How to Calculate Tariffs

Calculating taxes can be difficult and time-consuming, especially when you want to  ship multiple items in multiple orders to multiple countries. To calculate a tariff, you’ll need four pieces of information: the item’s HS or Schedule B number, its country of origin, its destination, and the value of the shipment (in many cases, the value includes shipping costs). The item’s HS code (the first six digits of its Schedule B number) will help you determine   the individual tariff on that item. More information, including links to tariff schedules, sales tax, and VAT  rates, is available through links at  export.gov/logistics.
 
Note: As of July 1, 2003, the European Union requires all retailers to collect VAT for online sales of digital products and services to EU customers. If your company sells directly to EU customers, VAT registration will be required in one of the EU countries. Many third-party software companies provide eCommerce sales from their site with the VAT collection needed.
 
When you search for any product’s tariff rate, you’ll notice that its Schedule B number isn’t identical to its product identification number in the destination country.  Always remember that only the first six digits of these product identification codes will match. The United States uses 10-digit classification numbers, but that’s not true of all countries. To determine the tariff on your product, you’ll have to reclassify it using the destination country’s product identification  number. 

Real-Time Calculation for Clients

As mentioned earlier, calculating taxes is not particularly easy. The method outlined above is not possible to do on your website in “real time.”You will need to devise some strategies for doing this. One is to use the duty calculators available in    the large e-marketplaces. Their checkout function estimates the amount of duties and taxes and charges the buyer for them at checkout. The customer is charged for everything only once. There are no surprises, which reduces the chances that the product will be refused or returned. 
 

Narrowing Your Geographic Focus

If you find that your products are doing particularly well in a few countries, you might consider limiting your exports to those spots. Doing so will allow you to learn the taxation systems of a few countries instead of dozens, which could leave you feeling overwhelmed. As you become more comfortable with tariffs and have the resources to expand your product distribution, you may want to target additional countries where you think your products will do well. You might consider posting country-specific information on your website (e.g., “If your order is going to the United Kingdom, the estimated duty on this compressor will be 5 percent, and the VAT  will be 23  percent.”).
 
This doesn’t mean you need to ignore orders from other countries. You can limit your real- time online transactions to orders from countries whose taxation systems are familiar. For customers from other countries, explain that you will still accept their order, but that it must be submitted using an alternative method, such as e-mail.

Narrowing Your Product Focus

Another way to simplify operations is to sell only a portion of your line internationally; consider making non-core business lines ineligible for export. For example, if your core business is sunglasses but you also sell eyewear accessories (e.g., lens cleaners  and repair kits), you might want to make those accessories ineligible for international
shipping. Fewer products mean fewer HS numbers and, in turn, fewer tariff calculations. 

“Ballparking”

Another strategy when calculating tariffs is to get your figures in the ballpark and not worry about hitting home runs. You’re in the business of retailing, not shipping. As long as you’re earning good margins on your core products and your tariff estimates are reasonable, you should be fine. Estimate the tariffs on categories of your product line for specific countries or regions with the highest current or anticipated sales. Assume that you’ll overestimate some tariffs and underestimate others, and that ultimately you’ll break even. Individual tariff rates change with frequency, so you can’t hope for 100 percent accuracy. If you decide to ballpark, be sure to let your customers know ahead of time that you are giving them estimated tariff charges and that final charges will be determined later.  

Your Customs Broker

When calculating tariffs, remember that someone—usually a customs broker—will have to collect the tariffs and remit them to the proper government agency. Most shipping companies will provide these services for a fee. Find out what the fee is, and try to incorporate it into the final cost you give your buyer. Shipping companies also provide online tariff calculators.  

Third-Party Assistance

Many third-party service providers have developed customized and off-the-shelf solutions to help you manage international tariff calculations. The available solutions offer very different approaches for calculating tariffs, taxes, and shipping costs.
 
For example, one business model transfers your customer’s order to a shopping cart on the service provider’s website, where the customer completes the transaction. Depending on your service contract, the service provider then becomes responsible for tariff calculation, shipping, fraud protection, product classification, licenses, and compliance with export restrictions. Some service providers also can warehouse your products so the items are shipped directly from them to fulfill the order.

Another business model allows international customers to register for a U.S. shipping address, then have their products shipped to that address for reshipment to the destination country. Customers usually must register for the service prior to shopping online at eCommerce sites. These sites often allow your customers to receive more competitive shipping rates because the providers have negotiated high-volume international rates with shipping companies. These lower shipping costs make your product more attractive to buyers.
 
Costs are involved with each of these options. Some services request a fee from the merchant, some charge the buyer, and some earn their fees by marking up the shipping charges. You should understand up-front what the charges will be and how you will share these costs with the customer. The third parties are successful only if you are, so they can   be great partners. To find third-party vendors, try searching the web for “international shipping and shopping carts.”. You might want to list some of these vendors on your  website so that international buyers can take advantage of their services. Some vendors have “personal shopping services” that will find the item for the customer, purchase it from your website, and arrange shipping.