Customs Value of Goods – How to Calculate It Step by Step

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What is customs value

The customs value of goods is the amount on which the customs authority calculates import customs duties and import VAT. The rules for determining it are set out in the Union Customs Code (Regulation (EU) No 952/2013) in Articles 69–76 and in Implementing Regulation (EU) 2015/2447. Determining the customs value correctly has a direct effect on the amount of tax liabilities – understating or overstating it is one of the most common reasons for checks and post-clearance corrections. In Poland, the VAT taxable amount on import is the customs value increased by the customs duty due (and excise duty, if any) – Article 30b of the VAT Act.

The transaction value method

The primary and most commonly used method is the transaction value method (Article 70 UCC) – the customs value is the price actually paid or payable for the goods when sold for export to the customs territory of the Union, adjusted in accordance with Articles 71 and 72 UCC. Under Article 70(3) UCC, this method is applied if four conditions are met cumulatively: (1) there are no restrictions on the disposal or use of the goods by the buyer – with three exceptions provided for in the provision; (2) the sale or price is not subject to conditions for which a value cannot be determined; (3) no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer accrues to the seller – unless an appropriate adjustment can be made; (4) the buyer and seller are not related, or the relationship has not influenced the price.

If the transaction value method cannot be applied, Article 74 UCC provides for fall-back methods applied in a set order: the transaction value of identical goods, the transaction value of similar goods, the deductive method (based on the resale price in the EU), the computed method (based on production costs), and finally the fall-back method. At the request of the declarant, the order of the deductive and computed methods may be reversed.

What is added to the customs value

Under Article 71 UCC, the following, among other things, are added to the price actually paid or payable:

• the costs of transport and insurance of the imported goods up to the place where they enter the customs territory of the Union (a rule similar to CIF – cost, insurance, freight);
• loading and handling costs associated with transport to that place;
• sales commissions and brokerage costs (except buying commissions);
• the cost of containers and packing;
• the value of goods and services supplied by the buyer free of charge or at a reduced price in connection with the production of the goods (so-called assists – e.g. materials, tools, dies, moulds, design work carried out outside the Union);
• royalties and licence fees relating to the goods, if they are a condition of sale;
• the value of any part of the proceeds of resale, disposal or use of the goods that accrues to the seller.

If transport is provided free of charge or by a means of transport belonging to the buyer, transport costs are still added to the customs value – according to the freight rates normally applicable for the given type of transport (Article 138(1) of Implementing Regulation (EU) 2015/2447).

What is not included in the customs value

Article 72 UCC lists the elements that are not included in the customs value, including: the costs of transport of the goods after they have entered the customs territory of the Union, the costs of construction, erection, assembly and maintenance incurred after import, interest under a written financing agreement for the purchase (where the price has actually been paid and the interest rate does not exceed the market level), buying commissions, and customs duty and other charges payable in the Union by reason of the import or sale of the goods. In practice it is worth showing these costs clearly in the documents (e.g. as a separate line on the invoice), which makes them easier to evidence at clearance and during checks.

Converting the currency rate

Where the elements used to determine the customs value are expressed in a currency other than that of the Member State concerned, they are converted into that currency at the exchange rate established in accordance with Article 53 UCC: the rate of the penultimate Wednesday of the month is used, which applies throughout the following month (Article 146 of Implementing Regulation (EU) 2015/2447); in Poland these rates are published by the NBP (the National Bank of Poland). The rate on the invoice payment date or the bank rate from the commercial settlement is not used.

Example of calculating customs value

Suppose a Polish company buys a machine from a British supplier for £20,000 on EXW terms (collection from the supplier's warehouse). To the customs value you must add: the cost of transport from the warehouse in the UK to the EU border, the cost of insuring the consignment on that leg, and any commission of a trade intermediary, if paid separately from the price of the goods. If the contract stipulates that the buyer must also pay a licence fee for the software controlling the machine as a condition of purchase, that fee is also added to the customs value. The sum of these elements, converted into zlotys at the rate applicable in the month the declaration is accepted, is the basis for calculating duty and import VAT.

Customs value and fall-back methods in practice

Fall-back methods are used relatively rarely – mainly where goods are supplied free of charge (e.g. samples, warranty replacement of parts) or where the transaction takes place between related parties and the customs authority challenges the influence of the relationship on the price. In such situations it is worth preparing documentation confirming the market value of the goods – e.g. price lists applied to independent counterparties, an expert's valuation or data on production costs – so that the transaction value method for identical or similar goods can be applied instead of the more difficult computed method.

Customs value data in the declaration

Customs value data – the price, additions, deductions and information on any relationship between the parties – are given in the electronic customs declaration. It is worth having a full calculation of the value prepared, and not only the final amount from the invoice: the customs authority may ask for its justification, and a reliable calculation shortens any post-clearance check.

Customs value under different delivery terms (Incoterms)

The delivery terms used (Incoterms) have a direct effect on which costs you must add to the customs value yourself. Under EXW or FCA terms, the importer must add practically the whole cost of transport and insurance to the EU border, because the invoice price does not cover it. Under CIF terms, the costs of transport and insurance to the port/place of destination are already included in the price, so any additional adjustment usually concerns only the leg from the port of discharge to the actual place where the goods enter the customs territory of the Union, if these are different points. Under DDP terms, the seller's price already includes the duty and taxes of the country of import – because duty and charges payable in the Union by reason of import are not part of the customs value (Article 72 UCC), they must be deducted from the price so as not to overstate the basis for calculating duty and VAT.

Documentation supporting the customs value

The customs authority may request not only the commercial invoice but also the sales contract, commercial correspondence, transport documents, insurance policies and proof of payment, to verify whether the declared customs value corresponds to the actual transaction price and whether all required additions have been taken into account. Assembling this documentation at the stage of purchasing the goods, rather than only on request from the inspectors, significantly shortens any clarification proceedings.

Customs value on the British side

In the United Kingdom the primary method is also the transaction value (Method 1) – the legal basis is s.16 of the Taxation (Cross-border Trade) Act 2018. The costs of transport and insurance to the UK border are added to the value. The rules are similar to the EU's, because both sides are based on the WTO Customs Valuation Agreement; however, the details of HMRC guidance and the way value is declared in the CDS system differ from the EU's, so a business trading in both directions should check the current HMRC guidance separately for imports into the United Kingdom, rather than assuming it is identical to the EU rules.

See also related guides

• How to calculate duty and VAT when importing from the UK
• Customs value and DDP in the UK – the most common mistakes
• Customs duties and charges after Brexit

If you are unsure how to determine the customs value of your goods correctly, contact us.

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