Tuesday, March 24, 2015

FAQ for foreign importers into the US

Do we need an importer license?

No. You do not need a special license to act as an importer into the US. However, some items require a license or permit from various government agencies in order to be imported (e.g. cosmetics, tobacco, food, hazardous substances, arms, etc.)

Do we have to form a US company to import into the US?

No, but you do need an “Importer Number.”

But if we don’t have a US company or SSN, how can we get an importer number? 

Importers often get confused into thinking that they need an EIN or SSN to import into the US. This is incorrect. To import into the US you need an "importer number," which can be either one of the following:

- your federal tax ID (EIN),
- your social security number, or
- a number assigned to you by the CBP. Here are the forms you need:

Do we need a federal tax ID (EIN)?

No. You just need an importer number. See the answer above.

Can we sell from a foreign company and deliver from a 3PL warehouse in the US?

Generally, yes, Foreign businesses are allowed to import consumer products into the US via a 3PL warehouse in the US. Drop shipping is growing in popularity.

Can we be a Foreign Importer of Record ourselves or do we need to contract a US company for that?

A foreign company can be a Foreign Importer of Record. You are not required to have an importer of record in the U.S. You are required to have an agent (e.g. Customs Broker like Flexport) in the state where the port of entry is located.

Do we need to pay sales tax?

Normally, you don’t have to pay sales tax at the time of entry of goods into the US. Customers pay sales tax after you add it to the price of your product. After you collect the payment, you then remit the tax to the state.

Sales tax is a state tax, whereas Customs and Border Protection (CBP) is a federal agency. CBP collects federal taxes and fees on behalf of other federal agencies, like the Internal Revenue Service. State sales tax is not automatically charged on imported goods.  Having said that, CBP declarations are made available to state tax representatives that may occasionally claim state taxes from the importer.

On import can the goods still be owned by our foreign company?

Yes. The fact of import by itself does not change ownership. If you contracted a fulfillment center that offered you a contract that transfers ownership title, please let a professional review it before you sign it. You are only paying a fulfillment center to store and drop ship your goods; you are not actually selling any goods to them.

Do we pay customs on the retail amount or the wholesale amount?

The answer will depend on where you got your goods yourself. If you purchased the goods from manufacturer, then your purchase price will be the basis of the appraisal of your shipment. If you got the goods from a middleman who got them from manufacturer, you can use the “First Sale” rule to cut out the middleman and their markup and use manufacturer’s price as your basis.If you manufacture the goods yourself, the law gives you a couple of options.

Let me explain in more detail. Here is how the valuation process works. Customs are required to utilize the following methods to appraise the imported merchandise on the basis of the six methods listed below. If method #1 does not apply to your situation, customs must use method #2. If #2 doesn’t apply, they have to try #3, and so forth.

(1) The transaction value. This is the predominant method for the vast majority of all imports. If you bought merchandise from somebody else, the purchase price is the basis of valuation. In determining transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations. The word “payable” refers to a situation in which the price has been agreed upon, but actual payment has not been made at the time of importation. In other words, if you promised the seller of goods some discounts or additional payments later (e.g. commission on every units you actually manage to sell in the US), then this discount/future payments will be added on to the appraisal of your goods.

(2) The transaction value of identical merchandise. If you did not buy your goods from a 3rd party (e.g. if you manufactured them yourself), then the CBP will use the price of the same goods as the basis for appraisal.

(3) The transaction value of similar merchandise. If there is no identical merchandise, but there is smth sufficiently similar, the customs will use the value of those similar goods.

(4) The deductive value. This method consists of three options:
- If the merchandise concerned is sold in the condition as imported at or about the date of importation of the merchandise being appraised, the price is the unit price at which the merchandise concerned is sold in the greatest aggregate quantity at or about such date.
- If the merchandise concerned is sold in the condition as imported but not sold at or about the date of importation of the merchandise being appraised, the price is the unit price at which the merchandise concerned is sold in the greatest aggregate quantity after the date of importation of the merchandise being appraised but before the close of the 90th day after the date of such importation.

- If the merchandise concerned was not sold in the condition as imported and not sold before the close of the 90th day after the date of importation of the merchandise being appraised, the price is the unit price at which the merchandise being appraised, after further processing, is sold in the greatest aggregate quantity before the 180th day after the date of such importation. This provision will apply to appraisement of merchandise only if the importer so elects at the time of filing the entry summary.

You are also allowed to deduct certain costs and reasonable profit from the price.
Please take a look at the law and example calculations:

(5) The computed value.  
The computed value of imported merchandise is the sum of:
- The cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise;
- An amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the United States;
- Any assist, if its value is not included in the two bullet points above; and
- The packing costs.
Law:  https://www.law.cornell.edu/cfr/text/19/152.106

Note: the law allows you to use method 5 instead of #4. So, crunch some numbers and see whether #5 yields better results than #4. If so, you can petition for method #5 instead of #4. The request must be made at the time the entry summary for the merchandise is filed with the port director. If you don’t petition for method 5, customs are likely to use method 4.

(6) Basically, whatever customs deems reasonable if all of the above methods fail.