Import Duty and VAT on China Imports: UK, EU and Israel Compared

Three customs systems, one formula

Whatever the market, the arithmetic has the same steps: classify the goods, build the customs value, apply the duty rate, then add the tax that sits on top. The table shows where each market gets its inputs.

How is customs value calculated?

Most landed-cost errors start here. The UK and the EU both begin with the transaction value, the price actually paid or payable for goods sold for import, and then add specified costs. The lists below follow the HMRC valuation guidance and Article 71 of the Union Customs Code.

• Transport, insurance, loading and handling up to the border. The UK counts these to the place of introduction: the port for sea freight, the point where the aircraft first crosses the border for air, and the first customs office for road or rail. The UK also includes inland transport in the country of export. The EU counts them up to the place where the goods enter the customs territory of the Union.
• Packing and containers, and commissions other than buying commissions.
• Assists. Tools, dies, moulds and similar items you supply or pay for separately, plus design, development or artwork done outside the UK or the Union, where not already in the price.
• Royalties and licence fees you must pay as a condition of the sale.
• Excluded: transport after the border where the UK can see it separately evidenced, and, in the EU, transport after entry.

Buying commission is treated differently. HMRC says commission paid to a genuine buying agent can be left out of the customs value if it is shown separately from the price, and it may ask for the agency contract and the original seller's invoice. The Union Customs Code likewise excludes buying commissions from the additions.

Israel's Ministry of Economy and Industry describes customs calculations on a CIF basis (product cost, insurance and freight) in its personal-import guide, which dates from 2018. The Israel Tax Authority also provides importers with an annual declaration per supplier, which calculates the full value of the transaction including associated costs, and an importer's declaration for verifying the declared value.

• Your supplier's FOB price is not the customs value. Add international freight and insurance, and in the UK the inland freight in China.
• Tooling and moulds you pay for separately can still count as assists. Agree with your broker how to declare them before the first shipment.
• Declare what you actually pay. If a supplier offers a second, lower invoice, decline: the declaration is yours to defend.

UK: from commodity code to import VAT

1. Get ready to importGOV.UK says you may need an EORI number to import into Great Britain, and that you usually need premises in the country you import to. If you are not eligible, the person you appoint to deal with customs must hold one.
2. Find the commodity codeUse the Trade Tariff tool. It also shows whether a licence is needed, whether a trade agreement could lower your duty, and whether anti-dumping duties, safeguarding measures or tariff quotas apply.
3. Work out the customs valueStart from the price paid and add the items above.
4. Check for a reduced ratePreference agreements, duty suspensions and tariff quotas can reduce duty. GOV.UK's page on reduced rates does not mention China specifically, so check whether any agreement covers your goods and origin.
5. Calculate import VATThe VAT value starts from the customs value, even when no duty is payable, and adds incidental costs up to the first UK destination and any duty. The standard rate is 20%, with a 5% reduced rate and a zero rate for some goods.
6. Recover it if you canA VAT-registered business can declare import VAT on its VAT return and reclaim it as input tax on the same return, or pay at import and reclaim using the import VAT statement. The full process is in the UK import guide.

EU: customs value, tariff duty and VAT by Member State

The European Commission lists three factors that determine EU customs duty: the tariff classification (a Combined Nomenclature code that fixes the rate in the Common Customs Tariff), the customs value, and the origin of the goods, which can be preferential or not. Usually the duty is a percentage of the customs value. TARIC is the EU's working tariff, a tool rather than a piece of legislation.

For import VAT, the VAT Directive sets the taxable amount as the value for customs purposes (Article 85), plus taxes, duties and levies due on importation and incidental expenses such as commission, packing, transport and insurance up to the first place of destination in the importing Member State (Article 86). Each Member State fixes its own standard rate (Article 96), so check the rate of the country where the goods are imported. The Commission states that VAT is charged on most imports into the EU.

Israel: customs tariff, purchase tax and VAT

The Ministry of Economy and Industry's Importer Guide says tax on import may comprise three components: customs tariff, purchase tax and value added tax. Some goods are exempt from customs tariff, but purchase tax and VAT still apply.

The Israel Tax Authority says correct classification is key to determining tax rates and also any approvals, licences and standards. Rates are set item by item in the Customs Tariff and Exemption Order on Goods 2017 with its amendments, which is the wording required by law. The website tariff is a utility, not a substitute for it, and the Authority recommends professional advice. Some customs items carry levies, such as anti-dumping or security duties, that do not appear in the tariff; the Authority points importers to the Ministry of Economy.

Origin matters. The Ministry says the general tariff sometimes differs from the tariff for specific countries under Israel's free trade agreements, so read the provisions for the product's country of manufacture. Whether any agreement applies to goods made in China is a point to confirm in the tariff and with a customs agent.

VAT applies to the import of goods at a single rate that the Minister of Finance fixes by order, according to the Israel Tax Authority. The rate changes by order, so take the current rate and its date from the Authority; the Israel guides on this site state the rate in force when they were written. Product rules are separate from tax. Under the Free Import Order some products need an import licence or approval, and classification links the two, so settle the customs item early.

What does a worked calculation look like?

The figures below are arithmetic only. The duty rate and VAT rate are assumed for illustration: the 20% happens to equal the UK standard rate, and the 6% is not a real rate for any product. Replace both with the figures for your code, origin and date.

In practice three things move the result. First, the shipping term: an EXW price needs inland China freight, export clearance and international freight added, while FOB needs international freight and insurance (see FOB and EXW in the glossary). Second, assists such as tooling you pay for separately. Third, whether the VAT is recoverable. For Israel, replace the VAT base with the one your customs agent confirms and add purchase tax if your customs item carries it. The landed cost guide places these lines in the full cost picture.

Who is the importer, and who is responsible?

In the UK you can appoint a freight forwarder, customs agent or express operator to make declarations, but GOV.UK says that whatever the arrangement, you stay responsible for due diligence on your customs declarations, and that liability for duty depends on the services, your instructions and your agreement.

The shipping term in your contract decides who arranges import clearance. The International Chamber of Commerce publishes eleven Incoterms 2020 rules that allocate costs, risk and obligations, including export and import clearance. If a seller offers a delivered term, ask who will be named as importer and how duty and VAT will be invoiced before you compare prices.

Which mistakes distort the numbers?

• Treating the FOB invoice price as the customs value.
• Copying a duty rate from a supplier, a forum or an old article instead of looking up your code and origin on the official tariff for the shipping date.
• Using the supplier's HS code unchecked. The first six digits are shared worldwide, but national codes go further, and GOV.UK tells importers to check how much of a supplier's code applies in the UK.
• Ignoring origin and trade measures: preference agreements, anti-dumping duties and, in Israel, levies that sit outside the tariff.
• Treating import VAT as a cost without checking whether you can recover it where you are registered.
• Confusing tax with product rules. A CE or UKCA mark and Israeli standards are separate from duty (see the toy safety guide for one example).

Where do you find the official rates?

• UK: the Trade Tariff tool described on GOV.UK: finding commodity codes, and the GOV.UK VAT rates page.
• EU: the Commission's Common Customs Tariff page and its page on calculating customs duties. VAT rates come from the tax authority of the importing Member State.
• Israel: the Israel Tax Authority's customs tariff and purchase tax service and its VAT topic page.

Record the code you used and the date you looked the rate up, and refresh both before each new shipment.

Frequently asked questions

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