How Much Duty Will I Pay? A Plain-English Guide to Customs Valuation

Short version. Customs duty equals customs value × duty rate. The customs value is set by the WTO Customs Valuation Agreement, with six methods customs may use in priority order. The duty rate is published per HS code in the destination country’s tariff schedule. Once duty is added, VAT or GST is applied on the duty-paid value. Brokerage fees, port charges, and last-mile delivery sit on top. The combined cost over the goods value is typically 25–60% for most B2C imports.

The basic equation

For most shipments:

Duty = Customs value × Duty rate
VAT (or GST) = (Customs value + Duty) × VAT rate
Total taxes = Duty + VAT + Brokerage + Port fees

What is the customs value

Customs value is the figure customs uses to compute duty. It is governed by the WTO Customs Valuation Agreement (CVA), which the US, EU, UK, China, India, and ~165 other countries follow. The CVA defines six valuation methods, used in priority order:

1. Transaction value — the price actually paid or payable by the buyer to the seller, adjusted for the agreed Incoterm. This is used in 90%+ of cases.
2. Identical goods — the customs value of identical goods previously imported.
3. Similar goods — the customs value of similar goods previously imported.
4. Deductive value — based on resale price in the destination market, deducting margin and post-import costs.
5. Computed value — based on the production cost plus profit / general expenses.
6. Fallback method — reasonable means consistent with the CVA principles.

Most importers care only about Method 1 (transaction value). The others come into play when customs has reason to believe the declared value is not the actual transaction value — usually a related-party transaction or a suspiciously low declaration.

Adjustments to the transaction value

The transaction value is your invoice price, with these adjustments depending on the Incoterm and circumstances:

Adjusted UP by

• Freight to the destination country (when not in invoice price)
• Insurance (when not in invoice price)
• Royalties or licence fees the buyer must pay as a condition of sale
• Sales commissions paid by the buyer to a third party
• Materials supplied by the buyer free or at reduced cost
• Tooling or molds supplied by the buyer for the production
• Engineering, design, or development work done outside the import country

Adjusted DOWN (or excluded) by

• Inland freight in the destination country (after import)
• Installation, assembly, or maintenance after import
• Buying commissions (as opposed to selling commissions)
• Duties and taxes paid in the destination country
• Discounts that are clearly part of the actual transaction

Incoterm-specific

• EXW, FCA, FAS, FOB: invoice price typically excludes freight + insurance, so customs adds them.
• CFR, CPT: invoice price includes freight; add insurance only.
• CIF, CIP: invoice price already includes both; no addition needed.
• DAP, DPU, DDP: invoice price includes freight + insurance + (for DDP) duties. Customs may need to unbundle.

Duty rate types

Duty rates come in three forms:

• Ad valorem — a percentage of customs value (the most common). Example: 6.5% on automotive parts.
• Specific — a fixed amount per unit of measure (per kg, per litre, per piece). Example: $0.34 per litre on still wine into the US.
• Compound — a combination of ad valorem and specific. Example: a watch with a percentage rate plus a fixed amount per movement.

Worked examples

Example 1: $1,000 of cotton T-shirts, China → US

The US has no federal VAT, but state sales tax may apply when the goods are first sold to a consumer.

Example 2: €500 of stainless steel bolts, US → Germany

For a VAT-registered German business, the €98.52 import VAT is recoverable on the next quarterly VAT return; the €18.50 duty is a cost.

What changes if you can claim a free trade agreement

FTAs offer reduced or zero duty rates if your goods qualify under the agreement’s rules of origin. Active examples:

• USMCA — most goods 0% between US, Mexico, Canada.
• CPTPP — phased reductions across 11 Pacific Rim countries.
• EU bilateral FTAs — with Korea, Japan, Vietnam, Canada (CETA), UK (TCA), and others.
• GSP — duty-free or reduced rates from least-developed countries to developed markets.

To claim, you need (a) goods that qualify under the rules of origin and (b) the appropriate proof — Certificate of Origin or origin declaration. Without proof, you pay MFN.

Practical estimation workflow

1. Find the HS code for your product. Use our HS chapter index or the wizard autocomplete.
2. Look up the duty rate in the destination country’s tariff (USITC HTS, EU TARIC, UK Global Tariff, etc.).
3. Calculate customs value: invoice price + freight + insurance (per Incoterm).
4. Apply duty rate.
5. Calculate VAT on (customs value + duty).
6. Add brokerage, port fees, last-mile to get the full landed cost.
7. If buyer-paid (DAP / FOB), quote the buyer in the breakdown so they aren’t surprised. If seller-paid (DDP), build it into your retail price.

FAQ

What to do next

Estimating duty per shipment is a recurring exercise. Generate the commercial invoice with our wizard — it auto-computes the declared value per Incoterm, and the HS code goes through autocomplete. For the underlying classification work, see the HS codes primer and HS vs HTS vs TARIC. For the broader landed-cost picture (brokerage, last-mile, handling), see Landed Cost vs FOB.