Whenever countries levy new tariffs, we get a number of questions on the topic. The most common is:
Who pays tariffs on imports?
The buyer of the goods? Or the seller?
Ultimately, it depends on your contract and the Incoterm® you’ve agreed to:
- The only Incoterm where the seller pays for tariffs is DDP: Delivered Duty Paid.
- Under all other Incoterms, the buyer pays for tariffs.
In this article, we’ll take a closer look at who pays tariffs by origin/destination, as well as the Incoterms rules that cover these scenarios.
In This Article
Know Your Incoterms for Import Tariffs
If you’re not familiar with Incoterms, these rules were created by the International Chamber of Commerce (ICC) to define the responsibilities of buyers and sellers around the purchase and delivery of goods. (Read more about the latest version, the Incoterms 2020 rules.)
The Incoterm in a contract will define who pays for any associated tariffs:
- If the buyer and seller agree to the DDP (Delivered Duty Paid) Incoterm, the seller is responsible for all fees associated export, transportation, and any import procedures and fees, including taxes and tariffs.
- Under all other Incoterms—EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAP, and DPU—the buyer is responsible for import procedures, duties, fees, and tariffs.
In summary, your contract—and the Incoterm you use within that contract—will determine who pays tariffs on imports.
How Do Tariffs Get Paid?
Some freight forwarders facilitate customs clearance. The Approved team refers our international freight customers to a customs broker we work with. The broker files the entry, sends Approved an invoice for the associated duties and taxes, and we invoice our customer. We then facilitate getting the payment back to the customs broker, who pays U.S. customs.
If the forwarder you’re working with doesn’t have a customs broker to refer you to, you’ll need to locate one to file the entry and calculate any duties and taxes. Then, you’ll pay the broker, who will pay those duties and taxes on your behalf.
Note from Our International Freight Team: The duties and taxes assessed by U.S. Customs and Border Protection are considered estimates. The agency has a year to decide if the correct duty rate was applied. If at any point during the year, the duty is declared incorrect, CBP can change the duty rate and charge the importer additional fees. This is why every importer is required to have a customs bond in place, to ensure any additional charges get paid.
If you’re the buyer and importer of record in a transaction using the DDP Incoterm, note that any additional charges due to a reevaluation by U.S. customs or a misdeclaration of goods shipped will become your responsibility.
If you have additional questions about navigating the U.S. tariff payment process, please feel free to reach out to one of our international freight experts.
Next, let’s take a look at specific areas of the world to discuss who pays tariffs in each of them.
Who Pays Tariffs on Imports to Hawaii?
Hawaii imports more than 80% of all goods consumed in the state.
However, even though I say “imports,” it’s crucial to remember that Hawaii receives both domestic and international freight.
- Domestic Hawaii freight that originates at another U.S. seaport or airport is not considered an “import” by U.S. customs. Therefore, it isn’t subject to import tariffs.
- However, international freight arriving to Hawaii is subject to the same import tariffs as the continental United States. This is true whether freight is shipped to Hawaii directly from an international destination like Asia or whether the freight makes a stop at another U.S. port like Los Angeles, Long Beach, or Tacoma and gets transshipped to another vessel before heading to Honolulu.
As with freight arriving to the continental U.S., who pays for tariffs on imports to Hawaii will depend on your contract and the Incoterms you’ve agreed to.
Who Pays Tariffs on Imports to Alaska?
Like Hawaii, Alaska is a state. Goods shipped from international destinations to Alaska are subject to the same import tariffs as the continental United States:
- International freight: If freight arrives in Alaska from a foreign country whose imports are subject to tariffs, then import tariffs will be levied on arrival.
- Domestic freight: If freight originates in another U.S. location—such as Tacoma—that freight is considered domestic and will not be subject to import tariffs.
As with Hawaii freight, who pays for tariffs on imports to Alaska depends on your contract and the Incoterm in the agreement.
Who Pays Tariffs on International Freight?
The Incoterms rules were designed with international trade in mind. So when it comes to the question, “Who pays tariffs on international freight?” the Incoterm in the contract will give you the answer.
To calculate tariffs on international freight, you’ll need to know the origin and the destination of the freight, the Harmonized Tariff Schedule (HTS) code, and the tariff rules of the country that will receive the import.
If you’re moving freight between the United States and a Free Trade Agreement (FTA) partner, you can use the Federal Trade Administration’s Tariff Tool to search current tariff schedules.
Who Pays Tariffs on Imports to Puerto Rico?
Puerto Rico is a U.S. territory that lies inside the U.S. customs zone. Here’s what this means for who pays tariffs on Puerto Rico freight imports:
- If the freight originates in a foreign country whose imports are subject to tariffs, those tariffs will be levied on the shipment, just as they would be if the shipment were arriving to the continental U.S. Whether the buyer or the seller pays those tariffs depends on your contract and the Incoterms you’ve agreed to.
- If the freight originates in another U.S. location—such as Jacksonville—that freight will be considered domestic freight. As such, it will not be subject to import tariffs.
Puerto Rico Freight Must-Know: Excise Tax
Both domestic and international freight to Puerto Rico are subject to an excise tax of 11.5% for most goods. This tax is directly paid to the Puerto Rico Department of Treasury (el Departamento de Hacienda de Puerto Rico), and the tax must be paid before shipments will be released.
For more information on the Puerto Rico excise tax, check out our article: Puerto Rico Import Tax and Customs on Freight: Your Shipping Questions Answered.
Who Pays Tariffs on Imports to Guam?
Like Puerto Rico, Guam is a U.S. territory. However, unlike Puerto Rico, Guam lies outside the U.S. customs zone. That means freight arriving to Guam is not subject to the same tariffs as shipments arriving to the continental U.S.
The Guam Customs and Quarantine Agency (CQA) has its own customs regulations and fees for Guam freight.
In addition to customs fees for ocean freight and air freight, shipments arriving to Guam are subject to either of the following:
#1: Guam Use Tax
Goods shipped to Guam that will be used or consumed by a business—i.e., are not for resale—are subject to a 4% use tax. For example, if you purchase new desks for your office, they will be subject to a 4% use tax, based on the price on the commercial invoice accompanying the shipment.
Use tax is collected by the Guam CQA on arrival.
#2: Guam Gross Receipts Tax
Merchandise arriving to Guam that’s intended for sale is not subject to use tax. However, it will be subject to 4% gross receipts tax once it’s sold on Guam.
This tax is paid to the Guam Department of Revenue and Taxation through their online portal.
Because Guam sits outside the U.S. customs zone, shipping some types of international freight direct to Guam could save you money on tariffs. To learn more, reach out to our team.
Understanding Tariffs to Protect Your Margins
Now that you understand who’s responsible for paying tariffs on imports to several destinations, you’re better positioned to negotiate future contracts, calculate your landed cost, and protect your margins.
Our experts would be happy to help you streamline your freight shipments and uncover new efficiencies to save you money—and further protect your margins. To learn more, reach out to our team for a complimentary quote.
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