Paperwork

Customs clearance: What is it and why is it important in eCommerce?

Mariluz Sampalo

Mariluz Sampalo

Mar 21, 2022

customs clearance for international shipping

Inside this article

  • iconWhat is customs clearance?
  • iconInvolved customs clearance agents
  • iconWhere is customs clearance needed?
  • iconHow does the customs clearance process work?
  • iconHow long does customs clearance take?
  • iconDocumentation required for customs clearance
  • iconCustoms charges: duties and VAT
  • iconTax management of exports
  • iconSteps to ensure safe and on-time arrival of international shipments
  • iconPackage stuck in customs: What to do
  • Having an eCommerce business and selling internationally isn’t a simple task whatsoever, mainly because of bureaucracy —among other things. Carrying out customs clearance for your international shipments is a challenge in itself, especially when you don’t have all the needed information. This can slow down and complicate the processing of international shipments.

    At Outvio, we help thousands of online shops optimize their shipping process and post-sales experience. Thanks to the close contact we keep with our customers, we know the difficulties that come with international shipments and the most common shipping issues they face.

    Knowing what these problems are has allowed us to implement measures to solve or prevent their appearance. For instance, Outvio includes a flag system that notifies you when there’s missing information about the shipment, and a feature to automatically print commercial invoices when you print your shipping labels.

    Whether you are an experienced seller in foreign markets or you have just started, you likely know the importance and role of customs clearance in exports and international sales.

    If you don’t, or you just simply want to learn more about it, read the following article where we answer the most frequently asked questions about customs clearance: what it is, why it’s important, which documents you need and more.

    What is customs clearance?

    Customs clearance is a term that refers to the bureaucratic process that comes with shipping between different customs territories.

    The customs clearance process happens in the customs office, but the steps and documentation can change depending on the country. If your country is inside the European Union customs zone, you have some privileges that other sellers may not.

    Involved customs clearance agents

    Depending on the customs clearance process of every country, there can be more or fewer agents involved in the process. However, as a general rule, you can find:

    The owner or holder of goods

    It doesn’t have to be the exporter or seller of the products, but they’re in charge of the clearance of customs.

    Sometimes, the party responsible for shipping can receive help from a customs agent or a customs representative. This is because of the complexity of certain procedures, especially when you’re not familiar with the market you are shipping to.

    The forwarder

    This is another agent that is physically present in the customs office, also called a forwarding agent or freight forwarder.

    This person is in charge of handling international shipments, preparing and processing customs documentation, and performing tasks related to international shipments. They act as intermediaries between exporters, importers, and carriers.

    Carriers or couriers

    These are one of the most important links in the supply chain of any eCommerce business. In the case of international shipments, there will be more than one courier involved in the delivery of your products.

    The importer or the recipient

    Like in the case of the exporter, the importer doesn’t necessarily need to be the recipient of the parcel. In the case of eCommerce exports for a buyer, the importer of the goods is the customer.

    As we mentioned before, the export process is very complex and changes depending on the country of origin, transit, and destination, the value of the products, and the chosen type of customs clearance process, etc.

    But... when is customs clearance necessary?

    parcel arrives to customer after customs clearance

    Where is customs clearance needed?

    This is one of the most important questions when you want to understand what customs clearance is and why it’s important.

    Customs clearance is a process that is only necessary for international shipments. However, in this context, we have to specify the difference between international shipments and intra-community shipments. Any shipment destined to an area outside the EU is considered an international shipment to a third country (or region).

    If the destination of a shipment is in another country or special territory —even inside the same country— with a different tax system, it is considered an export and the package needs to go through a customs office and be accompanied by all the needed documents for correct tariffication.

    How does the customs clearance process work?

    Customs clearance is a process with several steps that can change depending on the chosen modality.

    Generally speaking, the most common stages of the customs clearance process are the arrival of the goods to the customs office, the inspection of the products, the examination of the documents, the payment of taxes and duties (if there are any), and the departure of the goods towards its final destination.

    As we will see later on, these stages don’t necessarily need to happen in this order. For instance, it’s possible to examine the documentation before the arrival of the goods to the customs office.

    Why is it important?

    Customs clearance is a process of great importance nowadays. In 2020, the international trade of products and services surpassed $22 billion dollars, according to the WTO. This figure was considerably reduced because of the events that the world has been going through in the last years, but it will continue to grow in the following years.

    1. The globalization of the markets has motivated further commercial exchanges and, with it, the need to unify processes to guarantee certain security and health controls, intellectual properties, copyright laws compliance, and the protection of the interior market. For this, it becomes fundamental to establish commercial and tax policies to guarantee internal economic success and promote trade agreements with other territories. This is one of the reasons why the European customs zone was created.
    2. Another purpose of the clearance of customs is the correct tariffication of products to make sure that they compete with domestic products and the rest of exporters in a controlled way.
    3. Moreover, all the documentation that is provided during the clearance of customs is used to create regional, national, or international databases about international commerce and trade: products, importing and exporting countries, the value of the operations, frequency, etc.
    customs clearance start when the package arrive to the country or area of destination

    How long does customs clearance take?

