Automotive Import Costs Explained: How Customs Value, Duty, and Tax Add Up
The US has announced a 25% tariff on non-US-originating vehicles as part of their recent reciprocal tariffs, which is stackable alongside their country-specific import duty rates.
But what does this really mean for automotive manufacturers and traders, and how can they make changes to gain an advantage?
In this article, we explore the knock-on effects of tax rates on unit costs and explain how you can lower the cost of production so that you can compete in the international market.
Contents:
- How import taxes change an automotive unit’s price in the US and EU/UK
- How you can lower the cost of production or import so that you can stay competitive
- How Customs Support Group can help
How Import Taxes Change an Automotive Unit Price
When you are importing a complete vehicle, you will pay taxes on the border cost of the goods. This means that you are paying for the cost of the unit, the freight, and any additional costs that are incurred before the vehicle arrives at the border – such as documentation or export customs clearance.
For the purposes of this illustration, we’ll use two CIF costs of $20,000 and £22,000. If you usually use another Incoterm, then you can see how to get the border value using our article on how to calculate import duty and VAT.
How Taxes Affect US Automotive Costs
There is no import VAT to pay on the border cost and duty in the US, so we will include a nominal sales tax of 5% to represent an onward sale to a trader using the import value – which will be higher when you consider the inland charges and profit.
For simplicity, we haven’t included the Merchandise Processing Fee (MPF) or Harbour Maintenance Fee (HMF) as these are approximately 0.5% ($100) together – depending on the location.
Here is an example of how the end unit cost can be affected by different unit price and duty rates in the US, including the waiver for the additional tax for EU-originating vehicles as per the recent trade deal:
| Price | Tariff Rate | Country Duty | 25% Automotive Duty | Total Duty | Total Import Value | Onward Sales Tax 5% | Cost to Dealer |
|---|---|---|---|---|---|---|---|
| $20,000.00 | 10.00% | $2,000.00 | $5,000.00 | $7,000.00 | $27,000.00 | $1,350.00 | $28,350.00 |
| $20,000.00 | 15.00% | $3,000.00 | NA | $3,000.00 | $23,000.00 | $1,150.00 | $24,150.00 |
| $20,000.00 | 20.00% | $4,000.00 | $5,000.00 | $9,000.00 | $29,000.00 | $1,450.00 | $30,450.00 |
| $20,000.00 | 30.00% | $6,000.00 | $5,000.00 | $11,000.00 | $31,000.00 | $1,550.00 | $32,550.00 |
| $22,000.00 | 10.00% | $2,200.00 | $5,500.00 | $7,700.00 | $29,700.00 | $1,485.00 | $31,185.00 |
| $22,000.00 | 15.00% | $3,300.00 | NA | $3,300.00 | $25,300.00 | $1,265.00 | $26,565.00 |
| $22,000.00 | 20.00% | $4,400.00 | $5,500.00 | $9,900.00 | $31,900.00 | $1,595.00 | $33,495.00 |
| $22,000.00 | 30.00% | $6,600.00 | $5,500.00 | $12,100.00 | $34,100.00 | $1,705.00 | $35,805.00 |
Note that the same unit can cost over $4000 more to a trader when there is a higher duty rate. A £2,000 difference in unit price here can also translate into a real increase to the trader of £2,835 to $3,255 – and neither of these cases account for inland costs or profits.
How Taxes Affect EU/UK Automotive Costs
In the EU and UK, there are multiple Free Trade Agreements (FTAs) which allow for preferential origin – if the right conditions are met. Some preferential origins do not mean a full waiver, but instead provide a reduced duty rate.
Importers may also claim back VAT on purchases, but must consider this value as the end consumer will need to pay it. We will use a 20% VAT rate here, but the rate for VAT varies across the EU and UK.
There are also countervailing duties (CVD) – which work similar to the US’ 25% tariff or anti-dumping duties – for some types of vehicle and origins, so we will leave a 25% rate in for this illustration as well. Note that this additional duty can be much higher, depending on the vehicle you are importing.
