How to Save on Import Taxes with Canadian Fulfillment

As an ecommerce business owner, it is normal for you to want to reduce costs and offer unique products to your customers. Many times, to do that, you will need to start importing products from other countries, most often, China. However, with additional transport and import costs on the horizon, to achieve these initial goals you should take full advantage of the CBP (Customs and Border Protection) Section 321 provision.

For any American ecommerce entrepreneur, implementing Section 321 and re-routing orders through Canada or Mexico will be a great way for your business to save on import costs.

How to Save on Import Taxes with Canadian Fulfillment

How does Section 321 work?

Section 321 allows companies to avoid duties and taxes on some imported goods. While this regulation was initially created for companies whose shipments do not exceed $800, many companies send their shipments to Canada or Mexico, where through partner companies, the shipment is divided up into parcels of $800 or less and shipped into the USA. With businesses benefiting from the USA eCommerce boom, this option has become a welcomed common practice now more than ever.

Due to the low $800 value ceiling, numerous ecommerce companies find this to be a very attractive opportunity. The immediate assistance that Section 321 provides to each business provides huge benefits in the long run.

While the main purpose is to assist in eliminating duties and taxes on imported products, many trade analyses have shown that Section 321 also assists in a faster clearing. Companies that use this option experience fewer delays, which can make a world of difference for many companies whose supply chains were critically disrupted as a result of COVID-19.

Furthermore, when ecommerce entrepreneurs save money, then they can also pass that savings on to the customer. Otherwise, if the business owner didn’t rely on Canadian fulfillment, the expense garnered by the taxes would result in higher prices for the customer ordering a product since someone has to absorb the cost of tariffs. Thus, utilizing Canadian or Mexican fulfillment companies as the main destination for imports benefits both the business and the customers.

How much do taxes and fees cost when using Canadian Fulfillment?

With trade tensions between the USA and China at an all-time high, understanding import and port charges, as well as any other taxes can be of crucial importance during importing procedures from China.

Any products whose value exceeds $200 would carry import duties. Of course, certain products are taxed more compared to others, especially agricultural and food products. With the imported-products market exceeding the $500 B mark, 40% of it experienced a 10%-25% increase in tariffs in September 2018, while the rest got 10% higher tariffs in September 2019. Overall, almost all products imported from China got affected by these increases.

It’s also important to mention that the USA doesn’t have a VAT, but implements the so-called Federal Excise Tax, usually charged on a few selected imported products like alcohol and tobacco.

Another fee that business owners should be aware of is the Merchandise Processing Fee or the MFP. Based on order value, this fee is divided into two categories. These categories of imported goods would be valued less than $2500 (which garners a flat rate of $2.18) or more than that amount. Likewise, some goods are exempt from the MPF due certain Free Trade Agreements, like NAFTA.

The last fee that you should be aware of is the Harbor Maintenance Fee or the HMF. This is a fee that is associated with any products that are imported by sea. Created in the late 80s, the HMF intended to push importers towards sharing the maintenance costs of the container terminals in the USA. While this fee might not impact your bottom line as much, nevertheless as the adage goes, every little bit counts. Thus, you’re looking at saving time as well as money since fulfillment companies carry out the duty of checking on these fees and ensuring that all forms are correctly filled out.

Canadian Fulfillment and the Legalities

According to an article published by the Wall Street Journal, bypassing the taxes by applying federal laws to your advantage falls within legal boundaries. In other words, the practice of contracting with a Canadian fulfillment company is not the same as evading taxation. In fact, it’s legal, and as mentioned, becoming more of a common practice for small ecommerce businesses.

Conclusively, you can compete with the “Amazons” of the world when you gather your information and compare quotes from Canadian fulfillment companies or similar entities in Mexico (depending on your products’ destination), you’ll gain a more competitive stance with potential customers.

FG Editorial Team
The Founder's Guide Team - Asian Associates with dynamic elements out to make a change.Thank you for visiting our site! If you do have any questions or inquiry, feel free to contact us through our links and please don't forget to follow our social media accounts. It would be our pleasure to help you in any way we can. Always Remember: "Proceed to Succeed". Hoping to hear from you soon!

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