    Depending on the country where they are carried out and the modality chosen by both parties, customs clearance can take up from days to weeks or even months. The cost will also depend on the modality, being, faster, generally more expensive.

    • General customs clearance. The products and documents are evaluated normally.
    • Immediate release or urgent customs clearance. This is valid for perishable items, products whose purpose is to save lives or treat illnesses, hazardous materials (radioactive, flammable, or explosives), high-value items (such as coins, bills, or precious stones), live animals, or machinery that is essential for the correct functioning of a supply chain.
    • Anticipated clearance. The process can start before the package reaches the customs office. For this, the goods must comply with all the requirements for this modality and the documentation must be complete and correct. These documents must be sent, digitally or physically, to the customs office before the arrival of the goods.
    • Deferred clearance. The products can go through the process after the downloading date has passed.

    Their names may vary from country to country, but they are the most common modalities you can find to carry out the clearance of your products in a customs office worldwide.

    Documentation required for customs clearance

    Without further ado, these are some of the customs documents and forms you may encounter more frequently:

    • Commercial invoice. This document includes vital information for the correct tariffication of the products you are shipping. The commercial invoice can sometimes be replaced by a customs invoice.
    • Consular invoice. This invoice is issued by a consulate in the importing country and plays a similar role as the commercial invoice, but has a higher cost.
    • Proof of origin. This document is provided by the local authorities —such as a regional chamber of commerce— and determines the country of production of a good. This is an obligatory document for exports from the EU to a third country.
    • CN22 and CN23 forms. These forms are obligatory if you want to ship your goods outside the EU by post. Depending on the weight and value of the shipment, you’ll need to fill out one or the other.
    • ATA Carnet. This document is specifically designed for temporary exports for attendance to fairs and other events. This document is recognized in over 70 countries all over the world.
    • The Carnet de Passages en Douane China-Taiwan (CPD China-Taiwan). This is the Taiwanese version of the ATA Carnet.
    • Single Administrative Document (SAD). Frequently referred to as SAD —Form C88 in the UK— this document declares the existence of an operation of importing or exporting. It includes information about the product and eases the process of tariff classification. It’s used in the European Union, Switzerland, Norway, Iceland, Turkey, the Republic of North Macedonia, and Serbia.
    • Customs value declaration (DV1 form). This document is usually accompanied by the SAD and is issued by a customs officer or Authorized Economic Operator (AEO). In the DV1 form, you can find the relationship between exporter and importer, —in this case, seller and buyer— the declared value, the costs of the clearance of customs and transportation, as well as the currency conversion used if the purchase was made in a currency different to the euro.
    • Packing list (P/L). This list contains the number of packages you’re shipping, their contents, and weight.
    • H7 form. For goods under a value of €150, you can fill out an H7 form to speed up the customs clearance process.

    Additionally, documents related to other matters such as transportation can be generated: bill of lading, CMR, CIM, air waybill, or documents for multimodal or combined transport, as well as insurance documents or phytosanitary certificates, among others.

    These are the customs documents that you may have to deal with more often. In addition to this documentation, the parcels must always include a shipping label.

    Customs charges: duties and VAT

    There are different types of taxes and duties you can face, depending on the country you are shipping to and from. 

    Customs duties

    Import duties

    It’s used to control the entrance of products from third countries and ensure competitiveness.

    Export duties

    This tax is counter-productive most of the time, which is why it is not often applied. Its purpose is to increase the profits of the exporting country or create scarcity in other markets, to raise the price. 

    As a seller, you will probably deal with import tariffs. These can be:

    Ad valorem

    The government sets a tax percentage that changes depending on the value of the goods.

    Specific tariffs

    These depend on the quantity or weight of the goods. The government sets a fixed monetary amount for every kilogram or cubic meter of product.

    Mixed tariffs and compound tariffs

    These combine the previous types, setting a minimum or maximum. For example, 3% with a minimum of 10€/kg.

    If everything goes well, your products will go through clearance and you’ll only need to pay the necessary taxes.

    However, if there’s an error in the documents or tariff classification of the products, you may need to deal with additional fees. These are some of them:

    Other fees

    If all procedures and forms have been carried out as established by law, avoiding these fees is possible —and likely to happen.

    If you delegate your duties for the creation and completion of documents, you’ll need to pay for that service or pay the messenger a fee for taking care of the paperwork for you.

    Tax management of exports

    VAT and tax management has never been an easy task. Taxes are constantly changing, which means that keeping up with new regulations is difficult and time-consuming.

    When we talk about shipments to other countries, understanding how the tax system works for exports is even harder.

