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What is a duty drawback in US customs? If you’re importing for export to and from the United States, it’s likely that you’re paying customs duties and fees assessed by Customs and Border Protection (CBP) that may be eligible for a refund.
Key takeaways:
Our comprehensive guide explains exactly what a duty drawback in customs is and the most common types of drawbacks available to businesses.
Duty drawback programs have been around in America since 1789, in one form or another, as a way to encourage manufacturing and then exporting within the U.S. market.
As noted already, this is a reimbursement of particular fees, duties, and taxes that were originally collected upon the importation of goods into the U.S. These refunds only happen under certain circumstances:
Applicants can be exporters, the importers, or another party in the transaction’s chain.
Drawbacks are highly underutilized in the United States. There is roughly $3 billion annually available in drawbacks for companies, but only 20% — about $600 million — is actually claimed.
There are many types of U.S. drawbacks and situations under which you can make a claim to recover fees, duties, or taxes paid on merchandise. That variety makes it important to know the different codes to file under when it’s time to apply for your refund.
Valid claims can provide you with money back on:
So now that you know what a customs duty drawback is and when you’re permitted to claim them, let’s look into the benefits and the most common types.
The most obvious benefit of claiming a duty drawback is the recovery of duties paid, which is a huge boon to the bottom line of any import/export company. With these funds back in your pocket, you can reinvest in infrastructure, diversify your selection of exported goods, and generally be more competitive in the market.
By factoring refunds into your purchasing process, you may also find it more cost-effective to import higher quality goods that otherwise might be beyond your budget. This can lead to increased customer satisfaction and an even greater competitive edge.
Fortunately for importers, there are numerous drawbacks that you can claim. You simply need to find the one that matches your specific situation. I’ve listed the common claims that importers often pick and the corresponding U.S. Code.
I’ll explain how each of these work to help you determine which one is best for your unique importing situation.
Under this kind of refund, an importer can get 99% of the taxes, duties, and fees refunded once proof is submitted to CBP that the product or materials were exported or destroyed.
The only provision is the merchandise in question can’t have previously been sold prior to it being exported or destroyed.
If you use a combination of an imported and domestically made item in the production of goods in the United States, then upon exportation or destruction of those goods, you can still claim a refund.
What matters is that the items themselves are the same and serve the same purpose. It reduces the paper work on the part of the manufacturing company because it means they don’t have to keep track of whether an imported or domestic part was used in each final product.
Of course, absolutely none of the products could have been used in the United States prior to their destruction or exportation. Only then can a refund of 99% be claimed.
Merchandise in this category must have been rejected because it didn’t measure up to previous samples received or agreed-upon specs. Other items that fall into this category are:
If your goodsmeet any of the aforementioned criteria, 99% of all the fees can be claimed for reimbursement. However, the claimants must fill out and file CBP Form 7553 and notify CBP before exportation or destruction in order to qualify — unless the importer has been exempted from having to do so.
When these products are made in part from domestic alcohol upon which IRS tax has been paid, a drawback equal to the taxes assessed is allowed after exportation.
Duties may be refunded upon proof that the imported salt was used to cure fish. The fish must be cured “on the shores of the navigable waters of the United States” and may be taken on vessels regardless of the vessel’s licensed status.
Duties may be refunded when meats cured in the United States with imported salt are themselves exported. The meats may be packed or smoked, and the duties on the imported salt must be no less than $100.00.
This applies to imported materials that are used to build or equip vessels for foreign ownership. You’ll be able to receive 99% of the duties paid on the materials.
Jet engines that are imported and then reconditioned in the USA with imported components and then exported, qualify for a refund of duties no lower than $100.00 USD. You will be eligible for this refund after the engines are exported.
This refund pertains to imported merchandise that has gone unsold and/or unused. If these products are exported or destroyed under CBP supervision, the party is eligible to recover 99% of the associated taxes, fees, and duties.
Just like with rejected merchandise, CBP Form 7553 must be filled out and filed. CBP then has to be alerted before the items are exported or trashed, unless there is an exemption.
If merchandise that is classifiable under the same eight-digit HTS subheading number as the imported merchandise, drawback of 99% of the duty, taxes, and fees on the value of the imported or substituted merchandise (whichever is less) may be claimed.
However, the HTS description of the imported merchandise must not be listed as“other” and goods should be exported or destroyed without being used in the United States.
If any of the aforementioned statues apply to you, it’s likely that you could successfully apply for a duty drawback. There are other scenarios which could make you eligible for a refund. If your business has exported any imported goods recently, it could benefit you to contact one of our consultants about how these refunds work.
A related topic is anti-dumping duties. While there’s no way to file for a drawback for anti-dumping duties, there are safe and legal ways to combat it.
Related:How to Avoid Anti-Dumping Duties.
Our Licensed Customs Brokers will arm you with additional knowledge and assistance when you claim your drawback.
While this might be subject to change in the future, drawbacks are also allowed on Chinese goods. Listed under Section 301 Trade Remedies on the CBP website, this allows exporters to get refunded on duties, tariffs, tariff exclusion refunds, and taxes that have been increasing recently.
