There is a lack of awareness in some small to mid-sized companies (SME) with the amount of tax planning for import duties. Because of this, there are a lot of missed opportunites to reduce company costs. According to Import Duties: Bend Me, Shape Me, Any Way You Want Me in CFO magazine this month, it discusses some key points for SMEs to reduce costs as an importer.
From this article, I have composed 5 simple tips on how to reduce costs in your company as an importer:
1. View your import tax policy. Unlike import tax duties, import duties can change dramatically. How you classify your product, the type of packaging and assembly determines the particular rate you receive. Knowing you have the ability (with a little research) to recatergorize your product can help reduce costs.
2.Understand the subtle differences with the tariff schedule. Pay attention to how your product is labeled. An example from the article was an oversized t-shirt can be labeled as either a nightshirt or a swim suit cover. The swim suit cover had an increased rate of almost 7 percent compared to the nightshirt. Make sure its clear how your product is used. Furthermore, researching the location your product is assembled can reduce costs. Should your product be imported pre-assembled? Or, is it more cost effective to import the parts and assemble domestically? You may be surprised from your research.
3. Audit your Supply chain. This may be commonsense, but many companies may just go through the motions and not notice extra costs popping up here and there. For example, a U.S.-based wholesaler orders $1,000 worth of handbags from a France vendor. The vendor, in turn, orders the handbags from a factory in Manila for $750. If the American wholesaler can show through purchase orders that there was an arms-length sale between the France and Manila companies, and the handbags are clearly destined for the United States, the customs duties would be assessed against the $750, rather than the $1,000. Your audit trail will prove this transaction to the American government for tax purposes.
4.Discuss tactics with your ventor. Keep your ventors in the loop about tax breaks, this can help keep costs low and give you more for your money. Deciding on where you manufacture your product and where it is assembled, again, makes a difference for both you and the vendor.
5.Practice tariff engineering. According to CFO, “tariff engineering is the practice of designing and marketing a product with a tariff schedule in mind.” Understand how you will market the product. The terms and use of the product derives back to tip #2, how you classify your product can help you save money.
“How you import products is actually a science. If you know the [importing] categories and how to work with the categories, you’ll save your company money.” states Billy Pymm, CFO of Maverik Lacrosse
For further information on how to reduce costs and understand the science of global trade download this best practice white paper from Management Dynamics, inc., Five Best Practices to Reduce International Freight Costs.
To read the full article, click here.