What is Customs Clearance

Have you heard about customs clearance before?

Are you interested in knowing about the process of customs clearance?

Customs clearance is the act of transferring (importing or exporting) goods through customs for safely entering another country. Trade is a global way of sending and receiving goods.

Every country has different rules and regulations regarding trade; hence, variable degrees of import and export duties/taxes will be imposed on goods crossing its borders.

In this blog, we will discuss customs clearance in detail.

We will mention all the important aspects of it like, the major import and export documents needed for customs clearance.

Also, we will discuss the whole process of customs clearance and all other necessary details. So, before you decide to import or export something, give this blog a read.

Table of Content

Chapter 1: A Must Know List – Understanding Customs Clearance

Chapter 2: Essential Documents for Import & Export Customs Clearance

Chapter 3: What to Do before Dealing with Customs Clearance?

Chapter 4: Step by Step Process of Customs Clearance

Chapter 5: Frequently Asked Questions About Customs Clearance

Chapter 1: A Must Know List – Understanding Customs Clearance

A necessary procedure that permits the transport of goods internationally is called customs clearance. Customs clearance can be a complex topic for you to understand as it has a lot of legal terms.

Understanding Customs Clearance

So before you get deep into the process of customs clearance, you must know the basics like what customs clearance is and when it is required, etc.

1. When is the customs clearance required?

Whenever we deal with international trading, we come across a term called customs clearance. It is the duty we pay to the government of a country for the transfer (import/export) of goods through its land.

So, customs clearance is required whenever we trade goods internationally.

2. How to calculate the customs clearance fee?

For instance, if you need to import vehicles from US to Europe, you need to follow the EU customs clearance tariffs, and the import duties can include, 22% for trucks, 10% for passenger cars, 6-8% for motorcycles.

Expect the import duties, depending on the country/region, you will pay value-added tax (VAT) of 19-22% on the import.

The total cost of customs clearance can be predicted by a few factors. You can also use different online tools available for calculation.

How to calculate the customs clearance fee

If you cannot find any tool for calculating customs clearance charges, you can simply check the documentation fee for different required legal documents.

And add the duties and taxes applied to different products to the documentation fee. In this way, you can calculate for yourself the total customs clearance fee.

3. How much time a customs clearance process usually costs?

Customs clearance takes not more than one day in normal cases when everything is fine. If you have any issues regarding documentation, packing, or other such things, the process may take more than normal time.

This is because sometimes your goods are suspected and checked thoroughly. So, unpacking and repacking also consume time.

4. Who is responsible for customs clearance? Buyer or seller?

Buyer and seller both are subjected to customs clearance.

When the buyer doesn’t have enough knowledge and can’t take responsible to all the process of customs clearance, he can hire a customs broker for this purpose.

A customs broker is a private individual or a firm that assists the buyer to pay taxes, helps in custom forwarding of goods from the customs office, and safely transfers them to the destination port.

A customs broker is responsible for organizing custom entries, paying duties, and taking care of the shipment.

He will inform you about any necessary changes that you should make in the documentation and keeps you updated about your shipment.

Being actively working with the customs clearance department, he knows the details which you do not, so he guides you about customs clearance.

5. What advantages does a customs broker provide?

You can contact a freight forwarder to provide you the service if customs broker, or you can hire a private broker also. The main advantages of hiring a customs broker are mentioned below.

  • A customs broker helps you in the safe shipping of your goods because they are professional in this field. You can collect professional advice from them and it will help you to avoid many difficulties while declaring your products at the customs.
  • A customs broker keeps you updated about the costs and also lets you know the strategies to save your money.
  • The customs broker will proofread the documentation and eliminate all the errors also.
  • When you are importing products from another country, a customs broker who does business on both sides can ensure that your goods get to you quickly.
  • Many customs brokers will provide you with additional tools or use internal systems to improve your efficiency, control your costs, and keep your products away from the risk of non-compliance.

