What is a duty drawback in US customs? If you’re importing or exporting anything to or 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 customs duty drawback. So just what is a customs drawback, and how do you determine your business’s eligibility to receive one?
CBP describes a customs duty drawback as a refund of duties and taxes that are charged when importing goods. Importers can only claim drawbacks when imported goods are destroyed under the supervision of CBP or exported from the US. Individuals and companies must fill out and submit CBP Form 7553 in order to be eligible for duty drawback.
Our comprehensive guide below 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 above, a duty drawback 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:
The applicant for the duty drawback process can be the exporter, the importer, 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 percent — about $600 million — is actually claimed.
There are many different types of U.S. drawbacks and aspects under which you can make a claim to recover fees, duties or taxes paid on merchandise. It is also important to know the different codes to file under when it’s time to apply for your drawback.
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Valid claims include the following:
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 of duty drawbacks 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 duty drawback 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.
Types of US Duty Drawbacks
|19 U.S. Code 1313(a)||Articles made from imported merchandise||Under this kind of drawback, an importer can get 99 percent 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.|
|19 U.S. Code 1313(b)||Substitution for drawback purposes||If imported merchandise is used in the production of goods in the United States, upon exportation or destruction of the manufactured articles, it is eligible for drawback. Furthermore, absolutely none of the imported products could have been used in the United States prior to their destruction or exportation. Only then can a drawback of 99 percent be claimed.|
|19 U.S. Code 1313(c)||Merchandise not conforming to sample or specifications||Merchandise in this category must have been rejected because it doesn’t measure up to previous samples received or agreed-upon specs. Other items that fall into this category are products that were shipped without the agreement of the consignee, any defective products, and items sold at the retail level that were then returned for whatever reason. If the goods in question meet any of the aforementioned criteria, 99 percent of all the fees can be claimed as a drawback.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.|
|19 U.S. Code 1313(d)||Flavoring extracts; medicinal or toilet preparations; bottled distilled spirits and wines||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.|
|19 U.S. Code 1313(e)||Imported salt for curing fish||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.|
|19 U.S. Code 1313(f)||Exportation of meats cured with imported salt||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.|
|19 U.S. Code 1313(g)||Materials for construction and equipment of vessels built for foreigners||This applies to imported materials that are used to build or equip vessels for foreign ownership.|
|19 U.S. Code 1313(h)||Jet aircraft engines||Jet engines which are imported and then reconditioned in the USA with imported components and subsequently exported qualify for a refund of duties no lower than $100.00 USD.|
|19 U.S. Code 1313(i)||Proof of exportation||This generalized portion of the drawback code establishes that individuals or businesses claiming drawback shall provide proof of exportation.|
|19 U.S. Code 1313(j)(1)||Unused merchandise drawback||This kind of drawback 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 percent 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.|
|19 U.S.C. 1313(j)(2)||Substitution unused merchandise drawback||If merchandise that is classifiable under the same eight-digit HTS subheading number as the imported merchandise, provided the HTS description of the imported merchandise is not "other," is exported or destroyed without being used in the United States, drawback of 99 percent of the duty, taxes and fees on the value of the imported or substituted merchandise, whichever is less, may be claimed.|
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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 duty drawback refund, so if your business has exported any imported goods recently, it could benefit you to contact one of our duty drawback consultants about how duty drawbacks work.
A related topic to duty drawback is anti-dumping duties. While there's no way to to file for a drawback for anti-dumping duties, there are safe and legal ways to combat it. Learn more by checking out our blog How to Avoid Anti-Dumping Duties.
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.
Need more information about drawbacks from Chinese imports? Learn more details about section 301 drawbacks in this comprehensive article.
Do Exporters Qualify for Drawbacks?
Another detail to consider is whether you imported the item. In some cases, only the exporter can claim drawback. 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. Regardless of if the wholesaler was the one to originally pay the duties, fees or taxes, the cost of those were included in the wholesaler’s purchase price, so they are entitled to drawbacks at that point.
If you’re unsure about whether you qualify for a customs duty drawback, it pays to speak with an expert. Check out our article on working with a customs duty drawback 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 — is a big step toward proving that you are eligible to receive drawbacks. This document can also show the transfer of drawback 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 paperwork has to be available from the original transaction date so you can show customs that you are in compliance to claim the drawback.
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 drawback. However, for the buyer to consider this, it is assumed they may receive a lower upfront price when purchasing goods since they’d 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 an accelerated payment of drawback.
The drawback will be dispensed 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 is required to return the excess.
The list of items you can claim drawback on is vast, but it’s also helpful to know the instances where customs drawback 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.
In order to actually claim your duty drawback, you must be familiar with how duty drawback works. We’ll go over how a duty drawback is calculated, how to apply for duty drawback, and how to claim duty drawback owed on your imports.
A general formula for figuring out your duty drawback rate is the 99 percent rule. Unless there is a special reason, an exporter gets up to 99 percent of its duties, taxes and fees as a drawback.
|Amount Paid||99% Duty Drawback Refund||CBP Retains|
This is the rule of thumb for estimating drawbacks, but CBP will actually make the final determination on what you’re entitled to receive back based on what is submitted. A duty drawback broker or service provider could help with these estimates if they are hired to file on your behalf.
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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 how much of a duty drawback refund you’ll receive.
Once you have all your documentation on hand, filling out the actual form should take about 30 minutes. But for the potential of recouping thousands of dollars in taxes, the investment of time is undoubtedly worth it.
There are four drawback offices in the United States where refunds can be submitted: Chicago, Houston, Newark/New York and San Francisco. The party filing the claim can make it at any of these four offices, regardless of where in the country the initial import arrived.
Claims must be filed electronically through the CBP’s Automated Broker Interface, as all filings are done paperlessly. The claimant can use a service provider, a licensed customs broker, or self file. The duty drawback recovery process is usually much faster when using the services of a duty drawback 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. Duty drawback 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 percent 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.
When you’re finally ready to claim what’s yours and file for customs duty drawback, let USA Customs Clearance take care of the heavy lifting. We can save you time and recover your duties by helping you get the appropriate forms located and filled out. We also offer fast and efficient customer service to solve any issues that might arise during drawback filing.
With your record keeping and our expertise, we can help you recover up to 99 percent of your duties, taxes and fees for up to five years of exports. We offer additional services not provided by other duty drawback companies regarding your business, such as help with clearing customs, preparing documents, and even offering customs bonds.
USA Customs Clearance can monitor your services and make sure your bond is up-to-date to avoid delays in shipping. Connect with us by scheduling a consulting session. We’ll make getting your drawback a priority so you have more time to focus on your business.