e .htm#ArticleI

 

 

The Power Of Understatement

A common tactic to reduce import taxes is under-declaring the value of goods on the shipping waybill and invoice.

In other words, you paid the seller $100 for the items, but you tell Customs it's only worth $30, so you pay less tax or avoid it completely. As you've read above, you're not supposed to do this. I am also not advising you to do this. Having said that I would still point out that it is common practice, and it can also be difficult for customs offices to deal with.

If the invoice that accompanies goods says a certain amount was paid for them, in many cases the customs office will have no choice but to accept that as the true value for taxation purposes.

On the other hand, for many common consumer goods, the Customs officers are extremely experienced in assessing their true market value and will quite easily override your declaration with their own non-negotiable idea of the goods value and tax amount.

You will be left crying over spilled milk.

Even if your goods are accompanied by the correct invoice, the Customs office will -- in law -- usually have the last word. They decide on the value for tax purposes, not you.

And if you are still willing to risk it, consider that with a courier, the amount the goods are insured for is equal to... yes, you got it, the declared value of the goods. So if your $500 item goes missing, and you only declared it for $50, you will only get $50 from your insurance as compensation!

Another common thing to do for small orders such as EBay purchases is asking the sender to send the goods as from a private individual (not a company) and declare the goods as a "gift".

Again, this is not recommended if you are in fact buying the goods commercially, as it is a misrepresentation in the eyes of most countries' Customs. Whatever approach you end up taking to import taxes and goods declaration, I want to leave you with a warning:

Even if the shipping/ customs documentation is filled out by your supplier or by a shipping company or forwarder, YOU are the one who will be viewed as responsible for the goods, as the importer. Therefore if the Customs office considers -- in their own opinion regardless of your opinions -- that the goods declaration is false or misleading, they will tax you according to THEIR idea of the contents and they could end up hitting you with:

  • Additional penalties;
  • Confiscation of the goods;
  • Criminal prosecution.
 

Remember, if you are thinking of taking chances, that Customs officers are not famous for being flexible or having a sense of humour. So if you are not 100% sure about what you are doing with an import order, just pick up the phone to your Customs bureau in your country and get some specific, case-by-case advice from the only people qualified to give it!

Read on for my summary of this section of the mini-course

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