What Is Customs Valuation And Why Do Traders Need To Know It?

Customs valuation is used to determine the economic worth of goods being declared for Customs purposes e.g. export, import, inward/outward processing and warehousing. Customs value is one of three elements – alongside origin and the Customs tariff – that determine the amount of duty and VAT to be paid on imported goods.

The authorities wish to ensure that goods are not being undervalued for Customs purposes as this will result in diminished revenue. This risk is seen as particularly arising where buyer and seller are somehow related and market value is not applied.

Methods To Determine The Customs Value Of Goods

Six methods are used to determine the Customs value. They must be applied in the proceeding order.

Method 1 – Transaction Value

·        The price paid/payable when goods are sold for export to the Customs territory.

·        This is the most common method, used for over 90% of products traded in the EU and UK.

·        Conditions for using this method include:

–  the buyer and seller are not related, or, if they are, the price has not been influenced by this relationship (i.e. it should be an arm’s length transaction, with both parties acting in their own self-interest);

–  the seller will not benefit from proceeds of the buyer’s use or subsequent sale of the goods, unless an appropriate adjustment can be made;

–  there are no restrictions for disposing or using the goods by the buyer other than certain acceptable restrictions.

·        Unless already included, the following must be added to the price payable:    

–  delivery costs (transport, insurance, loading, handling) to the border of importation;

–  selling commission and brokerage;

–  royalties and licence fees relating to the goods when paid as a condition of sale;

–  costs of containers/packaging intended for long-term use (e.g. musical instrument cases), in which the goods are contained at the time of importation and in which the goods will be sold in the normal course of trade;

–  the value of goods/services provided by the buyer free of charge or at a reduced price and used for the production of the imported goods;

–  the proceeds of a subsequent resale, disposal or use of the imported goods that accrues (directly or indirectly) to the seller.

·        Interest charges, assembly/maintenance costs incurred after the entry into the Customs territory and buying commission should not to be included in the Customs value of the goods.


Method 2 – Transaction value of identical goods imported at or about the same time

·        Identical goods are the same in all respects including physical characteristics, quality and reputation.

·        They should have been produced in the same country by the same producer and sold at the same commercial level, in broadly matching quantities.

·        Only the Customs values of identical goods determined using the transaction value method can be used in establishing the value under the identical goods method.

·        If more than one transaction value of identical goods is found, the lowest value should be used.

Method 3 – Transaction value of similar goods imported at or about the same time

·        Similar goods closely resemble the goods being valued in terms of component materials and characteristics and should be commercially interchangeable.

·        They should have been produced in the same country by the same producer and sold at the same commercial level, in broadly the same quantity.

·        Only the Customs values of similar goods determined using the transaction value method can be used in establishing the value under the similar goods method.

·        If more than one transaction value of similar goods is found, the lowest value should be used.

Method 4 – Unit price or deductive value (This can be interchanged with Method 5)

·        Calculated on the basis of the unit price at which the imported goods, or identical/similar goods, are sold in the Customs territory to an unrelated buyer in the greatest aggregate quantity.

·        The buyer and seller cannot be related.

·        Deductions may need to be made to reduce the sales price to the relevant Customs value (e.g. Customs duties and VAT which have already been paid, post-import transport charges and insurance).

Method 5 – Computed value (This can be interchanged with Method 4)

·        Also known as the “cost-plus” method.

·        This method can be used where the seller is the producer of the goods, with access to information about how they are made.

·        The Customs value is determined by summing the following:

                    i.           costs or value of material and production costs;

                  ii.           profit and general expenses equal to those usually reflected in the production and sale of goods of the same class/kind in that country for export to the same market; and

                iii.           cost of transport, loading, handling and insurance up to the point of entry into the Customs territory.

Method 6 – The residual valuation provision/fall-back

·        This should only be used if none of the previous methods can be applied.

·        The Customs value is calculated by applying (with reasonable flexibility) whichever of the previous five methods most readily enables calculation.

·        If more than one of the usual methods can be applied flexibly, the normal sequence for such methods should be followed.