How to Calculate Import Duty: HS Codes, Rates and a Worked Example
Import duty is one of the biggest costs that never appears on your supplier invoice. It is a tax your own country charges to bring goods across the border, and it can add anywhere from nothing to 20% or more on top of what you paid the factory. Miss it in your pricing and it comes straight out of your margin. This guide explains how duty is worked out, how to find the rate for your product, and how to calculate it with a real example.
What import duty is charged on
Duty is not a flat fee. It is a percentage applied to your customs value, which is usually more than the factory price. Two things decide how much you pay: the duty rate for your specific product, and the customs value the rate is applied to. Get either one wrong and the number is off.
HS codes: how the rate is set
Every product that crosses a border has a Harmonised System code, or HS code. It is a six-digit number used internationally to classify goods, and most countries add more digits on the end for their own tariff schedule (the US HTS uses ten digits, for example). That code is what determines your duty rate. A cotton t-shirt, a steel bracket and a plastic phone case each sit under a different code with a different rate.
- Ask your supplier for the HS code they use to export the product. It is a starting point, not gospel, because classification is your responsibility in your own country.
- Confirm it against your own country's tariff schedule, published on the customs or border authority website.
- If the product is unusual or borderline between two codes, a customs broker can classify it properly. A wrong code means a wrong rate and potential penalties.
Working out your customs value
This is where importers trip up, because the basis differs by country. Some countries charge duty on the goods value alone (the US generally uses the transaction value, roughly the FOB price). Others charge on a CIF basis, meaning goods plus international freight plus insurance (Australia, the UK and the EU broadly work this way). Check which basis your country uses before you calculate, because including or excluding freight changes the duty.
Rule of thumb: if your country uses a CIF basis, your freight and insurance are being taxed too, so cheaper freight quietly lowers your duty as well.
A worked example
Say you import 500 units at USD 12.50 each, your working currency is AUD at a rate of 1.53, and your product's duty rate is 5%. Australia uses a CIF basis, so freight and insurance are included in the customs value.
- Goods value: 500 x 12.50 = USD 6,250, about AUD 9,563
- Freight and insurance: AUD 850
- Customs value: 9,563 + 850 = AUD 10,413
- Duty at 5%: 10,413 x 0.05 = about AUD 521
So the duty on this shipment is roughly AUD 521, or about AUD 1.04 per unit. On a US-basis import the same duty rate would apply to the goods value alone, giving a slightly lower figure. Small as it looks per unit, across every order of the year it adds up to real money.
Do not forget import tax on top
Duty is usually only part of the border bill. Most countries also charge an import tax or GST or VAT, and it is normally calculated on the customs value plus the duty, not just the goods. Because the tax sits on top of the duty, the order you apply them in matters. Duty first, then tax on the new subtotal.
Duty is just one line in your true per-unit cost. Our free landed cost calculator adds duty, GST, freight and fees automatically so you can price with confidence. Open the free landed cost calculator
CIF or FOB: the basis changes the number
Two countries can charge the same duty rate on the same product and produce different amounts of duty, because they calculate the customs value differently. This is the single biggest reason a duty estimate from an overseas forum does not match your invoice.
- CIF basis: the customs value includes the goods, plus international freight and insurance to the border. Australia, the EU and the UK work this way, among many others. Freight is effectively taxed.
- FOB basis: the customs value is the goods value at the port of export, and international freight and insurance are excluded. The United States works this way.
On a shipment where freight is a large share of the total, and that is common with bulky, low value goods, the same rate on a CIF basis can produce noticeably more duty than on an FOB basis. If you sell into more than one market, calculate each separately rather than assuming one number travels.
Free trade agreements and rules of origin
A preferential rate under a free trade agreement can reduce your duty to zero, and it is the most commonly missed saving in importing. But the rate is not automatic, and two things trip people up.
First, origin is not the same as the country you shipped from. Goods shipped from China are not automatically Chinese origin for duty purposes, and goods routed through a third country do not take on that country's origin. Origin is decided by where the goods were produced or last substantially transformed, under rules that vary by agreement and product.
Second, you need the paperwork at the time of clearance. Depending on the agreement that means a certificate of origin, or a declaration of origin from the exporter, in the required format. Turning up without it and trying to claim the rate afterwards is possible in some jurisdictions and painful in all of them.
If your supplier can provide a certificate of origin and you are importing into a country with an agreement in place, ask for it on every order as a matter of routine. It is free to request and it can be worth several percent of your landed cost.
Anti-dumping and other extra duties
Beyond the standard rate, some products attract additional duties that are far larger and are easy to miss because they are attached to specific goods from specific countries rather than to the tariff code alone. Anti-dumping and countervailing duties are the common ones, and they can run to tens of percent.
They tend to apply to categories like steel, aluminium, chemicals, glass and certain manufactured goods. If you are importing anything in an industrial category, ask your broker to check specifically before your first order rather than discovering it on the clearance invoice.
Common mistakes
- Trusting the supplier's HS code without confirming it against your own country's schedule.
- Applying duty to the goods value when your country uses a CIF basis (or the reverse).
- Calculating GST on the goods only, when it usually sits on the value including duty.
- Assuming duty is zero because one shipment cleared without it. Rates and thresholds change, and enforcement is not consistent.
The bottom line
To calculate import duty, find your product's HS code, confirm the rate on your own country's tariff schedule, work out your customs value on the correct basis, and apply the percentage. Then remember the import tax that usually follows. Build both into your landed cost from the first order and the border will never surprise your margin.
Related guides
- HS Codes Explained: How to Classify Your Product for Import
- Customs Clearance: What Happens When Your Import Arrives
- How to Calculate CBM and Choose the Right Container
Landed Cost Calculator is free and needs no account.