6. Tracking the status of customs clearance

It is always a good idea to keep track of things. While dealing with the international shipping of goods, you can track your shipment for your satisfaction.

You can ask your freight forwarder to keep you updated, or you can give this responsibility to your customs broker. Most freight carriers provide real-time tracking services to sellers and buyers.

7. Tips that can help you in avoiding customs delay

Following tips are useful for avoiding custom delay and for quick forwarding of goods from the customs office.

  • Make sure you have all the documents ready so that you can quickly submit them when required.
  • Make sure that the documents are correct, complete, and duly signed.
  • Write the accurate value of goods so that customs officers can easily assess duty and taxes.
  • Do packaging according to the requirements of the customs department.
  • Clearly write a phone number so that you can be contacted easily if needed.
  • Write the information about the manufacturing of the goods. Tell where they were manufactured or produced.

Chapter 2: Essential Documents for Import & Export Customs Clearance

Essential Documents for Import & Export Customs Clearance

To pass all hurdles related to customs clearances, and import/export your goods easily, you should know about the essential documents.

You must know which certificate or invoice you should have. This helps you to go smooth with the process and experience successful international trading.

1. Must-include documents list for import & export customs clearance

The import and export of goods cannot be done without the necessary paperwork. You need legal documents for both processes.

So, the lists of documents needed for the customs clearance at import and export terminals are given below.

Must-include Documents for Import Customs Clearance Must-include Documents for export Customs Clearance
Bill of entry Pro-Forma Invoice
Commercial invoice Packing List
RCMC Registration certificate COO Certificate
BOL: Bill of Lading or Airway Bill Commercial Invoice
Import license Shipping Bill and Bill of Lading
Insurance certificate Letter of Credit LC
Letter of credit Bill of Sight
Notice of arrival Health Certificates
Test Report Warehouse Receipt
Technical Write-up or Literature and Industrial License

(Only for special goods)

Bill of Exchange
DEEC/DEPB/ECGC License Export License
GATT/DGFT declaration

2. Main documents to help the Customs Authority to clear the products quickly

The main documents that you will need to help customs authorities clear the products quickly are discussed below.

  • Export & Import License

To export goods, you must have an export license. The first international export of a shipper cannot be carried out without an export license as it is required only for the first time.

You have to first apply to the licensing authority, and afterward, the permission is granted. The chief controller of imports and exports is responsible for providing you the permit.

Import license, as the name indicates is the permission of a government grant to allow the import of goods that are restricted. For getting an import license, you have to apply to the licensing authority office.

  • Pro Forma Invoice

Pro Forma Invoice

Pro Forma Invoice is sent to the buyers before shipment once the order is confirmed. It is an agreement between all parties.

In some countries, the pro forma invoice is also used instead of a commercial invoice. Hence, it is also used to determine the import taxes and duties.

The pro forma invoice is generated according to the terms and conditions decided by both parties. So, it also includes the info about the number of goods.

  • Customs Packing List

The list of all the items included in shipping is known as the customs packing list. This list can be matched with the pro forma invoice for double-checking.

It is sent with the shipment because it helps the transportation companies to keep track of the things included in the shipment. It minimizes the risk of international exporting of wrong cargo.

  • Country of Origin

The COO – country of origin, is issued by the exporter. It is a declaration that ensures that the goods being shipped are manufactured, processed, or acquired from a particular country.

  • Commercial Invoice

Commercial Invoices can be defined as a mandatory legal document issued by the seller of goods. It connects two parties and is used as proof of sale between them.

The commercial invoice has the following things mentioned on it:

  • Volume and weight of goods
  • The number and date of the invoice
  • Pricing of goods being sold
  • Freight insurance
  • Tax identification numbers of buyers and sellers and other information.
  • The incoterm buyer and seller have agreed upon

Customs forward the shipment only after accurately matching this information (commercial invoice) with the actual shipment.

  • Shipping Bill

When a ship or vessel is allowed to move out of a country, it is granted a shipping bill. The bill is then physically verified by the authorities. The assessment of the value of exported goods is done through this bill.

