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Customs duty is a three-step sum. First you establish the customs value (usually the invoice price plus transport and insurance to the EU border, the CIF basis). Then you multiply it by the rate tied to your tariff code. Finally, import VAT is charged on the total of customs value plus duty.
Three things you need before you calculate
Before you work out any figure you need three inputs. Without them every result is a guess, and an error in any one of them feeds straight into the amount you owe.
- The tariff code (CN/HS) of the goods. It decides the duty rate. How to get it right is covered in our piece on how to find your CN/HS customs tariff code.
- The goods value from the commercial invoice and the delivery terms (Incoterms), because they decide which costs you must add to the customs value.
- Transport and insurance costs to the EU border, if the invoice does not already include them.
Step 1: build the customs value (CIF basis)
The customs value is not simply the invoice price. To the price of the goods you add the costs incurred up to the place where the goods enter the EU customs territory. In practice this usually comes down to the CIF basis: goods price plus freight plus insurance to the border.
If the seller delivers on terms that do not cover transport into the EU (for example ex works), you add the actual transport and insurance for the leg up to the border. If delivery is already paid to a place inside the EU, part of those costs sits inside the price and you do not add it again. That is why Incoterms have such a strong effect on the final amount.
| Incoterms rule | Who pays transport to the EU border | What you add to customs value |
|---|---|---|
| EXW (ex works) | Buyer | Full freight and insurance to the EU border |
| FCA / FOB | Buyer from the point of dispatch | Freight and insurance to the EU border |
| CIF / CIP | Seller to the place of destination | Usually nothing above the price (costs already in it) |
Step 2: calculate duty from the customs value
Duty is the customs value multiplied by the rate attached to your tariff code. The rate comes from the EU customs tariff (TARIC) and depends on the type of goods and their country of origin. The same product can carry a zero rate (under a trade-agreement preference) or several percent if no preference applies.
The formula is plain: duty = customs value x duty rate. If the rate is 0 percent there is no duty, but you still calculate import VAT. That is why a wrong code can cost twice: an inflated duty rate and a wrong VAT base. We set out the fallout of a mistake in our article on the consequences of a wrong HS code.
Step 3: calculate import VAT
Import VAT is not charged on the goods price alone. The base is the customs value increased by the duty and by other charges due on import (for example part of the transport cost on EU territory up to the first place of destination). Only on that total do you apply the VAT rate.
This is the detail that trips up many importers. Duty enters the VAT base, so it lifts not only the duty amount but the tax as well. Who is formally liable for duty and VAT on a given shipment is explained in our piece on who pays customs duty and VAT on import.
Worked example (illustration)
The figures below are only a teaching example. They do not reflect any real rate or any specific product. Assume a non-EU import on EXW terms.
- Goods price on the invoice: 10,000 PLN
- Transport and insurance to the EU border: 1,000 PLN
- Customs value (CIF basis): 10,000 + 1,000 = 11,000 PLN
- Assumed duty rate (example): 6 percent, duty = 11,000 x 6 percent = 660 PLN
- VAT base: 11,000 + 660 = 11,660 PLN
- Import VAT at 23 percent: 11,660 x 23 percent = 2,681.80 PLN
- Total duty and tax due: 660 + 2,681.80 = 3,341.80 PLN
Change one input and the result moves. A different tariff code means a different rate. Different Incoterms mean a different customs value. So before you file the declaration it pays to run the numbers dry and compare a few scenarios.
When the transaction value method cannot be used
The transaction value method is primary but not always available. You cannot use it, among other cases, when there is no sale (free goods, samples, a transfer within one company) or when a relationship between the parties has influenced the price. Then the Union Customs Code requires you to move through the further methods in a set order: value of identical goods, similar goods, the deductive method, the computed value method and, finally, the fall-back method.
These are the situations where a costly error is easy. If goods travel free of charge or between companies in one group, it is worth agreeing the base with a customs agency before the value reaches the declaration.
Outside the EU: duty calculated differently
Not every market charges duty on value. Switzerland as a rule charges duty on the gross weight of the consignment, per 100 kg, rather than on the value of the goods. Swiss-side customs clearance now runs through the Passar system, which replaced the former e-dec in the BAZG administration. Check the mechanism and current rates directly at source: bazg.admin.ch. We describe the specifics of this lane on our transport to Switzerland page.
For export to the United Kingdom, duty and VAT settle under UK rules, based on the commodity code and value. That is a separate procedure we have run on the PL-UK lane since 2011. More in the export to UK section.
Who calculates it for you
Getting the amount right is not arithmetic; it is the correct tariff code, the correct customs value and the correct rate. A slip in any element means a top-up payment, an amended declaration or an inspection. At OTSL we run clearances through our own customs agencies in Poland and the UK, and one contact person calculates the charges and prepares the declaration from start to finish. Write through our contact form, give the code or a description of the goods and the delivery terms, and we will calculate your duty and VAT before the goods move.
How is import VAT calculated on imported goods?
Import VAT is calculated by taking the sum of the customs value and the duty amount, and applying the applicable VAT rate to that total.
Step by step
- Determine the goods price. Check the purchase price on the commercial invoice issued by the supplier.
- Add transport costs. Include freight and insurance expenses incurred up to the entry point of the customs territory.
- Calculate customs value. Sum the item price and eligible delivery charges to set the tax base.
- Apply the duty rate. Multiply the calculated customs value by the rate assigned to your tariff code.
- Calculate import VAT. Apply the VAT percentage to the sum of the customs value and the duty amount.
Definitions
- Customs value: The baseline amount used to calculate duty, usually comprising the invoice price plus transport and insurance costs to the border.
- CIF basis (Cost, Insurance and Freight): A shipping term where the delivery costs and insurance up to the destination border are included.
- Tariff code: A standardized numerical code used to classify goods and determine the applicable duty rate.
- Import VAT (Value Added Tax): A tax calculated at import on the combined total of the customs value and the customs duty.
- Union Customs Code (UCC): The framework of rules governing customs procedures across the European Union.
The OTSL role
We organise international transport and assist with border clearances to ensure correct customs valuation. Explore our road transport (FTL) services or read our article on customs clearance costs breakdown.
