The bottom line for an importer in Canada is, what will your product cost be – the total “landed cost”? You know what your product sells for in the US and the margin you would like to make, but what about the transportation, brokerage, duty and tax costs? Here are a few guidelines that might be helpful to you in computing landed costs for your products shipped to Canada.
Classification: The Harmonized system of classification can be used to assign a number to each item that will be exported. Once a classification has been assigned to a product, the information regarding how much duty will be applicable is available here. Also the United States Customs and Border Protection Service provides a database of classification rulings that are helpful in applying the guidelines for classification at CROSS (http://rulings.cbp.gov/). Admittedly, these resources require a basic understanding of the harmonized rules of classification. Guessing what the average duty a Canadian importer might expect to pay is not recommended. A knowledgeable consultant such as a US or Canadian Customs broker can help interpret this information with regard to your products considered for export to Canada.
The goods and services tax (GST) applied to most goods exported to Canada is five percent of the sales price plus the duty. Some provinces of Canada, such as Ontario and Vancouver, have instituted provincial taxes that the importer is obliged to identify on their tax return. In the end, a Canadian importer will pay the US sales price plus the duty, if any, plus the GST, plus the provincial or harmonized sales tax (HST), plus the transportation. For example, Ontario charges 13% HST, five percent times the value of the goods plus the duty is collected when the goods cross the border, and eight percent is to be self-assessed by the importer on his tax return, so it is very important to compute the duties and taxes prior to export. The GST/HST tax is recoverable by way of the “flow through” method of recovery or registering to collect and remit net GST/HST payments on a quarterly basis.
Thomas M. Stanton, International Analyst, AFMS, LLC can be reached at 503-646-8323 ortom.stanton@afms.com.
Classification: The Harmonized system of classification can be used to assign a number to each item that will be exported. Once a classification has been assigned to a product, the information regarding how much duty will be applicable is available here. Also the United States Customs and Border Protection Service provides a database of classification rulings that are helpful in applying the guidelines for classification at CROSS (http://rulings.cbp.gov/). Admittedly, these resources require a basic understanding of the harmonized rules of classification. Guessing what the average duty a Canadian importer might expect to pay is not recommended. A knowledgeable consultant such as a US or Canadian Customs broker can help interpret this information with regard to your products considered for export to Canada.
Duties and taxes: Once a harmonized number has been assigned to your products, you can look each item up to identify whether duties will be applied to your sales price to Canada. In general, duties to Canada vary from 0 to about 10% on products that are not produced in the US. Products that are produced in the US and meet the requirements of the North American Free Trade Agreement (NAFTA) can enter Canada duty free but not tax-free. If your goods are manufactured in the US and appear to qualify for NAFTA, employing an expert to ensure that you have all the documentation in place is recommended.
The goods and services tax (GST) applied to most goods exported to Canada is five percent of the sales price plus the duty. Some provinces of Canada, such as Ontario and Vancouver, have instituted provincial taxes that the importer is obliged to identify on their tax return. In the end, a Canadian importer will pay the US sales price plus the duty, if any, plus the GST, plus the provincial or harmonized sales tax (HST), plus the transportation. For example, Ontario charges 13% HST, five percent times the value of the goods plus the duty is collected when the goods cross the border, and eight percent is to be self-assessed by the importer on his tax return, so it is very important to compute the duties and taxes prior to export. The GST/HST tax is recoverable by way of the “flow through” method of recovery or registering to collect and remit net GST/HST payments on a quarterly basis.
Transportation and Brokerage: When quoting transportation costs on a product, the exporter must decide whether small package shipping or trucking is the most economical way to enter Canada. Small package shipping is for non-palletized shipments generally weighing less than seventy pounds per piece. UPS and FedEx offer ground and express services to Canada. Purolator- the largest Canadian Carrier - and DHL also offer good service to Canada. For shipments larger than 200 pounds, palletized shipments or weekly consolidated shipments, trucking to Canada is a better option. Some Canadian brokers offer clearance at the border and discounted small package rates with Canadian small package carriers for distribution. Customs clearance fees are usually included in express small package services but vary between approximately $40 and $100 per shipment, depending on the number of classifications involved and the value of the goods. Truck shipments to Canada are assigned an entry number referred to as the PARS number. One entry per bill of lading destination is a requirement of the Canadian import regulations.
NRI: Canadian import regulations allow for a US exporter to become a Non-Resident Importer (NRI) into Canada. The value of the NRI program is that it allows the exporter to pay the duties and GST for shipments to Canadian customers and thereby make only one charge to the shipper for the products being shipped. The basic requirements for the US Company are to retain export records including the complete customs clearance documentation (B-3) for seven years after the date of importation.
Summary: This has been a short summary of the key elements an exporter needs to consider for exporting to Canada. There is a very useful set of reference data provided for helping exporters to Canada provided by the Canada Border Services Agency. It is recommended that all exporters with Canadian clients be aware of the details that go into computing the landed costs for Canadian shipments.
Thomas M. Stanton, International Analyst, AFMS, LLC can be reached at 503-646-8323 ortom.stanton@afms.com.
