Customs Value: Why Your Invoice Price Isn't the Tax Base

Your commercial invoice says $10,000. You expect customs to charge duty on $10,000. But depending on where the goods are headed, customs may calculate duty on $12,500 — or more.

The gap comes from two things most importers overlook: how each country defines the taxable value, and what hidden costs get added on top. This guide breaks down how customs value actually works, what changes it, and how to avoid declaring it wrong.

What is customs value and why does it matter?

Customs value is the number your destination country uses to calculate import duty. It is not always the same as your invoice price. According to the World Customs Organization (WCO), over 90% of global trade is valued using the "transaction value" method — the price actually paid or payable for goods when sold for export.

That sounds simple. But the transaction value is just the starting point. The WTO Customs Valuation Agreement (Article 8) allows customs authorities to add specific costs to this base price. And the base itself changes depending on whether the country uses FOB or CIF valuation.

Getting customs value wrong doesn't just mean paying more duty. Under U.S. law (19 U.S.C. §1592), negligence penalties can reach two times the unpaid duties, and fraud penalties can equal the full domestic value of the goods.

Why does the same invoice get taxed differently by country?

The core difference is whether a country taxes based on FOB (Free on Board) or CIF (Cost, Insurance, and Freight). FOB means duty is charged only on the goods themselves. CIF means duty is charged on the goods plus international freight and insurance.

According to Zonos trade data, only about 13 countries use FOB valuation — including the United States, Canada, Australia, New Zealand, and South Africa. The rest of the world, including the EU, Japan, Korea, India, and most of Asia and Latin America, uses CIF.

Here is what that looks like in practice:

• Invoice (FOB) price: $10,000

• Ocean freight: $2,000

• Insurance: $500

• US customs value: $10,000 (FOB country)

• EU customs value: $12,500 (CIF country)

Same goods, same seller, same invoice — but a 25% difference in the duty base. At a 10% tariff rate, that is $250 more in duty for the EU shipment. Scale that across hundreds of shipments per year, and the gap becomes significant.

What are "assists" and why do they increase your customs value?

Even after settling the FOB vs CIF question, your customs value may still be higher than your invoice price. The reason is assists — items or services provided by the buyer to the seller, free of charge or at reduced cost, that help produce the imported goods.

Under the WTO Valuation Agreement (Article 8.1.b) and U.S. regulations (19 CFR 152.103), the following must be added to your customs value:

• Tools, dies, and molds supplied to the factory for production

• Materials or components provided by the buyer and incorporated into the goods

• Engineering, design work, and plans done outside the importing country

• Royalties and license fees paid as a condition of sale

According to CBP's Informed Compliance Publication on customs value, the value of an assist includes its cost of acquisition plus transportation to the place of production. If a mold has been used before, its value is adjusted downward to reflect prior use.

Here is a common example. You send a $5,000 mold to a Korean factory. The factory uses that mold to produce 10,000 units for you at $1.00 each. Your invoice says $10,000. But customs value is $10,000 plus the $5,000 mold — $15,000 total, or $0.50 more per unit in dutiable value.

The mold cost never appears on your commercial invoice. But it is legally part of your customs value.

What happens if you declare the wrong customs value?

Declaring a customs value that is too low — even unintentionally — is a violation. In the United States, penalties under 19 U.S.C. §1592 are structured by the level of fault:

• Negligence: up to 2x the unpaid duties, or 20% of dutiable value

• Gross negligence: up to 4x the unpaid duties, or 40% of dutiable value

• Fraud: up to the full domestic value of the merchandise

According to CBP, the most common valuation mistakes include unreported assists, mischaracterized buying commissions, and royalties not declared as a condition of sale. These are not exotic edge cases. They happen in routine commercial transactions where the buyer provides tooling or pays a licensing fee separately from the goods.

CBP can review entries up to 5 years back. A single unreported mold from three years ago can trigger a post-entry audit across all related shipments.

How do you get your customs value right?

Accurate customs valuation starts before you ship, not after. Ask these questions for every shipment:

• Does the destination country use FOB or CIF? If CIF, freight and insurance must be included in the declared value. The US, Canada, and Australia use FOB. Most other countries use CIF.

• Did you provide any tooling, molds, or materials to the factory? If yes, their value must be added to the customs value and apportioned across the production run.

• Are there royalties or license fees tied to the imported goods? If the buyer must pay royalties as a condition of the sale, those fees are dutiable.

• Was any design or engineering work done outside the importing country? If the importing country is the US and the design was done in Korea, the design cost is an assist.

• Is the transaction between related parties? Related-party sales face extra scrutiny. You must demonstrate that the relationship did not influence the price.

For recurring high-value shipments, consider filing a prior disclosure with CBP if you discover past errors. A voluntary disclosure before CBP begins an investigation significantly reduces penalty exposure.

Your commercial invoice is the starting point for customs value. But it is rarely the full picture. The destination country's valuation method, plus any assists, royalties, or design costs you provided, can push the actual duty base well above your invoice price. Verify before you ship.