How Import Duty and VAT Are Calculated
Last updated: 2026-08-11
Duty and VAT are calculated in a strict order on a defined value. Get the order right and your landed cost model will be within a rounding error; get it wrong and you will systematically under-budget every shipment.
Step 1 — establish the customs value
The customs value is normally the transaction value of the goods, adjusted according to the destination country's valuation rules — which commonly bring freight and insurance to the border into the base. Confirm the applicable basis for your destination before modelling.
Step 2 — apply duty, then VAT
The universal order of operations is:
- Customs value (per the destination's valuation rules)
- × duty rate for your HS code = customs duty
- Customs value + duty = VAT base
- × VAT rate = VAT payable
VAT is charged on the duty-inclusive value — this is the single most common modelling mistake.
Worked example (illustrative rates)
| Line | Illustrative amount |
|---|---|
| Goods value | USD 40,000 |
| Freight + insurance to border | USD 2,500 |
| Customs value | USD 42,500 |
| Duty @ 5% (assumed) | USD 2,125 |
| VAT base | USD 44,625 |
| VAT @ 5% (assumed) | USD 2,231 |
| Total border cost | USD 4,356 |
Rates above are assumptions used to show the method, not current rates. Confirm live duty and VAT rates for your HS code and destination with the relevant customs authority.
Step 3 — from duty to landed cost
Landed cost adds inland delivery, clearance fees, port charges, finance and any demurrage to the border cost, then divides by units. Model it in the Landed Cost module, or follow the full worked flow in the chemicals import guide.
Common mistakes
- Applying VAT to the goods value instead of the duty-inclusive value.
- Using an HS code with a different national extension than the destination requires.
- Ignoring preferential treatment that may apply to certain origins.
- Forgetting non-duty charges: inspection, permits, port and storage.
Open the Tradloc module and run your own numbers.
Full delivered cost per unit.
Related guides
Frequently Asked Questions
- Is VAT charged on the duty?
- In most systems, yes — VAT is applied to the customs value plus duty, not to the goods value alone.
- What duty rate applies to my product?
- It depends on the HS code and the destination tariff schedule. Classify first, then confirm the current rate with the destination customs authority or your broker.
- Can duty be reduced legally?
- Sometimes — through correct classification, applicable preferential origin treatment, or customs regimes such as free zones and re-export. Always confirm eligibility with a licensed broker.