How import duty is calculated, and why a middleman makes you pay it twice
Duty is charged on the price you paid. So if you paid a middleman's markup, you pay duty on the markup as well. Here is exactly how the sum works.
Duty = customs value × duty rate. The customs value is normally the price you actually paid the seller, with some costs added or excluded depending on the country.
That is why a middleman is expensive twice over. Their markup is part of the price you paid, so it is inside the customs value, so you pay duty on it, on every order, forever.
Most importers know their duty rate. Far fewer can say what the rate is applied to. That second number is the one that quietly decides your bill, and it is the one you have the most control over.
The formula
At its simplest:
Duty owed = customs value × duty rate
The duty rate comes from how your product is classified, its HS code. That is fixed by what the product is, and you cannot really argue with it.
The customs value is different. It is based on a commercial decision you made: what you agreed to pay your seller. Change who you buy from, and the customs value changes with it.
What "customs value" actually means
Both the EU and the US start from the same principle, known as transaction value: the price actually paid or payable for the goods when they were sold for export.
Note what that says. Not what the goods are worth. Not what the factory charged somebody else. The price you paid. If you bought from a trading company at 30 percent above the factory price, then the price you paid includes that 30 percent, and so does your customs value.
Where the EU and the US differ
The two systems disagree about which shipping costs belong inside the value, and it matters more than people expect.
| Cost | European Union | United States |
|---|---|---|
| Price paid for goods | Included | Included |
| International freight | Included | Usually excluded |
| Insurance | Included | Usually excluded |
| Tooling you supplied free | Included | Included |
| Royalties tied to the sale | Included | Included |
| Duty is charged on | CIF value | FOB value |
In short: the EU charges duty on the goods plus freight plus insurance. The US normally charges on the goods alone. On top of the EU duty, import VAT is then charged on the duty-inclusive figure, so in Europe an inflated invoice raises three numbers, not one.
A worked example
Take an order where the factory charges €18,000. Freight and insurance are €2,100. The duty rate is 4.7 percent, and the goods are going into the EU.
Bought through a trading company that adds a 30 percent margin:
- Price you paid: €18,000 + €5,400 = €23,400
- Customs value (CIF): €23,400 + €2,100 = €25,500
- Duty at 4.7 percent: €1,199
Bought direct from the same factory:
- Price you paid: €18,000
- Customs value (CIF): €18,000 + €2,100 = €20,100
- Duty at 4.7 percent: €945
The margin cost you €5,400. The duty on that margin cost you another €254 on top. At a 4.7 percent rate that second number looks small. But at a 25 percent tariff rate, the duty on the same margin would be €1,350. The higher the rate, the more the middleman costs you on top of their own fee.
Watch the compounding
None of this is a one-off. It repeats on every container, every reorder, for as long as you keep buying the same way. Ten orders a year at the numbers above means €2,540 of duty paid purely on somebody else's margin, and €56,540 once you count the margin itself.
Is declaring the factory price legal?
Yes, and this is worth being precise about, because it is the question everybody asks.
You are not choosing a value to declare. You declare what you paid. If you buy through a reseller, you paid more, so you owe more duty. If you buy direct, you paid less, so you owe less. Both declarations are correct; they just describe different transactions.
What you cannot do is buy through a reseller and then declare the factory's price. That is undervaluation, and it is fraud. The saving comes from changing who you buy from, not from changing the number on the form.
A few things do get added to the value even when you buy direct: tooling or materials you supplied to the factory for free, royalties tied to the sale, and any money that flows back to the seller later. Declare those.
Watch this explained
If you want to see the valuation rules walked through properly, this covers how US Customs decides which method applies and why transaction value is almost always the one that counts.
“How to Calculate Dutiable Value for U.S. Customs: The CBP Appraisement Hierarchy” by Shipping Solutions on YouTube. Nothing loads from YouTube until you press play.
Common questions
Duty is the customs value multiplied by the duty rate for your product's HS code. The customs value is normally the price you actually paid the seller. In the EU, freight and insurance are added to that value; in the US they are usually excluded.
In the European Union, yes. Duty is charged on the CIF value, which includes international freight and insurance. In the United States, duty is normally charged on the FOB value, so the ocean freight is excluded.
Yes. The markup is part of the price you paid, so it sits inside the customs value and is taxed at your duty rate along with everything else.
Only if the factory is who you actually bought from. You declare the price you paid in that transaction. Buying through a reseller and declaring the factory's lower price is undervaluation and is illegal.
Assists such as tooling or materials you gave the factory for free, royalties and licence fees tied to the sale, packing costs, and any later payment that goes back to the seller. In the EU, freight and insurance are added as well.
The importer of record. Not the factory, not the freight forwarder. That is why it matters who is named as importer on your entry.
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