What Is a Customs Value: How to Calculate and Declare it?

International merchants frequently ship goods across borders. Imported goods consignments must pass through customs authorities.

Customs authorities charge customs duty, fees or taxes based on the customs value you declare for your goods. Determining the customs value is also needed to claim shipping insurance should your shipment be subject to any damage or loss.

This article at a glance

Customs authorities use customs value to assess the value of imported goods, thus determining the duties and taxes the merchant is obligated to pay. Traders must declare the correct customs value for their shipments or face penalties. Using the six methods of the customs valuation method to determine customs value can save a lot of time.

What is a customs value?

Customs value is the total value of your goods as assessed by customs authorities. It determines the level of customs duties levied on the items you import into another country.

If you want more detail, check out the World Trade Organisation’s Customs Valuation Agreement — an outline of the principles of its customs valuation requirements. It’s a useful tool for customs purposes.

What is the declared value for customs?

Customs value is how much the sender calculates their goods are worth. In essence, the commercial value. Declaring the correct amount when you calculate customs is vital for three reasons:

1. To clear customs quickly and pay the correct import taxes or fees
2. To get a fair shipping rate from couriers — high-value items correspond with higher shipping rates
3. To help determine the insurance value or maximum amount you can claim in case of damaged or lost goods

What do I have to declare at customs?

At customs, you must declare:

1. The type of goods under the HS code
2. A detailed description of your products. Including a description of the physical characteristics of the goods is useful
3. The actual price paid for the items (cost of goods sold)

The HS code, or Harmonised System, is a global product identification system that indicates tariff lines and rules for each product. Customs officials and economic operators identify goods by 6-digit numeric codes.

From the example below, the lettuce’s HS code is 070 511.

For retail shipments, you must declare the price you intend to sell the items at (selling price).

How to prepare a value declaration letter for customs?

FedEx’s Shipping Channel gives a decent summary of how you must prepare a value declaration letter for customers.

1. Assess the customs value (declared value) of your imported goods — the total value of all your goods in the shipment. In other words, the customs value is the total price paid for the items to be imported
2. Determine the HS codes of your products
3. Declare the assessed value on the commercial invoice
4. Provide evidence of sales, such as a contract or bank payment. Otherwise, customs officials might request proof of sale from the receiver
5. State freight and insurance costs

As a result, customs authorities can see who bears the risks and costs of your shipment based on the Incoterms. This is important for insurance purposes, ensuring you know who has maximum liability for any damage or loss to the goods.

All of this will ensure a smoother process on the part of customs, who can determine the correct import duties.

A declared value for customs calculation: transaction value method

To determine the declared value of your imported goods for customs, you want to include costs incurred in the manufacturing process, container costs, packing costs, delivery costs, selling price, and the cost of raw materials.

This is called the 'transaction value method' - the way to work out the ultimate transaction value of the shipment. Ensure this is all calculated at a fair market value.

A declared value for customs calculation example:

Crystal GmBH, a German company, bought 3 tons of Epsom salts from its supplier, Salt Inc., India, on Ex Works (EXW) Incoterms.

Cost of Epsom salts € 6,000 Sales commission € 600 Cost of transport to the port of exportation € 200 Handling and processing fees at the port of exportation € 100 Cost of sea freight € 200 Cost of shipment insurance € 50 The customs value (or the transaction value) is the total of all these costs, which is € 7,150.

If you’re unable to work out the transaction value of your imported goods, you could work out the transaction value of identical goods.

This is called the identical goods method. In the UK, for example, they must be produced in the same country, of a similar characteristic and quality (for example, the same component materials), and exported to the UK at the same time. Minor differences in look and feel aren’t important.

Where do I state the value of my customs declaration?

You state the customs value on the commercial invoice of the customs declaration.

How do customs assess the value?

So now your shipment is at the customs office. Customs calculate the value of goods based on the World Trade Organisation’s Customs Valuation Agreement (CVA). Customs duties are based on six methods — the six methods of the CVA. This allows them to calculate how much import duty is to be paid.

Any ambiguity regarding the amount declared would delay the shipment of your products. Undeclared or undervalued items may result in a fine or the items to be seized. Therefore, it is crucial to declare an accurate customs value of your goods.

Which value do I declare on my commercial invoice?

Declare the actual price you paid for your goods. Ensure that you have the corresponding proof of transaction for your customs value declaration.

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