In short, a shipping bill assists an exporter to get quick customs clearance, easy loading of goods, and beneficial claiming of duty drawbacks. So, a shipping bill is a measurable record or a report of goods and their value.

  • Bill of Lading

Bill of Lading

BOL – Bill of Lading is evidence that the importer and the exporter have entered a contract. It is a legal document issued to the shipper. You can also find product information on it.

BOL can be used as a receipt of lawful shipment at the port. You cannot proceed with international shipping if you do not have it so, it is an important document that needs to be duly signed and kept safe.

  • Bill of Entry

The bill of entry is required to start the examination of goods. It is a legal document that is signed by the importer or carrier of the shipment.

It is filed with the customs department. The importer or the customs broker is responsible for filing it before the arrival of shipment.

The Customs department requires it for the clearance process.

  • Customs Invoice

A customs invoice is the same as a commercial invoice. It has a specific format that was set by the customs authorities. The customs broker is responsible for supplying you with a form, and after that, you can fill out your customs invoice.

  • Insurance certificate

Insurance certificate

It assists in the verification of shipment and import customs clearance. It ensures that the selling price contains the insurance too. It is important for the determination of the import duty aggregate.

  • GATT/DGFT declaration

While completing the customs clearance formalities, GATT/DEFT declaration is filed by all importers. You need to follow the terms of the General Agreement given below to file GATT/DEFT.

  • Imported goods customs valuation
  • One copy of the declaration for the declarant
  • Two copies of the declaration for the customs administration
  • Accurate filling of the form

Chapter 3: What to Do before Dealing with Customs Clearance?

What to Do before Dealing with Customs Clearance

Paying customs is not the only requirement of international trade. You have to comply with the packaging requirements, choose a customs broker, have knowledge about the trade agreement, and prepare documents.

Before getting involved in the process of customs clearance, you should have a clear understanding of few things mentioned below.

1. Picking a customs broker

A customs broker is an individual who facilitates the process of customs clearance. He makes sure that the shipment meets all the standards, rules, and regulations for the export of goods. He assists with the documentation and payment of taxes.

Before worrying about customs clearance, you need to look for a customs broker. The freight shipping companies also provide this facility. You can hire your own customs broker or take help from 3rd party also.

2. Check trade restrictions

You should know what are the restrictions related to trade. Every country has different rules and regulations, and traders are bound to comply with them.

Some things may be prohibited in one country and allowed in another. So, it is a better way to check the lists generated by the government before exporting or importing goods.

Check trade restrictions

The main rule to crack the trade restrictions is to know what is prohibited and what is restricted.

You can import and export prohibited goods only if you have special permission. You are asked to fulfill certain conditions before grant of the trade permissions.

Some goods have restriction policies like:

  • Age restriction
  • Licensing restriction
  • Quantity restriction
  • Packaging restriction

You should follow all these restrictions to trade successfully.

Failing to comply with the rules can cause serious complications for you. Your cargo may get seized, and you may face legal issues and penalties.

3. Certain trade agreements

International trade cannot be completed without complying with trade agreements. These agreements are used to determine the value of duties and tariffs. Some trade agreements can help you and be advantageous, while others may cause hurdles.

However, it is a must to keep trade agreements in your mind before dealing with international trade. Some of these trade agreements are listed below.

  • FTAs – Free trade agreements
  • Anti-dumping trade agreements
  • CVDs – Countervailing duties / anti subsidy duties

4. Verify copyrights

Trading is not merely about the export and import of products. It is a huge responsibility. You have to protect your intellectual property and stay careful about other people also.

Verify copyrights

You can not infringe anybody’s copyrights. You should know the handling of intellectual property.

While exporting, you do not get the advantage of trademarks and copyright protection. If not checked, your goods may get seized at the port of another country for being counterfeit of other products.

