Although the terms duty-free and tax-free are often used together, they are different. Duty-free items are not taxable in the country where they are purchased, and tax-free items aren't taxed at all. Even if someone buys an item at a duty-free store, it isn't likely to be tax-free.
What Is Customs Duty?
Customs duty is a tax imposed on goods moved across international borders. The customs duty controls the flow of goods in and out of the country; it protects its jobs, residents and environment.
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Dutiable items are those where customs officials may need to collect duty, and each one has a specific rate. Several factors determine the customs duty, including:
- Place of purchase
- Date of purchase
- Materials the item is made from
International travelers returning to their home country must declare anything they are bringing back with them on a customs declaration form. The Customs Duty Rate charged is a percentage of the item's value paid in the foreign country.
Duty-Free Stores and Taxes
Items purchased in a duty-free shop may still be subject to customs duties and other taxes. The prices at a duty-free store at an airport or a border crossing are lower because the price doesn't include any customs duties payable to the country where the store is situated.
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Duty-Free Exemptions for Travelers
Travelers can bring $200 in items for personal or household use into the U.S. free of duty and tax. This exemption applies to travelers who have been out of the country more than once in 30 days or less than 48 hours. Travelers who have been out of the country longer than 48 hours can usually bring up to $800 in items with them when they return free of duty and tax.
The $200 exemption can include:
- 5 ounces of perfume
- 5 ounces of alcohol
- 50 cigarettes
- 10 cigars
If someone brings back more than $200 in dutiable items after being out of the country (or if anything is dutiable or taxable), the total amount is dutiable. For example, a traveler is out of the country for 24 hours and brings back a bracelet worth $350. The entire cost of the item is dutiable since the traveler wasn't out of the country for at least 48 hours.
The traveler cannot deduct the $200 exemption from the cost of the bracelet, either. The entire amount of $350 is dutiable, and the traveler will have to pay duty on the total cost of $350.
Duties and Taxes When Importing Goods
When someone shops online and buys a sweater from a store outside their home country, they import that item. For example, if a shopper buys a woman's sweater from an online store in the UK and wants to have it shipped to the U.S., they will have to pay duties and taxes on their purchase.
The shipper will include details about the product type, value and manufacture on the commercial invoice. Duties and taxes owed are calculated based on these facts.
Read More: What are Import Taxes?
When Are Duties and Taxes Paid?
Any duties or taxes get paid before customs releases goods in the destination country. Taxes may be included in shipping costs.
Customs Broker Fees
The seller may charge for the cost of having a customs broker clear the purchased item through customs. The broker pays the cost of duties and taxes on behalf of the customer receiving the goods. The broker charges the customer for this service after the goods are delivered. Vendors may offer this service as part of the cost of shipping.
Duty-free vs. Tax-free
Duty-free vs. tax-free aren't the same. If a customer finds a duty-free item, they can't assume that it is tax-free too. When crossing an international border, it's safe to think that transported goods will likely be taxed.
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