CALCULATE IMPORT DUTY & TAXES IN FRANCE
Products imported into France from a country that is not a member of the European Union are subject to customs duties and import taxes. These duties and taxes are calculated according to three specific criteria, namely the tariff classification, the customs origin and the value of the goods.
We will analyze throughout this article each assessing criterion in order to provide the reader with a better understanding of the exact method of calculation of import taxes levied on a product brought into France.
The tariff classification consists of determining the nature of the imported product (“tariff description”) and assigning it an identification customs code or a tariff subheading within the Combined Nomenclature (CN) of the European Union.
The CN is a sort of database for classifying goods under different headings and subheadings. An 8-digit nomenclature code is assigned to each subheading as well as the applicable customs duty rate. The Combined Nomenclature (CN) is a classification tool specific to the European Union, but it is based on the nomenclature of the Harmonized System (HS) of the World Customs Organization (WCO) which is applicable in almost all the countries of the world.
In the business practice, freight forwarders in France usually ask their customers to provide the exact description of the product to be cleared as well as the corresponding HS code (Harmonized System Code). The HS code is actually a 6-digit international customs code to which will be added either 2 digits to find the corresponding CN code (Combined Nomenclature Code applicable in all the EU countries) or 4 digits to find the TARIC code (Integrated Tariff of the European Union).
For example, the HS code for a computer screen (LCD Monitors) should be 8528 52 and its equivalent in the EU is 8528 52 91 (CN code) or 8528 52 91 00 (TARIC code). The customs duty rate applicable to this product is nil (i.e. 0%). However, if the LCD screen had a television receiver built-in, the HS code would rather be 8528 72 and its equivalent in the EU would be 8528 72 40 (CN code) or 8528 72 40 00 (TARIC code). In the latter case, the applicable customs duty rate is 14%.
We can notice that in the tariff classification, it is important to find the component that gives the product its essential character, that is to say the component which, when removed, causes the product to lose its real characteristics. Therefore, the commercial name of a product should not be a criterion to be taken into account for customs classification purposes because it can be misleading.
It is imperative that the products are properly classified in order to avoid an overestimation or an underestimation of the amount of customs duties to be paid in France. In the event of a payment lower than the actual amount of duties applicable, the customs authorities can chase the ‘Importer of record’ and request the remaining balance due with late payment penalties.
A correct tariff classification will also help to be aware of the customs regulations applicable to a specific product imported in France (prohibition, restriction, safety standards, anti-dumping duties, sanitary or phytosanitary formalities, etc.). In case a company is not completely sure of the exact subheading code under which its product should be classified, it has the possibility to apply for a Binding Tariff Information (BTI). Although the BTI procedure may last several weeks, the BTI decision offers the advantage that it binds all the EU customs administrations which cannot challenge the tariff classification (except in some rare cases) for a period of 3 years.
After the customs code corresponding to the product to bring into France has been found, the importer should also determine the origin of that product. In fact, even when the product is normally subject to the Most Favoured Nation (MFN) duty rate (i.e. the customs duty rate applicable by default to all non-EU countries), a reduced or a nil tariff rate can be applicable if there is a free trade agreement between the European Union and the country of origin. The reduction or cancellation of the duty rate is also possible when the European Union grants a unilateral trade preference to the exporting country.
Origin of goods:
From a customs perspective, the origin is the country in which a good was wholly manufactured or obtained. It is therefore critical to make a clear difference between the “customs origin” of a product and the “country of departure” of the transport, i.e. the last non-EU country from which the goods are shipped to the customs territory of the European Union.
For instance, specific goods can be manufactured in Malaysia (which is the country of customs origin) but shipped to the EU from the neighbouring country Singapore (which is in this case the “place of origin” or the last country of departure of the transport). After customs clearance upon arrival in France, the said goods will acquire the customs status of the European Union. However, this new EU customs status will not modify the intrinsic origin of the goods; we will have goods of Malaysian origin, coming from Singapore and released for free circulation in the European Union.
When the production of the goods involves more than one country or territory, the customs origin is deemed to be the country where “they underwent their last, substantial, economically-justified processing or working, in an undertaking equipped for that purpose, resulting in the manufacture of a new product or representing an important stage of manufacture.” – Article 60 (2) of the Union Customs Code (UCC).
The EU customs law makes a distinction between two types of origins, namely non-preferential origin and preferential origin.
- Non-preferential origin which is the customs origin applicable by default. When a good has a non-preferential origin, it means that there is no legal instrument between the European Union and the country of origin allowing the application of a reduced or nil customs duty rate. The rate of customs duty that will be used for the importation of that merchandise into France will be the MFN rate as defined by the Combined Nomenclature.
- Preferential origin results from bilateral trade agreements between the European Union (EU) and non-EU countries, or from preferential measures granted unilaterally by the EU to certain third countries. These preferential arrangements enable the application of a reduced or a nil customs duty rate on goods imported into France and originating in beneficiary countries and territories.
When an importer wants to bring into France non-EU goods under a tariff preference scheme, he must normally provide evidence of the preferential origin before the customs clearance actually takes place in France.
In general terms, the proofs of origin are either a declaration of origin on the invoice issued by the exporter in the third county for a consignment up to 6’000 Euros (registered exporters can make an invoice declaration for consignments beyond 6’000 Euros) or a certificate of origin signed and stamped by the customs authorities of the exporting country.
