Customs Value Calculation: CIF Method and Transaction Value Explained

What is Customs Value?

Customs value is the value of goods on which import duties and taxes are calculated. In the EU, customs value is determined according to the Union Customs Code (UCC), with the transaction value being the primary method.

The customs value typically corresponds to the CIF value (Cost, Insurance, Freight) – the value of goods including all costs up to the border of the EU customs territory.

CIF vs. FOB: What's the Difference?

In international trade, you'll frequently encounter two price terms: FOB and CIF. Understanding the difference is crucial for customs valuation.

• FOB (Free on Board): Price of goods up to loading at the port of export. Transport and insurance are not included.
• CIF (Cost, Insurance, Freight): Price including goods value, insurance, and freight costs to the destination port.
• The EU uses the CIF value as the customs value – all costs up to the EU border must be included.

Transaction Value Under Article 70 UCC

The primary method for determining customs value is the transaction value under Article 70 of the Union Customs Code (UCC). The transaction value is the price actually paid or payable for the goods when sold for export to the EU customs territory.

For the transaction value to be accepted, certain conditions must be met: there must be no restrictions on the disposal of the goods, the price must not depend on conditions whose value cannot be determined, and buyer and seller must not be related (or the relationship must not have influenced the price).

What's Included in Customs Value?

Customs value encompasses more than just the purchase price. The following costs must be added according to Article 71 UCC:

• Purchase price of goods (transaction value)
• Transport costs to the EU border (sea freight, air freight, trucking)
• Insurance costs for transport
• Packing costs and packing materials
• Commissions and brokerage fees (except buying commissions)
• License fees and royalties if they are a condition of sale
• Costs for tools, dies, and molds (assists)
• Proceeds from subsequent resales that accrue to the seller

What's Excluded from Customs Value?

Not all costs are part of the customs value. These amounts can be deducted if separately itemized:

• Transport costs within the EU (after border crossing)
• Assembly and installation costs after import
• Import duties and taxes in the EU
• Interest charges for financing arrangements
• Fees for reproduction rights in the EU
• Buying commissions (if separately itemized)
• Storage costs after import

Additions: Royalties, Commissions, and Tooling Costs

Special attention is required for so-called "assists" and other additions under Article 71 UCC:

• Royalties and license fees: Must be added if they are a condition of sale and not already included in the price.
• Selling commissions: Commissions paid to the seller's agents are added.
• Tools and molds (assists): If you provide the manufacturer with materials, tools, or development services free of charge or at reduced cost, their value must be apportioned to the imported goods.
• Engineering and design: Development services performed outside the EU that are necessary for production.

Practical Calculation Example

Suppose you're importing electronic components from China:

Invoice (FOB Shanghai): €10,000

Sea freight Shanghai → Hamburg: €800

Transport insurance: €50

Packaging (included in invoice): €0 (already in FOB)

License fee to third party: €500

Customs value calculation:

€10,000 (FOB) + €800 (freight) + €50 (insurance) + €500 (royalty) = €11,350

With a duty rate of 3.7%:

Duty: €11,350 × 3.7% = €419.95

Import VAT (19%): (€11,350 + €419.95) × 19% = €2,236.29

Total import charges: €2,656.24

Extended Example with Assists

You're importing 10,000 plastic housings from China. For production, you provided the manufacturer with an injection mold worth €5,000.

Invoice (CIF Hamburg): €20,000

Value of provided mold: €5,000

Proportional assist value: €5,000 ÷ 10,000 units × 10,000 units = €5,000

Customs value: €20,000 + €5,000 = €25,000

Note: If the mold is used for multiple shipments, the value can be apportioned accordingly.

Common Mistakes in Customs Valuation

These mistakes frequently lead to additional assessments and penalties:

• Using FOB instead of CIF: The most common error – freight and insurance were not added.
• Forgetting royalties: License fees to third parties are often overlooked, even when they're a condition of sale.
• Not declaring assists: Free tools, molds, or materials provided were not considered.
• Related parties: For transactions between related companies, it must be proven that the price is arm's length.
• Undocumented discounts: Price reductions must be documented and economically justified.
• Freight cost allocation: For consolidated shipments, freight costs must be correctly apportioned to individual goods.
• Incorrect currency conversion: The exchange rate on the day of customs declaration applies (or the last Wednesday of the previous month).

Alternative Valuation Methods

When the transaction value is not applicable (e.g., for free supplies or related party transactions), secondary methods are used:

• Transaction value of identical goods (Art. 74(2)(a) UCC)
• Transaction value of similar goods (Art. 74(2)(b) UCC)
• Deductive method – working back from selling price (Art. 74(2)(c) UCC)
• Computed value – calculation from production costs (Art. 74(2)(d) UCC)
• Fall-back method – flexible application of previous methods (Art. 74(3) UCC)

Calculate Customs Value Quickly

With our free duty calculator, you can quickly and easily calculate import duties based on the correct customs value. Enter the CIF value, country of origin, and tariff code – the calculator automatically determines duties and taxes.