    In regards to this, the first thing you need to consider is the destination of your shipments. Is it a special case, tax-wise, within the EU? Is it an intra-community shipment? Is the shipment going outside the EU?

    As we explained, intra-community shipments aren’t considered international shipments or exports. This means that the VAT applicable will be the same as in your country.

    So far it seems simple, right? Well, it’s not so simple.

    Many countries and customs areas also establish some thresholds that cannot be surpassed. Otherwise, the VAT applicable to your products may change. To make sure that you apply the correct VAT for shipments inside the EU, you can look for information for every country you sell to (ex. France, Spain, Finland, etc.).

    In the case of domestic shipments to special areas like third countries (Monaco, Åland Islands, Büsingen am Hochrhein, Heligoland, etc.), we recommend you check the applicable taxes.

    For international shipments to third countries, it’s important to include the VAT in the SAD, not in the commercial invoice as you would for other shipments.

    However, you don’t need to worry about this. Generally speaking, the seller won’t be responsible for the creation of the SAD. Exports are subject to the VAT of the destination country and are paid off upon arrival. What you should do is remind your customers of these additional costs, since the overall price they will pay is going to be higher.

    Many eCommerce platforms like Shopify, PrestaShop, or WooCommerce allow you to set up and modify the taxes for domestic and international shipments. They also provide a breakdown of all the product prices, shipping costs, and taxes in the checkout.

    Product limitations, prohibitions, and restrictions for exportation

    Just as important as including all the documentation and filling the forms correctly is knowing the limitations, prohibitions, and restrictions of some product categories.

    There may be products that cannot be exported to certain countries or for which you need some special permits and certificates.

    You must know the particulars of your products, especially if you sell food products, cosmetics, plants, or animals since these can endanger the health of people or cause problems in the local ecosystem. This is why they must pass strict controls before they enter another country.

    For protectionist reasons, the entrance or departure of some products that compete with domestic goods or that can affect the self-sufficiency of a country can also be limited.

    To know if there are any product restrictions or prohibitions, or if the goods you are about to sell need special or additional documentation, we recommend you visit the official portals of the country you’re shipping to or ask an export specialist.

    Steps to ensure safe and on-time arrival of international shipments

    To deliver the best purchasing experience to your customers by ensuring safe and on-time arrivals (and avoid surprises), follow these steps and implement these strategies:

    1. Don’t sell your products in countries that ban their entrance. This may seem obvious, but perhaps you didn’t consider it when you first opened your online shop and moved towards an international audience. Offering your products to a market where it’s forbidden or where there’s no demand is pointless and can even damage your brand image.
    2. Prepare your international packages with special care. If delivering an order already implies a possibility for damages and wear, this is even more important for international shipments, since these packages go through many hands and processes that can affect the integrity of the products. This is why it’s fundamental to prepare your international shipments with special attention and consider the chosen shipping methods and climate conditions.
    3. Master the paperwork. From the simplest document —the shipping label— to commercial invoices, packing lists, and additional forms, make sure that every single shipment includes the correct forms and information. Pay special attention to countries you don’t normally ship to.

    Optimized eCommerce logistics will ease the shipping processing tasks and make customer satisfaction go through the roof.

    Package stuck in customs: What to do

    If one of your international shipments is stuck in customs, it’s important to react speedily to solve the problems that may have caused this situation.

    If the products you are shipping are within the law, the reason why the package is stuck in customs is probably that the information in the documents is wrong or incomplete, or that a necessary form is missing.

    Generally speaking, the customs agents will notify the importer and/or exporter about the reason, enabling them to solve the situation. If they contact the importer, the buyer may be responsible for the payment of taxes or providing the missing documents.

    If this were to happen, you’ll probably receive a message from an angry customer. This is understandable; the last thing you want to do after making a purchase online is to face additional charges, a delay, or a call or message from the customs office.

    That’s why we recommend Outvio. With our software, you can receive real-time courier alerts informing you of the problem much faster. This way, you can solve the problems in customs before they affect your customers and your shop’s reputation.

    Normally, customs will set a period of around two weeks to solve the issue, being that you need to provide new documentation, correct, or complete existing forms.

    If you keep to deadlines and present the documentation as you should, your parcel will go through the customs process without problems and will be sent to its destination.

    The customs office may ask buyers to pay additional fees to free up the package from the customs office. To preserve the integrity of your business, we recommend you include a message about this possible issue to avoid unpleasant surprises and claims.

    If the customer doesn’t want to pay, you’ll need to: a) pay them yourself to enable the release of the goods, b) refuse to pay the fees, but lose the package forever, or c) pay the fees so that the courier can ship the package back. In this last case, you’ll also need to pay the shipping costs from the customs office to your warehouse.

    International shipping is a complex task that is nowadays unavoidable in the eCommerce space. We hope our guide to the customs clearance process was useful and solved any questions you may have had.