Customs Duty Calculation: Why the Same Product Gets Taxed Differently by Country

You buy $10,000 worth of goods. Shipping costs $1,500. Insurance adds $200. You estimate 10% duty and budget $1,000.

Then the duty bill arrives: $1,170. Where did the extra $170 come from?

This guide explains how different countries calculate customs duty, and how to budget accurately before you import.

Why does the same product have different duty amounts?

Each country sets its own rule for what counts as the "duty base" — the value on which customs duty is calculated. Some countries use only the product price. Others add shipping and insurance costs before applying the duty rate.

According to the IMF, the vast majority of countries include shipping and insurance in their duty calculation. The notable exceptions are the United States, Canada, and Australia, which exclude these costs.

How does the US calculate customs duty?

The US calculates duty on product price only. Shipping and insurance costs are excluded from the duty base. This is defined in 19 U.S.C. § 1401a, which states that transportation, insurance, and related costs are not part of the transaction value for customs purposes.

Example:

• Product price: $10,000

• Shipping: $1,500

• Insurance: $200

• Duty rate: 10%

• US duty: $10,000 × 10% = $1,000

How does the EU calculate customs duty?

The EU calculates duty on product price plus shipping and insurance. Under the Union Customs Code (UCC) Article 71, transport and insurance costs incurred before entry into EU territory must be added to the customs value.

According to AEB's 2024 guidance on EU customs valuation, costs incurred outside the customs territory must be added to the declared value before duty is calculated.

Example:

• Product price: $10,000

• Shipping: $1,500

• Insurance: $200

• Duty base: $11,700

• Duty rate: 10%

• EU duty: $11,700 × 10% = $1,170

What is the actual cost difference?

On a single $10,000 shipment with $1,700 in shipping and insurance, the duty difference between US and EU is $170. That's 17% more duty on the same product.

For high-volume importers, this adds up. Ten shipments per year means $1,700 in unexpected costs. One hundred shipments means $17,000.

Which countries use which method?

Countries generally fall into two categories:

Product price only:

• United States

• Canada

• Australia

Product price + shipping + insurance:

• European Union

• United Kingdom

• Most of Asia, Middle East, and Latin America

According to Statistics Canada, Canadian imports are valued on a Free on Board (FOB) basis, excluding freight and insurance costs from the duty calculation.

Does this apply to all products?

This applies to products with duty above 0%. If your product qualifies for duty-free treatment, the calculation base won't affect your duty cost.

However, always confirm the applicable duty rate for your specific product and destination before budgeting.

How should you budget for customs duty?

Before importing, check how your destination country calculates duty. If it includes shipping and insurance, add those costs to your product price before applying the duty rate.

Steps to budget correctly:

• Confirm the duty calculation method for your destination country

• Get exact shipping and insurance costs from your forwarder

• Add all applicable costs to your product price

• Apply the duty rate to the total

• Include this in your landed cost calculation

Quick reference: Duty calculation by country

• US, Canada, Australia: Duty on product price only

• EU and most others: Duty on product price + shipping + insurance

• Note: This applies to products with duty above 0%