Import duty is worked out on the customs value of the goods. Import VAT is then charged on the customs value, plus the duty, plus any other taxable amounts that the rules add to the base. For goods shipped to you, the customs value includes freight and insurance. The order matters, because the VAT is calculated on a base that already contains the duty.
Step 1: the customs value
The customs value starts from the price you paid for the goods, converted into your home currency. When you shop abroad, the conversion uses the rate customs applies, which is not necessarily the rate on your card statement or on a reference-rate chart. Our article on reference rates and card rates explains why the figures differ.
In shipping scenarios, freight and insurance are usually part of the customs value as well. The value therefore covers the cost of getting the goods to the border, not just the shelf price. The customs value defaults to what was paid, not to what a later tourist refund might return to you.
Step 2: duty comes first
Duty is the customs value multiplied by the duty rate. The rate depends on how the goods are classified and where they were manufactured, which is why two products from the same shop can carry different duty. The country of origin article covers that question in detail. The import duty calculator applies a single rate that you enter yourself.
A single percentage is a simplification. Some goods carry specific duties, which are fixed amounts per unit or per weight. Others are subject to quotas, anti-dumping measures or other controls that a percentage cannot describe. Where the rule is more complicated than a rate, the destination customs authority’s current tariff is the place to check. If you are importing into the United States, the CBP guidance on importing goods is the starting point.
Step 3: import VAT on the value plus duty
Import VAT is charged on the customs value, plus the duty, plus any other taxable amounts. The formula is (customs value + duty + other taxable amounts) × import VAT rate. This is the compounding step: the tax is charged on the duty as well as on the goods. A bill that applies VAT to the goods value alone understates the total, and the gap grows as the duty rate rises.
The inputs you need before you calculate
Gather five figures before you start, and write down where each one came from. The price is the amount on the invoice, in the currency you paid, converted at the rate customs will use. Freight is the carrier’s or forwarder’s charge for the trip to the border. Insurance is the cover charged for the goods in transit. The duty rate comes from the tariff entry for the classification of the goods, and the import VAT rate comes from the destination’s current page for that kind of goods. The brokerage fee comes from the broker’s invoice, with each line marked as taxable or not.
A calculation built on an invoice price and an estimated freight charge is still useful, as long as it is labelled as an estimate. Replace each estimate with the real charge when the invoice arrives and run the figures again. A change of a few units in freight moves both the duty and the VAT, so the estimate can look sound and still be off by more than the shipping difference you were comparing.
Worked example: goods, freight, insurance and duty
Every figure below is illustrative. The exchange rate, duty rate, VAT rate and fees are round numbers chosen to show the order of the steps, not the rates for any real product.
| Goods in home currency | 100 × 2 = 200 |
|---|---|
| Freight | 30 |
| Insurance | 10 |
| Customs value | 200 + 30 + 10 = 240 |
| Duty at an assumed 10% | 240 × 0.10 = 24 |
| Import VAT base | 240 + 24 + 5 other taxable amount = 269 |
| Import VAT at an assumed 20% | 269 × 0.20 = 53.80 |
| Brokerage and handling, including the 5 above | 12 |
| Total of goods, freight, insurance, duty, VAT and brokerage | 240 + 24 + 53.80 + 12 = 329.80 |
Read the table in order, because each line depends on the one above it. The customs value is 240, and duty is 24. The import VAT base is 269, which is the customs value plus the duty plus a 5 other taxable amount. VAT at 20% of that base is 53.80.
The compounding is easy to see if you compare with VAT calculated on the customs value alone. 20% of 240 is 48. The extra 5.80 is 20% of the 24 duty, which is 4.80, plus 20% of the 5 other taxable amount, which is 1.00.
The 5 is not a new payment. In this example it is the part of the broker’s 12 that the destination counts as taxable value, such as a handling charge. It raises the VAT base, but it is already inside the 12, so it is not added to the total a second time. The border charges are therefore 24 + 53.80 + 12 = 89.80 on top of the 240 customs value.
Brokerage and other charges need their own check. In the example, only 5 of the 12 brokerage is in the import VAT base; the rest sits outside it. A broker’s invoice can contain other lines, and each one may be treated differently depending on what it is and on the destination’s rules. Ask the broker to itemize its charges, and to say which amounts it expects to be taxed at import, rather than assuming the whole invoice is taxed or untaxed.
What a simple calculator cannot cover
A duty percentage and a VAT percentage handle many ordinary consumer goods, but they are not the full picture. Specific duties, quotas, anti-dumping duties, licensing requirements and restrictions on certain goods all fall outside a simple calculation. If the product is in a regulated category, or the origin is unclear, do not treat the output as a quote. Use it to see the order of magnitude, then confirm the duty with the destination authority or the carrier’s broker.
Checks that prevent surprises
- Confirm the customs value you will declare: the price paid, converted at the rate customs uses, plus freight and insurance in shipping scenarios.
- Find the duty rate for the classification and origin of the goods, not the category name on the shop’s website.
- Calculate duty first, then VAT on the value plus the duty.
- Add the fees the broker or carrier charges, and check which of them are taxable.
The full landed-cost calculator runs these steps together for a complete shipment. For why the duty rate may follow the place of manufacture rather than the shop, read the country of origin article.