Customs clearance is an essential aspect of international ecommerce. Understanding this process can help you avoid delays and unexpected fees when shipping products to customers abroad.
Learn more about how the customs clearance process works, what changes have come with new international trade laws, and best practices for facilitating smooth international shipping.
What is customs clearance?
Customs clearance is the process of moving goods through customs, a government-run inspection of exports and imports. In the United States, the process is managed by the US Customs and Border Protection (CBP), which is part of the Department of Homeland Security.
When a merchant ships internationally, that shipment first goes through customs in the exporting country and then in the importing country where the customer is located.
Customs authorities in the exporting country check outgoing shipments to verify documentation and approve them to leave the country. Customs authorities in the importing country ensure compliance with any relevant international shipping regulations and confirm that required shipping documents are accurate. They also ensure the Importer of Record (IOR) has paid any necessary taxes and duties.
The Importer of Record (IOR) is the person or party responsible for paying import duties and taxes to the importing country. The IOR is determined by the international commercial terms (Incoterms) made between the parties involved. For example, the seller is responsible for paying duties on delivery duty paid (DDP) arrangements. While the buyer is responsible for paying duties on delivered-at-place (DAP) shipments.
After customs officials approve incoming goods in the receiving country, they send a “customs cleared” message to the exporter, importer, customs broker, or shipping carrier through an electronic portal. For example, the US Customs and Border Protection (CBP) sends a 1C message through the ACE system to confirm customs clearance. Shippers can access this by applying for an ACE Secure Data Portal Account.
When a shipment clears customs, most major shipping carriers update their order tracking status to reflect this. For example, FedEx updates a tracking status to “International Shipment Release–Import” to inform the exporting merchant that their shipment has cleared customs.
Typically, international shipments take between 24 to 48 hours to pass through the exporting country’s customs departments. It can take another 24 to 48 hours to clear customs in the importing country. This timeline can vary depending on the specific country. Inaccurate or missing documents can result in customs clearance delays up to several days or weeks, as well as unexpected costs from penalties or fees.
Customs duties and taxes
Importing countries, where the customer is located, charge a range of customs duties and taxes, collectively known as tariffs.
Import duties are taxes imposed on packages when they cross international borders. They’re charged as a percentage of the shipment value, a fixed cost per unit, or a combination of both. Import duties depend on factors like product category, product value, country of origin, and its trade agreements with the destination country. The Importer of Record (IOR)—either the seller or the buyer, depending on the Incoterms—pays import duties on an international shipment to the importing country
Importing countries also charge specific taxes on international shipments outside of the standard duties, including sales tax and value-added tax (VAT). VAT is a type of consumption tax that some countries and jurisdictions place on imported goods.
The rules, regulations, and fees involved can vary from country to country. For example, New Zealand charges a standard 15% goods and services tax (GST) for imported goods, whereas Hong Kong only levies import taxes on hard alcohol, tobacco, hydrocarbon oil, and methyl alcohol.
Outside of duties and taxes, there can be additional fees associated with customs clearance, including:
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Merchandise processing fees (MPFs). Customs agencies charge these fees to cover the cost of processing goods, typically calculated as a percentage of the total value of the shipment.
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Inspection fees. Customs officials can charge additional fees for shipments that require a detailed inspection based on factors like missing information, inconsistencies, or high-risk products like alcohol, medical devices, or electronics that pose an explosion risk.
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Demurrage charges. Demurrage charges are fees charged by customs departments for goods that have been sitting at a customs port or terminal for an extended period of time.
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Harbor maintenance fees (HMFs). Customs authorities can charge additional import fees to maintain and improve ports and harbors where imported goods are being processed. The Importer of Record is responsible for paying harbor maintenance fees to customs departments. For example, the US Customs and Border Protection department charges HMFs at .125% of the value of shipments processed at a port, meaning this fee doesn’t apply to rail or air freight.
Merchants that choose to work with customs brokers or custom brokerage firms may also have to pay a fee to those third parties for their services in handling the customs clearance process.
Customs clearance process
- Collect the necessary shipping documents
- Complete your customs declaration
- Customs authorities inspect your shipment
- Pay necessary duties or taxes
- Customs authorities clear your shipment
The customs clearance process is complex, but it boils down to these five core steps:
1. Collect the necessary shipping documents
Before sending an international shipment, create and finalize all the necessary documentation that you’ll need for both your exporting country and the importing country. The specific documents you need can vary from country to country, but here are some of the most common types of required documentation for clearing customs:
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Commercial invoice. This official document provides details of the transaction—including the seller, buyer, and shipment value. Customs authorities use it to calculate taxes and duties.
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Bill of lading. A bill of lading outlines the agreement between a shipper and a carrier, acting as a contract that authorizes the transfer of ownership during the transportation of goods. For air freight, this type of document is called an air waybill (AWB).
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Certificate of origin. A certificate of origin details a shipment’s manufacturer and country of origin, which impacts duty rates.
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Shipping label. Customs officers check the shipping labels attached to a shipment to confirm its final destination and weight.
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Packing list. Packing lists are shipping documents that include packaging details like descriptions, quantities, and dimensions for all the items inside.