A certificate of origin known as FORM.A is used to import into France goods originating in countries benefiting from the GSP (Generalized System of Preferences) arrangements. As from January 1, 2021, FORM.A will be permanently replaced by the certification of origin issued directly on a commercial invoice by an approved exporter under the REX system (The Registered Exporter system).
The EUR.1 certificate is rather used for goods originating in third countries that do not benefit from the GSP, with the exception of cases where a cumulation of origin is applied under the Pan-Euro-Mediterranean system (use of the EUR-MED certificate).
It is worth noting that the A.TR certificate for the movement of industrial products between Turkey and the EU is not a proof of origin as such, but a certification of the Turkish or EU customs status of the goods.
Once the tariff classification of a product and its customs origin have been clearly defined, the last step is to determine the value on the basis of which any customs duties and French import VAT will be computed.
Customs value of goods:
For a correct assessment of import duties and taxes, the customs declaration to be filed in France should mention the exact value of the consignment. The customs value is in principle determined on the basis of the “transaction value”, that is to say the total price of the goods actually paid or to be paid to the seller by the buyer who will import the said goods in the customs territory of the European Union.
Other ancillary charges such as cost related to packaging, transport and insurance up to the first point of entry of the goods into the European Union (non-comprehensive list) can be added to the “transaction value”. In the case of a transport by sea for example, the customs value will generally correspond to the C.I.F value (Cost, Insurance and Freight) up to the first port of entry into the EU.
Customs duties will be calculated on the basis of the C.I.F value, but not the French import VAT which is calculated on the basis of the D.D.P value (Delivered Duty Paid). Indeed, for the determination of the basis for calculating import VAT, it will be necessary to add to the customs value other domestic charges (such as the transport of goods from the port of entry into the EU to the final place of delivery in France), plus the amount of customs duties and other customs taxes except import VAT itself.
There are, however, some situations in which the “transaction value” cannot be used for the determination of the customs value. This is the case, for example, when:
- a foreign company brings into France its own goods either for a future sale (e.g. consignment stocks or e-Commerce inventories) or for a leasing with or without an option to purchase the same;
- a foreign company imports into France its own goods for an exhibition during an international trade show taking place in France;
- a foreign company imports into France its own goods either for repair (under warranty or not) or for additional processing and transformation;
- the buyer and the seller are legally or financially bound in such a way that their relationship influences the selling price of the goods (e.g. some transfer pricing between entities belonging to a same multinational group);
- a company re-imports into France goods that had previously been exported outside the European Union, etc.
In such cases, the importer will have to use secondary methods of customs valuation in order to find the real value of the goods. Article 74 of the Union Customs Code (UCC) sets a precise order in which the alternative methods should be used, the goal being to reach to the first method of substitution under which the customs value can be determined.
Comparative value method:
The transaction value of identical or similar goods, produced in the same country, and sold for export to the EU at the same time or about the same time as the goods to be valued should be taken into account.
The “identical goods” are in all respects the same as the goods being valued (features, intrinsic quality and commercial reputation) while the “similar goods” only have close resemblance with imported goods in respect of their component materials and characteristics, allowing them to perform the same functions and to be commercially interchangeable.
Deductive value method:
The customs value is established on the basis of the unit price of the first sale in the EU, after customs clearance in France, of the greatest aggregate quantity of the imported goods or identical or similar goods. This price is acceptable only when there is no legal or financial link between the supplier and its customers. The amount of the commissions or margins usually charged, transport and insurance costs, import duties and taxes due in the European Union will be taken away from the sale price.
Computed value method:
In this method, the customs value is obtained by performing an arithmetic operation whose result corresponds to the sum of the 3 following elements :
- the cost of raw materials and manufacturing operations necessary for the production of the imported goods ;
- the amount of profit (minus the general expenses usually taken into account) realized by producers located in the same country from which the goods being valued are exported, who export goods of the same kind to the EU ;
- the costs of loading, transport, handling associated with transport and insurance up to the first point of entry into the customs territory of the EU ;
Residual method of customs valuation:
Whenever it is not possible to determine the customs value of goods by the primary method (i.e. the transaction value) or using one of the secondary methods listed above, it shall be determined by reasonable means, based on objective and quantifiable data available in the customs territory of the Union.
The determination of the tariff classification, the customs origin and the commercial value of a product is a fundamental step for a correct assessment of import duties and taxes levied in France.
While the trade agreements between the EU and certain third countries may lead to the application of a reduced or nil customs duty rate on goods imported into France (mainland), the Value Added Tax (VAT) still applies and a cash disbursement is necessary, except in very limited cases of exemption, suspension or reverse charge (deferment account).
The standard VAT rate for imports into France (mainland) is 20% in 2020. There is also an intermediate rate of 10% and a reduced rate of 5.5% which apply to certain products specifically targeted by the tax law.
In order to find the rate of customs duty applicable to a product you intend to import into France, you can use the simulator of the International Trade Center (ITC) which is a joint agency of the World Trade Organization (WTO) and the United Nations (UN). Please note that this tool does not indicate the French VAT rate which, except in specific cases, amounts to 20% of the DDP value of your import.
You are acting on behalf of a foreign company and you would like to reclaim import VAT paid in France, feel free to send us a message using the contact form or dial +33-261-536-544 to reach our English speaking line.
The content published here above is based on information timely as of 1 December 2020, unless otherwise indicated. Amendments to the tax laws in the EU country covered in this article could have been passed recently.