5. Research about buyer/seller

Knowing about the other party is always a key point for a successful trade. If you are a seller, then, you should know about the buyer so well that you can trust them.

You should make sure that all the parties involved in your supply chain have been screened. Hence, you can save yourself from the restricted party.

Restricted party includes all those people who

  • Have previously been identified as drug traffickers
  • Have links with terrorist organizations
  • Have been involved in corrupt business practices.

Violating these conditions may lead to suspension of your trade license and also imprisonment. A safe solution to this problem is to get linked with renowned freight forwarders.

This is because they run screening programs before dealing with the shipment and also keep you updated.

6. Prepare documents

Preparation of documents is the next important step. You should keep the following important documents prepared before further advancement.

  • Commercial Invoice
  • COO – Certificate of Origin
  • Packing List
  • Letter of Credit
  • Airway Bill or Bill of Lading

Other documents may include licenses and permits that help in the completion of the process. Your customs broker may also help you in this regard. He might inform you which else document you need for the clearance of customs.

7. Confirm packaging requirements

Confirm packaging requirements

Packaging is the key to international trade. Certain rules regarding packaging have to be followed by exporters. You can only use specifically approved material for the packaging of goods.

The right packaging may save you from the torture of the hectic customs clearance process.

Not complying with the rules and regulations will cause problems. Because your cargo will be thoroughly checked in this case.

You may also need to pay for repackaging as your goods will be opened and unpacked for customs clearance in case of wrong packaging.

8. Pay attention to different kinds of invoices

While preparing for shipping paperwork you should also pay attention to the different kinds of invoices. This is necessary so that you can supply your customs broker with the correct documents. Following are the most popular invoices.

  • Commercial invoice
  • Pro forma invoice
  • Customs invoice

9. Pre-shipping inspections

Checking the shipment before going for the actual shipping process can save you from trouble. The pre-shipment inspection helps in quality control and the order of everything. You should check that:

  • You are shipping hazardless material.
  • You have attached easily readable labels.
  • The quality of goods is as promised.
  • You have not added any restricted or prohibited product without a license.

Chapter 4: Step by Step Process of Customs Clearance

Step by Step Process of Customs Clearance

Shipping and trading across borders are not the same as exchanging goods locally. International shipping involves the process of customs clearance. You need to know all the necessary details about it before getting into the process.

This chapter discusses all the extra steps you will need to follow for customs clearance.

1. Examination and verification of paperwork by a customs officer

There are certain documents that you need for shipping goods across borders. The documents required for customs clearance have been discussed in previous chapters.

A customs officer is responsible for the verification of those documents and other paperwork.

Commercial invoices are required for international shipments as it lists the most important information like contact information of all parties involved in the trade.

The commercial invoice also has the export date along with the Air bill number mentioned on it.

A customs officer will analyze the goods, the laws related to them in the country of import and export, and their value.

The Customs officer keeps a check on the fee applied to any shipment and makes sure all the taxes and duties have been paid.

2. Assessment and payment of duties for customs clearance

The import fee is not the same for all goods. Various types of goods have various ranges of import fees. To assess the duties and taxes for customs clearance, you need to know about the de minimis value.

As the name indicates, it is the minimum value that is subjected to taxes.

For instance, if you are trading goods with a de minimis value of $200, you will not be subjected to the duties unless the value of goods exceeds $200. Certain goods are subjected to taxes regardless of the de minimis value.

Another major factor in the assessment of duties and taxes is the mode of shipping i.e. the incoterm. There are different taxes for shipping through DDU (Delivery Duty Unpaid) and DDP (Delivery Duty Paid).

3. Choice of incoterm while shipping

The choice of incoterm while shipping is one of the most important decisions can make regarding international trading. In the best sceneries, you can either opt for DDU or DDP.

Choice of incoterm while shipping

DDU – delivery duty unpaid as its name indicates means that the import duties and taxes have not yet been paid. In DDU, the customs broker collects the required documents from the customs officer independently.