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Insurance certificate. An insurance certificate includes key information about a shipment’s insurance policy that customs authorities can check to confirm a shipment is covered. Insurance certificates are not necessary for every international shipment, but they are mandatory to import goods into certain countries. For example, they’re required for maritime shipments sent over waterways to Argentina.
Your shipping software should be able to generate shipping labels for international shipments, apply pre-negotiated shipping discounts from major carriers, and track shipments.
2. Complete your customs declaration
A customs declaration is an official document submitted to customs authorities in both the exporting and importing countries to facilitate the customs clearance process. It includes details like sender and recipient information, detailed item descriptions, quantity, value, country of origin, and final destination.
One of the most important pieces of information to include on your customs declaration form is a Harmonized System (HS) code—a six-digit code that categorizes each imported good. Customs officers use HS codes to quickly determine taxes and duties. If you’re shipping from the United States, for instance, you can identify the relevant codes using the Customs Info Database Tariff Lookup Tool.
Once you’ve filled out your customs declaration form, submit it directly through your shipping carrier’s website or use shipping software that connects with your shipping provider. Print a copy of the customs declaration form and attach it to your shipment, along with any other shipping documents.
3. Customs authorities inspect your shipment
Once a shipment leaves your office or logistics center, it is transported to a port of entry, where customs officials will confirm that your documentation is correct and consistent. If everything is in order, shipments are cleared for shipping and loaded onto vehicles like freight trucks, trains, planes, or cargo ships.
When shipments arrive at the importing country’s port of entry, that country’s customs officials inspect them to confirm and validate the information provided, ensuring they abide by their regulations. Without complete or accurate documentation, shippers face delays, penalties, and returned packages. For example, consider a US-based ecommerce business exporting electronics like headphones to customers in Spain. If the business neglects to fill out product descriptions or uses incorrect HS codes on a commercial invoice—one of the required documents—it could lead to significant issues. This oversight would likely result in a delay or rejection of the shipment.
4. Pay necessary duties or taxes
Shippers are responsible for paying customs duties before officials release their shipments for delivery in an importing country. Customs officials calculate the correct duties and taxes based on HS codes, shipment values, and country of origin once shipments arrive at the importing country’s customs office.
Merchants have a few options for remitting duties and taxes due to the importing country’s customs department. For example, a Canadian-based retailer importing furniture products into the United States could pay duties and taxes to the US Customs and Border Protection (CBP) department via an online portal. Another option is to make payments through select shipping carriers like FedEx or UPS. These carriers may advance duties or taxes on a merchant’s behalf. They’ll then bill the seller for the amount along with a disbursement fee. This fee is calculated as a percentage of the total import duties and taxes for a shipment.
Shopify allows merchants to manage customs duties using built-in software, which automatically calculates the cost of duties and taxes for specific orders based on their HS code and country of origin.
On the Shopify admin, go to Settings and select “Taxes and duties.” In the “Duties and import taxes” section, click “Set up” and select the countries or regions where you want duties and taxes to be charged to customers at checkout. Add HS codes and country of origin information to the products you plan to sell internationally. If you’re in the United States, use this lookup tool from the government to identify HS codes.
If you’re using the delivery duty paid (DDP) shipping method, sellers can either incur the cost or charge international customers at checkout. Since the DDP method means sellers pay any projected duties or taxes upfront, it can simplify the customs clearance process, as any applicable duties and taxes have already been factored in.
Shopify merchants can purchase and print DDP shipping labels from the Shopify admin dashboard for select shipping carriers, including Canada Post, DHL Express, DHL Express Canada, and DHL eCommerce. Check with your intended shipping carrier or courier service to ensure that they support DDP shipping methods.
5. Customs authorities clear your shipment
After all duties and taxes are paid, customs officials clear the shipment for delivery in the importing country. Shippers receive a “customs cleared” update, and shipping carriers load goods from the country’s port of entry onto a freight truck. Once the shipment arrives at a logistics center in the importing country, warehouse workers sort it and distribute it for last-mile delivery to its final address.
Customs clearance FAQ
What is customs clearance?
Customs clearance is the process of moving goods through customs—a government-run inspection of exports and imports. Customs officials approve exports and imports, confirm that paperwork is accurate, and ensure that any necessary taxes and duties have been paid.
How long can customs clearance take?
Typically, customs clearance takes between 24 to 48 hours, but inaccurate or missing documents can result in customs clearance delays up to several days or weeks. Customs processing can vary by country, shipment type, carrier, and other factors.
What does it mean if a package is in customs clearance?
If a package is in customs clearance, it means that the importing country’s customs authorities are currently inspecting the shipment to make sure it follows international trade regulations and that customs duties and taxes have been paid.
Should I work with a customs broker?
A customs broker or customs brokerage firm can help you handle customs clearance, which can be particularly helpful if you’re sending urgent international bulk shipments or high-value packages. Customs brokers prepare customs documents, process tax and duty payments, and communicate with customs authorities for their clients, charging a flat fee per shipment, an hourly rate, or a percentage of a shipment’s value. Work only with licensed customs brokers with a good reputation. In the United States, you can confirm that a broker is still licensed by checking the CBP’s official permitted customs brokers listing.
