Customs duty

What it means

Customs duty is charged on imports from outside the EU. It is calculated from the customs value, which includes the goods, freight and insurance to the Union border, at the rate for the tariff classification.

Inside the EU there is no duty, since it is one customs union. With third countries the classification therefore decides: the same product can carry a zero rate or a ten percent one.

Customs duty should be kept apart from excise duty and import VAT, even though customs assesses all of them in one decision. Duty goes to the EU budget and never comes back to the company, VAT is neutral for a registered payer through deduction, and excise applies only to selected goods such as fuel, alcohol and tobacco.

How it works in practice

Duty paid is not recoverable like VAT: it becomes part of the acquisition cost of the goods or the asset. Pricing that forgets it is pricing below cost.

A free trade agreement can cut the rate if the supplier evidences origin. That origin document has real cash value, and it must be requested before shipment, not after clearance.

Who pays the duty is set by the Incoterms delivery term. Under DDP the supplier bears it inside its price; under EXW or FOB the buyer pays it separately to customs. Depending on that, we book the duty either as part of the supplier invoice or from the customs decision into the acquisition cost.

What to watch out for

Customs reviews classifications retrospectively, typically three years back. A wrong code means back duty, late payment interest and a recalculation of import VAT across the whole period.

An undervalued supplier invoice meant to cut duty is dangerous for the importer. Customs compares prices with the usual values of similar goods and, when in doubt, sets the customs value itself, so the apparent saving turns into back duty, interest and a fine.