Understanding the customs clearance process is crucial to exporting or selling goods internationally. Before reaching their final destination, products must pass through the customs clearance process of the importing country.
Many factors can cause delays or surprises during customs clearance, such as country-specific paperwork requirements, duties, taxes, or product restrictions. Familiarizing yourself with the customs clearance process can help ensure smoother importation.
What is Customs Clearance?
When a package arrives at a country’s border for importation, it undergoes the customs clearance process. Clearance can also occur remotely in transit for low-value shipments, known as express clearance. This happens when the air waybill (AWB) and commercial invoice meet all import requirements, such as completeness, accuracy, and compliance with regulations.
Customs officials oversee and inspect shipments entering and leaving the country to ensure compliance. They verify proper documentation, assess costs, and check for applicable import licenses and prohibited goods. This inspection may involve a thorough review before clearing the shipment for delivery, holding it for further inspection, or rejecting it entirely.
Customs Clearance Steps
Here are the general steps involved in the customs clearance process:
1. Document Inspection
The first step involves customs officers inspecting the commercial invoice (CI) documentation electronically and remotely before the goods arrive at the border. Required documents typically include the CI, Bill of Lading (BOL) or AWB, and packing list, but requirements vary by country.
For example, in South Korea, the minimum required documents are:
- Bill of Lading (BOL) or AWB (filled out by the sender)
- Commercial Invoice (filled out by the sender)
- Packing Lists (filled out by the sender or packer)
- Maritime Insurance (purchased by sender or buyer)
- Import Declaration (filled out by sender or buyer)
Additional documentation may be required for special circumstances, such as agricultural products.
2. Duty, Tax, and Fee Calculation
After document inspection, customs officers assess applicable duties, taxes, and fees based on the goods' Harmonized System (HS) code classification, duty calculation methods, preferential origin, value compared to the country’s duty and tax de minimis values, Incoterm assessment, and more. These factors determine the import’s total landed cost.
3. Incoterm Assessment
Incoterms, like Delivered Duty Paid (DDP) and Delivered at Place (DAP), define who is responsible for paying duties and taxes.
- DDP: Duties and taxes are pre-paid, streamlining customs clearance. This can be managed by charging the full landed cost at checkout and selecting the billing option that supports DDP.
- DAP: Duties and taxes are not pre-paid. The carrier fronts the money to customs and then bills the customer before delivery, leading to longer delays and a poorer customer experience.
For tax-registered businesses sending shipments to countries with low-value tax schemes, the shipment is typically marked DAP, and the seller remits the tax directly to the tax authority, avoiding customs holds.
4. Decision on Shipment (Clear, Hold, or Reject)
If there are no issues during the previous steps, customs releases the shipment for delivery. If there are infractions, the shipment may be held or rejected.
Avoiding Customs Delays
To minimize delays at customs:
- Adhere to all trade regulations of the destination country.
- Send packages as DDP whenever possible.
- Register with a tax ID for countries with taxation schemes.
Understanding and following these guidelines ensures your goods pass through customs smoothly, minimizing delays and additional costs.