Taxes and Duties to Pay When Shipping from Canada to the U.S.

According to the bureau’s International Trade Data with Canada, as of June 2022, US$ 260.676 billion of Canadian goods had already made their way into the U.S.

It makes the U.S. the largest importer of Canadian products, and for small shops that want to expand should look into the market. However, you must first understand there are taxes and duties to pay when shipping from Canada to the U.S.

This guide will cover all the fees, duties, and required documentation at points of entry for small businesses shipping products from Canada to the U.S. We'll share some helpful hacks and tips on how you can save on these taxes and duties too.

Fees When Shipping from Canada to The U.S.

Duties and fees for customs clearance depends on several factors, such as trade agreements, import restrictions, and CBP compliance. Some necessary fees for U.S.-bound products include: import fees, regulatory fees, and inspection fees. There are exemptions too, like agricultural products grown, manufactured and produced in Canada. Here are some of the fees you need to consider when calculating shipping costs:

Taxes are affected by a lot of things like trade agreements & import restrictions

Import Fees 

When Shipping from Canada to the U.S., you must pay customs duty or import tax. You can use the Harmonized Tariff System (HTS) to calculate your import duty. The HTS is a customs duty rate system of all items, calculated as a percentage of the total purchase value of the item you will pay in Canada.

It is the mandate of the U.S. Customs and Border Protection (CBP) to enforce and ensure all shipments adhere to all the set rules and regulations. Consequently, the CBP has developed the Harmonized Tariff Schedule of the United States (HTSUS). It is a comprehensive reference manual that details the statistical categories and tariff rates of all products crossing into the U.S.

However, some products imported from Canada are exempted from these fees.

 Are there exemptions and duty-relief for Canadian goods?

The trade agreements between Canada and the U.S. led to the exemption of some products from customs duty. One such agreement is the January 1994 North American Free Trade Agreement (NAFTA) which eliminates tariffs between the member states.

In September 2018, Canada, U.S. and Mexico decided to review and renegotiate the terms of the agreement. These negotiations bore the USMCA, which functions as an extension of NAFTA.  The USMCA terms became operational on July 1, 2020, with the agricultural sector being the biggest winner, as most Canadian agricultural products now enjoy duty relief when crossing into the U.S.

One of the top products imported from Canada to the US is leather goods

As a result of this agreement, exporting Canadian agricultural goods to the U.S. is much more affordable. That is compared to bringing in goods from other countries not included in the NAFTA program. One of the most important documents you'll need to enjoy discounted rates or exemption is the Certificate of Origin. There are other discounts for bulk shipping, especially ones declared for formal entry. You can check out the duty relief program for exporters in this website.

What about exemptions for e-commerce products?

For those using the Canadian Post to bring in products from their online shops, maybe easier. Here's why (and how!):

• Clearance for shipments through Canada Post is easier compared to other carriers. The duties for parcels valued at $2,000 or less are already collected at the post-office.
• You can also save on shipping charges: smaller, low-valued packages can often be sent less expensively through the post.
• You don't need to declare formal entry for your products, required on duty-free merchandise not exceeding $2,000 in value.
• There's no need to clear shipments personally if the cost of items to be shipped are under $2,000 in value.

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For parcels valued at $2,000 or less duties are already collected at the Canada post-office

Regulatory Fees

When shipping regulated products to the U.S., you need to note that federal government agencies regulate products like sugar, softwood lumber, firearms, and ammunition. The set of agencies tasked to regulate this is collectively called the Participating Government Agency (PGA).

If your product falls under this category, you need to register with them or obtain a specific license to ship these items. The most prominent PGA offices are:

• The Food and Drug Administration (FDA)
• U.S. Department of Agriculture (USDA)
• Bureau of Alcohol Tobacco, Firearms and Explosives (ATF)
• U.S. Environmental Protection Agency (EPA)

Each PGA will have its own set of guidelines for specific products and goods. 

Inspection Fees

For bulk shipment, a customs agent may randomly sample your shipment and inspect it to prevent the entry of harmful or illegal products. While CBP will bill you for the screening, the inspection seeks to ensure U.S. consumers' safety. Besides, it preserves the integrity of the U.S. marketplace by preventing the entry of prohibited and substandard products.

Alternatively, a suspicious consignment or an improperly documented one will warrant some screening. When you are at fault, further scrutiny of the shipment will incur additional storage and detention fees at the inspection facility beside the inspection fees. You will also have to bear the cost of re-exportation if CBP denies entry into the U.S.

Some bulk shipment may require inspection from customs

Five Tips to Save on Duties and Taxes

While there is no way to avoid duties and taxes, you can avoid unnecessary customs charges from Canada to the USA. Here are some tips:

1. State the product’s HTS code on the commercial invoice. The HTS code depends on the purchase value, not the size, weight, or quality. Always state the products’ unique HTS code on the commercial invoice of the shipment, even if the cargo consists of multiple products. It will help the CBP accurately determine the duty to charge on the product.

2. Always provide the correct information. If CBP flags your shipment with falsifying information, it can initiate harsh penalties, criminal proceedings, or both.

3. Find a competent, reliable, and trustworthy customs broker. The broker should double-check your submissions to weed out discrepancies and non-compliance. Besides, they should help determine which bond best suits your product line and business goals, rather than focusing on brokerage fees.