Goods that come directly from China to the U.S. or vice versa qualify for the full refund. If the goods enter a third country at any point, they will be subject to a non-refundable 10-percent duty rate — just one more thing for businesses to consider.
Related: Section 301 Duty Drawback: Eligible Products
Another detail to consider is your current role within the entire import/export process. In some cases, only the exporter can claim reimbursement. This would come into play under a scenario similar to the following:
Your company imports ball bearings to the U.S. and you sell them to a wholesaler. If the wholesaler then exports or destroys the items without sending them back to the manufacturer, they would recover the duties at that point if they file for a drawback.
Whether the wholesaler was the one to originally pay (or not) the taxes involved in importing, the cost of those were included in their purchase price. That makes the wholesaler entitled to refunds.
If you’re unsure about whether you qualify, it pays to speak with an expert. Check out our article on working with a Licensed Customs Broker.
To claim drawback, there are three things an exporter must have:
Certain documents can help establish this connection. For instance, a Certificate of Delivery — a document which chronicles the transfer of imported goods and their corresponding paid duties. That’s a big step toward proving that you are eligible to receive a reimbursement. This document can also show the transfer of refunded products to an exporter.
Keeping up-to-date paperwork is essential; this is meant to be over a period of several years. A business can claim drawback up to 5 years from the original importation, so you might have goods or a piece of equipment that you have for, let’s say, 3 years and decide to destroy it or export it.
Your dated paperwork from the original transaction must be available, so you can show customs that you are in compliance to claim the refund. Drawing up proper paperwork between the seller and the buyer could be helpful as well. If it is legally agreed upon, the seller can reserve the right to claim a reimbursement.
However, for the buyer to consider this, a lower upfront price can be negotiated. They would hypothetically be leaving thousands of dollars on drawbacks if agreeing to let the buyer keep that right.
Another important aspect of finalizing the drawback process is having a record of repeatedly submitting claims which are error-free. If this applies to you, it’s possible to request that Customs approve you for an Accelerated Payment Privilege for your refund.
The drawback will be paid out shortly after the claim is submitted if the claimant provides a bond to protect against Customs overpaying. If Customs overpays, the claimant will be able to keep the appropriate amount and return the excess.
To enjoy the Accelerated Payment Privilege, you’ll need to ensure you have a valid bond with CBP. After your claim has been filed, you can expect the refund to be issued four to six weeks later.
Without the Accelerate Payment Privilege, it may take b one to two years for your refund to arrive.
The list of items you can claim drawback on is vast, but it’s also helpful to know the instances where a refund can’t be claimed. For example, imported aluminum or steel that has had Section 232 duties on it is not eligible for drawback.
Furthermore, duties on flour or flour byproducts made from imported wheat will not have duties refunded. Another common example is produce or agricultural products that are over quota.
Related: U.S. Tariff Rate Quotas
A general formula for figuring out your duty drawback rate is the 99% rule. Unless there is a special reason, an exporter gets up to 99% of previously paid duties, taxes, and fees as a drawback.
This is the rule of thumb for estimating drawbacks, but CBP will actually make the final determination on what you’re entitled to receive based on what is submitted. A broker or service provider could help with these estimates if they are hired to file on your behalf.
In order to file for your drawback, you will need to fill out CBP Form 7553. This form signals your intent to export or destroy the merchandise in question and also allows the CBP to determine the size of your refund. The CBP Form 7553 should be submitted within 24 hours of the claim being filed.
Once you have all your documentation on hand, filling out the actual form should take about 30 minutes. With the possibility of recouping thousands of dollars in taxes, the investment of time is undoubtedly worth it.
After February 22, 2019, CBP stopped accepting paper claims. Instead, claims must be filed electronically through the CBP’s Automated Commercial Environment (ACE).
The claimant can use a service provider, a licensed customs broker, or self file. The recovery process is usually much faster when using the services of a customs specialist.
If the process seems daunting or if you don’t have the time to jump through hoops, a customs broker will be your best option to help prepare everything. Brokers can also provide additional services you might need during customs clearance.
If you decide to self file, just remember that accuracy is king. Obviously, 100% accuracy will put your claim through quickly, but certain inaccuracies or multiple mistakes can either delay your drawback or result in rejection.
Although it has been mentioned elsewhere in the article, you can fill out the form to claim exports for up to five years prior. So long as you have the documentation, that money is not lost and should be recoverable.
At USA Customs Clearance, our Licensed Customs Brokers that will be able to assist you with getting a drawback for duties, taxes, and fees you paid for an import. They’ve helped numerous importers with this unique endeavor. We also have a variety of other services that will help you with a variety of challenges you might face.
Claim your Customs Duty Drawback or use one of our services to get your goods into the country. Contact us through the site or call our team at (855) 912-0406 to get set up with one of our services.
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I was wondering if this is something my company could take advantage of and recoup some tariffs. We import furniture from China into the US. it sits in our warehouse, but then we ship quite a bit across theborder to Canada to our end user customers.
We also, have scrapped some material over the year(s).
My name is Chris O'Dowd
number is 713-705-2865
and email is codowd@seidal.com