Customs value: why the US charges duty on FOB, not CIF
The rule
Most US imports are valued at transaction value: the price actually paid or payable for the goods. It excludes international freight, insurance and related costs when they are identified separately from the goods price (19 CFR 152.103). In practice, US duty is charged on an FOB-type value. Many other countries, including the EU and UK, charge duty on CIF.
How your Incoterm affects customs value
| Incoterm | Invoice includes | Customs value |
|---|---|---|
| EXW | Goods only, at the factory | Invoice price. Foreign inland freight can be excluded only if separately identified and the goods ship on a through bill of lading. |
| FCA / FOB | Goods + export clearance + delivery to carrier or vessel | Invoice price |
| CFR / CPT | + international freight | Invoice minus international freight (if documented) |
| CIF / CIP | + freight + insurance | Invoice minus freight and insurance (if documented) |
| DAP / DDP | + freight to destination (DDP also duties) | Invoice minus international freight, insurance and US costs - get the breakdown from your supplier |
Worked example
A CIF Los Angeles invoice for $23,000 includes $2,800 ocean freight and $200 insurance. Customs value = $23,000 − $3,000 = $20,000. At a combined 12.5% rate, duty is $2,500, not $2,875: $375 saved simply by documenting the freight and insurance. MPF and HMF fall slightly too.
What can be added to customs value
Some costs must be added if not already in the price: packing costs paid by the buyer, selling commissions, "assists" (moulds, tooling or designs you supplied), royalties and licence fees tied to the goods, and resale proceeds that go back to the seller. Ask your broker if any of these apply.
Our landed cost calculator takes the Incoterm and the freight/insurance in your invoice and works out customs value for you.
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