Importing into the US and selling to a foreign customer? Here’s how to get a refund using duty drawback.
Say that you are an online retailer selling hair products based in the US with a large customer base in South America.
Your manufacturer is in Vietnam, but you fulfill all of your orders out of Texas. When your latest shipment of shampoos arrives at US customs, you will have to pay import duties on all of those items.
The items are loaded onto a truck and brought to your warehousing and fulfillment center to await purchase. Half of those shampoos are sold to customers living in the United States, while half are purchased by individuals living in Columbia, Argentina, and Brazil.
When those items reach the borders of those respective South American countries, you will have to pay another import tax. In effect, you will be paying duties twice.
Incurring this double duty could force you to:
- Raise prices for foreign buyers, resulting in fewer customers abroad
- Swallow the cost on your end, resulting in slim margins
- Become frustrated with selling abroad and give up on efforts to expand your business
Luckily, you can get back nearly all of that money through a duty drawback program. However, there are a few things that you will need to be able to get that refund.
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Here’s what you need to get your duty drawback refund
Of course, no business wants to spend more money than they need to. Yet, a survey by KPMG
shows that US businesses are underutilizing duty drawbacks, mostly due to frustrations with the complexity of the process.
Getting a refund for paying import taxes, or duties, twice is well worth the effort for most importers. The average importer in the US pays around 5.63% in duties. Particularly since new protective tariffs were put in place in 2018, many US businesses have found that paying double the duties is a cost they cannot afford.
However, there are a few things you need to have to qualify for a duty refund in the United States.
Who is eligible?
To qualify for a duty drawback refund in the US, your situation needs to fit into one of the below categories:
1. Unused merchandise
The unused merchandise case applies when you have imported goods into the US, only to either export or destroy the goods without making any material changesto the goods.
2. Manufacturing
This applies when you further manufacture or change the items after they are imported into the US.
3. Refected Merchandise
This case applies to any imported products that arrived damaged or not according to your requests.
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Filing requirements
To file for duty drawback, you’ll need to file a claim with the US Customs and Border Protection department.
That claim needs to include verifiable evidence that you both paid import fees into the US and that those items you paid import fees on were exported to another country (or that they qualify for duty drawback under one of the other two aforementioned cases).
To file a claim, you can either purchase the filing software or use a customs broker/other service provider to do it for you. Use the electronic ACE system to file, as paper filing is no longer accepted by CBP.
You will need to provide various documents and invoices pertaining to the sale, purchase, import and export of your goods, including the following:
- Proof of duties paid: form 7552, ie the certificate of delivery
- Proof of import:customs clearance documents ie import entry summary(CBP form 7501) and your import invoice
- Proof of export:Including the bill of lading, sales invoice, and any other material relevant to the sale
For a complete list of what you need to file a claim, check outpage 96 of this ACE document.
Tips for duty drawback refund success
Applying for duty drawback is a notoriously tedious process. Here are a couple of tips to get it right.
Keep your records straight
Just like with any refund, the key to getting your money back is to keep meticulous records. Store all invoices and receipts, along with all customs-related documents, in a central location online.
Putting a system in place that can accurately track and store info on products entering and leaving your warehouses is crucial for making a duty drawback claim.
One application that is crucial to good record-keeping for e-commerce retailers is a reliable inventory management system. You can even integrate software systems like ERP or WMS together so that everything is automatically tracked and recorded, from the sales transactions with your manufacturer to the importation documents at customs.
Work with a logistics partner
Over the past several years, rising costs and competition have made saving money on imports more important than ever. Despite that, many companies are still not taking advantage of the US duty drawback plan.
Applying for a claim to duty refunds is tedious, and may be outside of the wheelhouse for smaller businesses.
That’s why we’d recommend working with a third-party provider. Provider types you can work with range from the customs broker, who focuses solely on getting your goods through customs, to the more holistic fourth-party logistics provider.
Not all logistics providers are built the same, so we’d recommend doing your research to get a detailed list of what services your provider offers. Depending on your in-house capabilities, there are different levels of care. Read on to find out more about one of the best options for international businesses looking for flexibility and partnership: the 4PL.
Set yourself up for customs success with CBIP
Managing to grow a business abroad already has many e-commerce managers stretched thin. Overseeing and documenting customs processes can be an unwelcome burden for overstressed retailers.
Our mission at CBIP Logistics is to help out retailers like you by taking the logistics details off of your plate — from managing the import/export process to helping you ace final-mile delivery in a foreign market.
As an international 4PL provider, we specialize in putting together and overseeing international e-commerce selling. That means that we are your importer, your freight forwarder, your customs broker, and your consultant.
On top of getting all those services from one central provider, we also put your data from all logistics activities in one place using our WMS-powered system. That way, when we need to provide information to get you your duty refund, everything you need is right there on our platform for you.
If you are interested in learning more about CBIP Logistics, we’d love to hear from you. Reach out today for a free consultation.
