Calculate duty: how the process runs, step by step

Duty is calculated by classifying the goods, fixing their origin and customs value, applying the correct rate, then checking the result before payment and posting. Trade compliance owns the classification and rate decisions. The customs broker files the entry, and finance pays, records and reconciles the charge.

The steps in order

1. Gather the shipment documents. Logistics, or the freight forwarder acting for it, sends the commercial invoice, packing list and transport document to the customs broker and to trade compliance. The purchase order reference has to travel with them. Without it, finance cannot tie the eventual charge back to anything.

1. Classify each line. Trade compliance assigns a tariff code, normally pulled from the product master. A new item goes to a classification specialist. If the answer is genuinely unclear, the company may ask customs for a binding ruling before goods arrive.

1. Establish origin. The same team checks supplier declarations and certificates of origin. Valid proof lets the company claim a preferential rate under a trade agreement. Missing or doubtful proof means the standard rate applies, whatever the buyer hoped for.

1. Work out the customs value. This usually starts from the price paid. Some costs must be added: freight and insurance to the border, royalties tied to the goods, or tooling the buyer supplied free to the manufacturer. The agreed Incoterm decides which of these are already inside the invoice price. Procurement and logistics hold most of the facts trade compliance needs here, and they are often not asked.

1. Convert the currency. The broker uses the exchange rate customs publishes for the entry date. The treasury rate in the ledger is a different number, which later explains many reconciliation gaps.

1. Compute the charges. Broker software applies the duty rate to the dutiable value, or a specific rate per unit of weight or quantity. Anti-dumping and countervailing duties sit on top where they apply. Quotas, suspensions and relief regimes such as bonded warehousing or inward processing can lower or defer the amount. Import VAT, excise and processing fees are worked out alongside, each on its own base.

1. Review the draft entry. Trade compliance compares the broker's figures with its own expectation. Anything unexplained is held back and queried before filing.

1. File and pay. The broker submits the declaration. Payment comes from a duty deferment account, from the broker's funds with a later recharge, or directly from the importer. Accounts payable matches broker invoices to the entry, routes them for approval and holds any that fail validation.

1. Post the cost. General ledger accounting books duty into inventory as part of landed cost, or to expense where policy says so. Import VAT goes to a recoverable tax account. Cost accounting adjusts standard costs when rates have moved.

1. Reconcile. Finance lines up the customs statement, broker invoices and ledger postings at period end. The broker is chased for differences, and unresolved items are logged.

1. Correct after release. Errors found later are fixed through post-entry amendments. Overpayments come back through repayment or drawback claims. A late certificate of origin can support a retrospective preference claim. Transfer pricing adjustments may also change customs value after the fact, and tax and trade compliance need to agree on how those are declared.

1. Audit. Internal audit or trade compliance samples entries against source documents. Customs may audit too, so records are retained for as long as the law requires.

Where the work changes hands

Most errors appear at hand-offs, not inside any single step. Product data moves from engineering to trade compliance. Freight costs live with logistics, while finance needs them in the valuation. The broker sees one shipment, and finance sees a monthly total. Anyone redesigning the process should trace a single entry from purchase order to ledger and note every point where someone retypes or re-keys a figure.

Broker dependence is another pressure point. Many companies accept the broker's calculation without checking it. That works until a classification or valuation mistake repeats across hundreds of entries and customs finds it first.

Questions to ask the people who run it

• Who actually decides the tariff code for a new product, and where is that decision written down?
• When a certificate of origin is missing at entry, what happens next, and does anyone go back to claim the preference later?
• How do freight, insurance and royalty costs reach the person valuing the goods?
• Does anyone recheck the broker's figures before filing, or only after the invoice arrives?
• Which exchange rate does finance use when posting duty, and how is the difference handled?
• How are price adjustments from suppliers or intercompany true-ups reported to customs?
• What happens to a broker invoice that does not match an entry, and who clears the hold?
• Where do refunds and amendments get recorded, and does the ledger reflect them?
• When customs last raised a query, who answered it and how long did the evidence take to find?
• Which steps exist only because of a workaround someone built years ago?

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.