If you involve a middleman (customs broker), then he will also charge a fee for his services. A customs broker will help you in the process of customs clearance.

DDP – Delivery duty paid means the taxes and duties are already paid. The paid amount covers all the import fees so, it is predicted that DDP offers more benefits than DDU. A brief account of all the charges is given below.

DDU charges DDP charges
Variable taxes Variable taxes
Fee for administration of goods = $15

Fee for handling of goods = variable but small

Goods inspection charges =$70

Goods storage charges = $10/day

Goods handling charges = $10

Goods insurance charges = $ 5

4. Actual shipping process

Shipments are held at the customs office until the complete satisfaction of the customs department. These shipments are only released when all the obligations (paperwork, taxes, and duties) get fulfilled.

The actual shipping starts once all duties get paid, and all the goods are according to the customs laws. Choosing the transport service for your goods is your responsibility. The shipment that has paid all the duties very rarely gets stuck in the customs department.

Chapter 5: Frequently Asked Questions About Customs Clearance

faqs

1. Is customs clearance time-consuming?

Customs clearance normally takes less than 24 hours in total. However, in certain cases when goods are suspected, it may take several days or even a week for inspection.

thus, it is a good idea to comply with the packaging requirements, and not import/export prohibited goods.

2. Is customs clearance costly?

The total cost of customs clearance depends upon the customs broker you have hired. Various customs brokers quote various prices.

The total fee includes the charges of customs clearance, shipment charges, fee for inspection by customs clearance authority, delivery costs, and agency fee. Freight forwarders can also be hired as customs brokers.

Once you agree, you cannot do anything regarding pricing. So, you must see the detailed contract and ask for any hidden charges from the customs broker.

3. Where can someone find a customs broker?

Finding a customs broker is simple. You can ask your freight forwarder to provide you the services of a customs broker. Otherwise, you can appoint anyone who has the CHA – customs house agent license.

All customs brokers do not have to deal with all kinds of freight shipping. Before deciding on the customs broker, you must see their specialty.

When shipping through the air you will need a customs broker who has experience of customs clearance orders regarding air shipping, and similarly, you can check for sea freight.

4. What are the key documents needed for customs clearance?

Various important documents are needed for import and export customs clearance. Few key documents among them are mentioned below.

  • The commercial invoice
  • Packing list
  • The certificate of origin
  • Permits and inspection certificate
  • The LOC – Letter of Credit
  • The bill of lading
  • Licenses of import and export

5. Who is responsible for customs clearance?

A customs broker is responsible for dealing with customs clearance. Trade involves both import and export of goods. Hence, the seller who is exporting and the buyer who is importing goods have to pay the customs charges.

Import custom charges are the responsibility of the buyer, while export custom charges are the responsibility of the seller. Similar are the rules regarding the division of responsibilities of custom clearance.

However, this may not imply in some scenarios. For instance, if you have agreed upon an incoterm that makes only one party liable for the costs and customs clearance, then the freight forwarder will not be held accountable.

6. Can I engage my own customs broker?

Yes, you can! A customs broker who is appointed by the buyer or seller himself is called a CHA – customs house agent. CHA is a third-party customs broker, and he must have a customs house agent license.

He must have the relevant knowledge and experience about customs clearance. A customs broker is required for export and import clearance at the port of origin and arrival respectively.

The freight forwarder of your consignment will have to hand over the documents to the CHA you appointed, and then he will be responsible for the customs clearance.

Any delays caused by CHA will have nothing to do with the freight forwarder, and thus the freight forwarder will not be liable for the additional costs.

Conclusion

With all the information that mentioned above, you can have a brief understanding about customs clearance.

It is important to know about it, as a cross-border businessman, all the requirements related to your products should be ensured before customs clearance to avoid problems.

We tried to improve your understanding and increase your knowledge in this regard.

We discussed the special checklist of documents required for import and export customs clearance, the method of clearing customs, and all the other essential details. If you still have any questions in your mind, ask us at EJET Sourcing.