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Table of Contents:
HS Code Classification for eCommerce Retailers
What is HTS code
Determining The Right HS Code for Customs Compliance
Importance of HS classification for ecommerce retailers
HS Code Classification Services
Customs compliance is a major pain point for many international eCommerce retailers. Companies considering growing their online retail business on global e-marketplaces are required to meet local customs compliance requirements, including the right classification of their goods for the countries they wish to sell into. This can be a complicated process, involving paperwork and legal declarations. To ensure that this process runs smoothly, classifying the correct tariff for products becomes a critical part of the customs activity.
The Harmonized System (HS) is a global product classification system developed and administrated by the World Customs Organization (WCO). The HS comprises of around 5,000 commodity groups, each represented by a six-digit code, arranged in a legal and logical structure, and supported by well-defined rules in order to achieve uniform classification. This system is utilized by over 200 countries.
A HTS code is a number that represents a type of product and is used by customs authorities around the world to determine the payable duty and tax rate for the item and for gathering statistics. The HS uses an internationally applied 6-digit number as the basis for local country classification. A typical HS code consists of 6 digits that represents the product category. Many countries attach additional digits which provides supplementary details on the classification levels. A code with six digits is a universal standard (HS Code) and a code with 7-10 digits (HTS Code) is often unique after the 6th digit and is determined by individual countries of import. For example, the United States uses ten-digit codes in classifying products. The last four digits are unique to the US and classifies the product more precisely.
The six-digit HS codes assigned to physical goods provide international uniformity for businesses and customs agencies in simplifying cross-border shipping. The additional digits, also known as suffix, that follow the first six digits are used to indicate product duty rates that are specific to the countries that assigned them. These extended tariff codes help businesses declare and send items across international borders. Customs also use these codes to easily identify the products they are receiving and the product’s country of origin. The faster the products and countries of origin are identified, the faster they can be delivered to consumers.
Here’s our guide to HS code classification for importers. Navigating international trade compliance has become increasingly complex. Shipping to the global marketplace is often more complicated and unpredictable than domestic commercial shipping, due to trade barriers and bureaucratic hurdles. For shipments to be cleared by customs authorities at the border, there are several requirements to adhere to. This involves complex tariff codes, taxes & duties as well as international trade regulations. For commodities to successfully cross international borders, the correct HS code (also known as an HTS code) must be declared.
As an importer or exporter, it is their legal responsibility to correctly classify the goods being shipped.
Customs authorities expect reasonable care in accurate classification. Non-compliance can lead to the payment of wrong duty and tax and may result in hefty back payments on goods that were incorrectly classified. This could result in substantial penalties and fines, and even cause the goods to be seized or destroyed. It is also important to understand the rules and process of proper classification to avoid Customs audits and shipping delays. Improper tariff classification is one of the top reasons why shipments are delayed at the border and raises a red flag for Customs Authorities in identifying potential audit candidates.
Assigning the correct tariff classification can be complicated. An importer must select the right classification from a listing of over thousands of possible choices. In many cases, one slight difference between classifications may trigger a significantly higher tariff rate than another. A change in re-classification in HS codes can impact a retailer’s ability to clear customs and calculate the correct total landed cost. There is only one correct tariff classification for each product, and importers must ensure the exact one is assigned.
Today, there are many products being shipped and sold from China to other countries. Suppliers may be able to provide HTS code for the products, but many may only provide the Chinese variation of the HTS code. Since the first six digits of an HTS code is a universal HS code, retailers need to determine the final four digits of the HTS code for the importing country. With the HTS code, retailers can estimate the customs duties they will need to pay upon importation of their products into the destination country.
Errors in HS code classification can result in:
Retailers selling overseas must have good knowledge and understanding of the total costs of selling their products in specific markets. International trade agreements between countries can influence the amount of taxes and duties on a shipment. If the goods are being traded between countries that share a trade agreement, there may either be an exemption from duties or preferential (lower) tariffs.
Landed cost is the total cost a retailer spends to make or acquire a product, ship it to fulfillment centers, store it and distribute it to its customers. It also includes all the costs incurred from production, shipping and other fees like insurance, duties and taxes. Every eCommerce merchant must be aware of this cost to ensure they remain profitable. In addition, since duties and taxes can account for a big portion of the landed cost, by determining the right HS codes enables retailers to accurately price their items for their customers. This way retailers have more control over import clearances and payments, while customers will not be surprised by any unexpected costs when receiving a parcel.
It is essential to understand the Harmonized System (HS), Harmonized Tariff Schedule (HTS), and HS Codes when importing and exporting a product. When companies cannot properly determine accurate product classification for international shipping, it can result in legal penalties and delays in deliveries.
While there are many resources online, evolving regulations and lack of experience in customs compliance can easily make HS code classification a very complex and time-consuming task. However, armed with the right tools and access to expert support, HS classification does not need to be difficult.
GeTS CALISTA Intelligent Advisory (CIA) is a one-stop trade advisory service that enables easy and smart search for trade compliance information in over 180 countries. The solution provides access to comprehensive reference for FTAs, formalities, landed cost calculations resulting in more accurate submissions thus smoothening and facilitating cross-border trade.
Powered by AI and Machine Learning, while leveraging on Natural Language Processing (NLP) capabilities, CIA analyses historical data to devise trading strategy in assisting the global trade community.
Companies can easily search for applicable HS codes, preferential duties and taxes, and any other trade formalities and documentation requirements, simply by entering the layman’s product description, country of origin and country of destination. CIA can be used via a web portal or easy integration with any ERP, freight management software or eCommerce platform via API call for full automation.
For companies that wish to outsource, GeTS offers a complete managed HS classification service plus other customs compliance BPO services to companies around the globe. Companies can provide their product information and the countries they wish to ship to and GeTS customs specialists will conduct outstanding HS code classification service at affordable rates.
Learn more about GeTS’ HS code classification for ecommerce retailers or contact us today!
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