When customs calculates the duties of an imported good, it does not look at your invoice; it looks at the “customs value”. Many traders are surprised when they see the amount of the duties because they did not calculate it on the basis of the invoice value. In this article we clearly examine the difference between the CIF value and the invoice value and the role of each in the calculation of the duties.
What is the customs value?
The customs value is the official basis for calculating duties and taxes in customs. In imports, Iranian customs calculates the duties on the basis of the CIF value, one of the international valuation rules. This value is the sum of three main components:
- C = Cost: the value of the goods at origin (the invoice price).
- I = Insurance: the cost of the freight insurance up to the destination.
- F = Freight: the freight and transport cost up to the border or entry customs.
Note: the name “CIF value” has nothing to do with the Incoterms delivery conditions. Even if your contract is EXW or FOB, customs adds the freight and insurance to the value of the goods to build the CIF value for duty calculation. If you are not familiar with the delivery rules, the comprehensive Incoterms guide will be published soon.
What is the invoice value?
The invoice value is the price that the seller declares for the goods in the sales document (Commercial Invoice). This figure usually includes the price of the goods themselves and may show the delivery conditions, discounts and incidental costs differently.
The invoice value is not unimportant to customs; but it is the starting point, not the end. After receiving the invoice, customs builds the customs value by adding insurance and freight and calculates the duties on that.
How customs calculates the duties
The general process is as follows:
- Determining the tariff code: the duty rates are loaded onto the HS Code of the goods.
- Building the customs value: invoice value + insurance + freight = CIF value.
- Applying the rates: import duty, commercial profit and value added tax are calculated on the customs value.
- The total: the final duties the importer must pay.
Note that the tariff rates are not fixed and change annually; about the trend of these changes, read the customs tariff changes of Iran and Turkey.
Why is the difference between the invoice value and CIF important?
This difference has three important consequences:
- Unwanted increase of duties: if the freight and insurance are expensive, the customs value rises noticeably above the invoice.
- The risk of undervaluation: declaring a value lower than reality to lower the duties, if discovered, both carries a fine and makes your whole file sensitive.
- The effect on the landed cost: every unit of difference between the invoice and the CIF value affects your profit margin.
Warning: undervaluation is not a solution. Customs compares with a price database (reference prices of goods) and a deliberate discrepancy creates a fine and legal risk. The best way is to calculate the costs clearly before import.
How to estimate the CIF value?
For a rough calculation, add the freight cost (the waybill rate) and insurance to the invoice value. If you need help estimating the freight cost, see the example of the freight cost from Istanbul to Urmia. The cargo insurance cost is also a small part of the value, the details of which we explain in the future guide to insuring export shipments.
Example: if the invoice value of the goods is 100 units, the freight cost 15 units and the insurance 2 units, the customs value (CIF) equals 117 units and the duties are calculated on this 117 units, not on 100.
FAQ
Can I pay the duties on the invoice value?
No. The official basis of the calculation is the customs value (CIF), not the invoice value. An attempt to calculate on the invoice usually leads to a discrepancy and a fine.
Is the CIF value also calculated in exports?
In exports, heavy duties are usually not calculated and the value is mostly of a statistical nature, but declaring it correctly affects the credibility of your file.
What happens if I declare the invoice lower?
It is dangerous. A discrepancy with customs reference prices brings an expert appraisal, a fine and the sensitization of your future files.
Where are the exact duties of my goods calculated?
In the customs declaration that the importer registers. If the calculation is not done carefully, a stoppage and extra costs are created.
Summary
The customs value CIF is the real basis of the duty calculation; not the invoice figure. By knowing the components of CIF, estimating the costs accurately and avoiding undervaluation, you both reduce the fine risk and know the landed cost of the goods transparently. The Vira Farabar Logistics experts calculate the customs value and the duties of your shipment before import so that you have no surprising cost.