| Price | Tariff Rate | Import Duty | CVD (IA) | Total Duty | Total Import Value | VAT 20% | Cost to Dealer |
|---|---|---|---|---|---|---|---|
| €20,000.00 | 0.00% | €0.00 | €0.00 | €0.00 | €20,000.00 | €4,000.00 | €24,000.00 |
| €20,000.00 | 5.00% | €1,000.00 | €0.00 | €1,000.00 | €21,000.00 | €4,200.00 | €25,200.00 |
| €20,000.00 | 10.00% | €2,000.00 | €0.00 | €2,000.00 | €22,000.00 | €4,400.00 | €26,400.00 |
| €20,000.00 | 10.00% | €2,000.00 | €5,000.00 | €7,000.00 | €27,000.00 | €5,400.00 | €32,400.00 |
| €22,000.00 | 0.00% | €0.00 | €0.00 | €0.00 | €22,000.00 | €4,400.00 | €26,400.00 |
| €22,000.00 | 5.00% | €1,100.00 | €0.00 | €1,100.00 | €23,100.00 | €4,620.00 | €27,720.00 |
| €22,000.00 | 10.00% | €2,200.00 | €0.00 | €2,200.00 | €24,200.00 | €4,840.00 | €29,040.00 |
| €22,000.00 | 10.00% | €2,200.00 | €5,500.00 | €7,700.00 | €29,700.00 | €5,940.00 | €35,640.00 |
Here, the same unit price can actually cost over €8,000 more to the end customer, and a €2,000 increase in the unit price will mean between €2,400 and €3,240 in real increases to the end customer.
Both the US and EU/UK scenarios here show that price and duty management are essential to remaining competitive in the international market.
How You Can Lower the Cost of Production or Import so that You Can Stay Competitive
Whether you are a manufacturer selling abroad or an importer looking to reduce your costs, there are a few things that you can do to gain a competitive edge:
Traders
Purchase with your total import cost in mind
As you can see from the tables above, a lower unit cost does not necessarily mean a lower import cost. The same make and model of automobile could have a higher border/customs value because of freight fees, but the import cost could be lower once all the taxes are factored in.
If you’d like help with understanding your full import cost once taxes are applied, speak to one of our classification experts.
Explore and understand preferential origin rules
The lower duty rates within many FTAs depend on composition conditions, so do not rely on the customs origin as an indication that you can claim preference.
For example, an automobile may meet customs origin conditions if it has 40% of its parts from a country and this is the majority; however, preferential origin may demand that this needs to be 50% to qualify. Beware that these thresholds are also changing as Europe looks to make supply chains for sustainable.
If you’d like certainty, then you can apply for Binding Origin Information to reduce your exposure to misclaimed preference.
Explore different carriers and incoterms to reduce the border value
If you purchase CIF, then your freight, insurance, and origin processing costs are all included – as is a markup from your Seller.
By exploring different Incoterms, carriers, or shipping schedules, you may be able to reduce your customs value and your subsequent tax liability.
As with the first tip, consider the total cost of the import and not just the border value – and also weigh up the level of risk or hassle you are willing to accept with a change in Incoterm.
If you’d like help with understanding your obligations and risk with changing incoterms, speak to one of our experts.
Manufacturers
All of the tips for traders also apply to manufacturers and assembly plants. However, there are additional strategies you can implement to reduce your costs:
Reduce import duty with Inward Processing
By claiming Inward Processing Relief (IPR), you can waive the import duty on components which will be processed, assembled, or otherwise consumed before the finished product is exported. This allows you to cut the cost of production so that you can lower your sales price without absorbing loss.
Using IPR requires authorisation with customs and has time restrictions. For help with understanding your obligations and obtaining a permit, speak to one of our experts.
Reduce production costs with Outward Processing
Similar to Inward Processing, Outward Processing allows you to waive the import duty on goods which you have already exported and they have changed state.
For example, if you produced gaskets domestically and sent them abroad to become part of the engine, you could claim for a reduction in duty based on the value of the gasket – if the right conditions are met.
Using OPR requires authorisation with customs, has time restrictions, and may require further economic assessment. For help with understanding your obligations and obtaining a permit, speak to one of our experts.
How Customs Support Group Can Help
Providing customs and trade solutions for European and global manufacturing operations, Customs Support Group is here to help you unlock the efficiency hidden within your customs function.
For automotive manufacturers and traders, we can help you with:
- Goods classification: Whether you need confirmation of your commodity code, preferential origin, or worldwide duty rates – our experts are here to give you clarity.
- Digital transparency: Reduce your risk and cost of manual entry, have the information you need at a glance, and make quicker decisions with world-class integrations.
- Permits and accreditations: Streamline your processes and take advantage of special procedures so that you can save money, reduce risk, and improve your delivery KPIs.
For all automotive customs matters, CSG is here to help you. Contact us today to find out more about what we can do for you.