For smoother transactions and accurate computations, it's always best to work with customs brokers

4. Maximize preferential trade tariffs. You will enjoy duty exemptions and special rates, provided your products have a Certificate of Origin. It will cut down the operation costs of your new small business, effectively improving your retained earnings.

5. Couriers like local postal services USPS and Canada Post offer special rates for businesses that regularly use their cross-border shipping services. Despite factoring in taxes and duties in their rates, these rates are usually low and sustainable for a small business. Besides, you will also benefit from free shipping supplies.

Postal services like USPS or Canada Post often offer special rates and packages for cross-border shipping for small shops

Required Documents When Exporting Products From Canada to the U.S.

Despite the numerous trade agreements and proximity between Canada and the U.S., each country has trade policies meant to protect the country's consumers, markets, and industries.

Here are some essential documents, United States Customs and Border Protection (CBP) will require you to have when shipping from Canada to the U.S.

NAFTA Certificates of Origin

Completed by the exporter, it certifies if your product qualifies for the preferential tariff treatment specified in the NAFTA treaty.

1. Importer ID Number

It can either be an IRS business tax number or your social security number. You can also create or update your importer identification information by filling out the CBP Form 5106.

2. Bill of Lading

It is a legal document issued to you by the freight company which serves as a receipt/ invoice for the shipment. Since it accurately details the type and quantity of the shipment, it seeks to prevent theft in transit.

3. Commercial Invoice

Explicitly describes the products, such as the price, estimated value, and quantity. The exporter also drafts it, and you must have it during pick-up.

Always make sure to declare all important information when filling up forms

5. Import/ Export License

While this is not usually necessary, shipping some products is controlled, and you must apply for a special licenses. It would be best if you keep yourself updated with these changes, so you can keep up with the periodic review of these requirements.

Here's a list of Canada’s list of controlled products

6. An Electronic Export Information (EEI) form

You should prepare the EEI if the value of the shipment exceeds $2,500. The freight company will file it with the CBP through the AES platform. This helps with fast and smooth clearance at the point of entry.

7. FDA Documentation

You can submit the information for review electronically or manually at the local FDA Import office. While you can fill in the manual documents yourself, it would be best to work with an experienced customs broker to help you file the electronic submissions.

Documents required by the FDA

Once the shipment is successful, it's best if you keep these documents for at least six years. It can be either as originals or copies. Sometimes, your shipment may mistakenly be charged customs fees despite being exempted under NAFTA policies. You have a one-year period to claim a refund of excess duty paid.  Please note that the U.S. States operate as separate entities, which may require you to provide additional documentation according to state laws, so keep your files organized.

What Are Formal And Informal Entries To The U.S. Market?

Primarily, there are two ways to bring in goods into the U.S.: a formal entry and an informal entry.

Formal Entries

You are required to file a formal entry for your goods if the products you ship to the U.S. have a total value above $2500. In this case, you will need to secure the services of a U.S. Customs Broker to help you comply with regulations and bond requirements.

Usually, the broker will purchase either an annual or single-entry bond (SEB), depending on your shipping frequency and volume. If you ship products regularly or in large volumes, a yearly bond is ideal and brings value for money.

You do not have to purchase a new bond each time you make more than five shipments annually. Alternatively, an SEB is cost-effective for a small business with periodic monthly shipments.

It's considered a formal entry for your goods if the products you ship to the U.S. have a total value above $2500

Informal Entries

The shipment is considered an informal entry if the value of the consignment is less than $2500. It cushioned importers/exporters against inflation and reduced the burden on small shops. It is a relatively simple procedure, and you don’t require a customs broker if the consignee or customer collects them at the port of entry. As small shop owners, it's best to work with courier service to help you with taxes and documentation.

What Are NAFTA Certificates?

When shipping into the U.S., you will usually be required a Certificate of Origin to verify the country of manufacture.

NAFTA Certificates of Origin will certify if the shipments qualify for preferential tariff treatment by reducing or eliminating duty under the NAFTA treaty. In Canada, you must preserve the original or a copy of the NAFTA certificate for at least six years.

Some of the products that qualify for this subsidy include:

• Agricultural products – corn and meats
• Manufactured products – Cotton apparel, footwear, auto parts
• Raw materials – steel, leather, fabric, and lumber

If these products satisfy the safety and regulatory standards, you can ship these products freely across Canadian and U.S. borders.

Prohibited items for cross-border shipping

Difference Between Shipping in Canada and U.S.

Canada uses a “free on board” method for shipments coming from the U.S. You are only responsible for taking the products to the nearest point of entry. Once you successfully satisfy the CBP requirements and are cleared, you have fulfilled the requirements to deliver the products.

On the other hand, the U.S. uses a “cost plus” method. It is a more comprehensive approach where you are responsible for all costs until the product reaches the buyer. It includes transportation, freight, and insurance costs. As small businesses, shouldering these costs when you are not shipping in bulk will eat into your bottom line. It would be best to work with established couriers to reduce overheads.

For a more comparative analysis of the shipping methods in Canada and the U.S., click here to check out our article on Taxes and Fees when Shipping to Canada.