Import Duties, VAT and Landed Cost: How to Calculate Them

How to calculate import duties, import VAT and the full landed cost for your buyer, with a worked example of Algerian tiles imported into Senegal, step by step.

Your buyer never compares your price with a local supplier's price. It compares its landed cost of your goods, once duties, taxes, port charges and delivery are paid, with what it pays locally or to another foreign supplier. An exporter who does not know that number is negotiating blind: it cannot tell whether a 5% discount is necessary, whether a competitor from a country with a trade preference has an unbeatable edge, or whether a DDP offer will wipe out its margin.

This lesson explains the duties and taxes charged at import, how each is calculated and on what base, how to build a complete landed cost, and how the Incoterm decides who pays. A full worked example follows a container of ceramic tiles from Oran into Dakar.

What does an importer pay at the border?

Customs duty

The duty rate comes from the importing country's tariff, at the national level of the HS code (8 to 10 digits or more). Three forms exist:

• Ad valorem: a percentage of the customs value, for example 12%.
• Specific: an amount per unit, for example EUR 2.50 per 100 kg or per litre.
• Compound or mixed: a percentage plus a specific amount, or the higher of the two. Common on agricultural products.

The rate also depends on origin: the normal MFN rate, a preferential rate under a trade agreement, or extra trade-remedy duties. The EU, for instance, has applied anti-dumping duties on ceramic tiles from China since 2011, so tiles of Chinese origin pay far more than the MFN rate. Preferences are covered in free trade agreements.

The customs value

Ad valorem duties apply to the customs value, not to the invoice total. In most countries it is a CIF-type value (goods + freight + insurance to the border), adjusted for assists, royalties and other elements; the United States, Canada and Australia use an FOB basis. See customs valuation for the full method.

Import VAT

Import VAT is charged at the same rate as domestic VAT on a base that includes duty. In the EU the base is: customs value + customs duty + other import taxes and levies + incidental costs (commission, packing, transport, insurance) up to the first place of destination in the member state.

A business registered for VAT normally deducts import VAT in its VAT return, so it is a cash-flow cost, not a final cost. Several countries reduce even the cash-flow effect with postponed accounting: the importer declares import VAT in its VAT return instead of paying it at the border. France, for example, has applied this reverse-charge mechanism to VAT-registered importers since 1 January 2022.

What is landed cost?

Landed cost is the total cost of the goods delivered to the buyer's warehouse, ready to sell. A complete calculation includes:

1. The price of the goods under the agreed Incoterm
2. Pre-carriage, export clearance and loading, if not in the price
3. International freight and surcharges
4. Cargo insurance
5. Import duties, trade remedy duties and excise
6. Other border levies and fees
7. Non-recoverable taxes (import VAT only if the importer cannot recover it)
8. Port, terminal and handling charges at destination
9. Customs broker and documentation fees
10. Inland transport to the warehouse
11. Financing costs (letter of credit fees, interest) and bank charges, if the buyer wants a complete view

Divide the total by the number of saleable units: that landed cost per unit is what your buyer compares with the market price.

Worked example: ceramic tiles from Oran to Dakar

Two lessons from this example. First, the FOB price of EUR 26 becomes a landed cost of EUR 35.37: border costs add 36%. Second, a competitor whose goods qualified for a zero-duty preference would land the same tiles about EUR 5.60 per m² cheaper, because the 20% duty alone weighs EUR 8,100 on 1,440 m². Rates and levies change and other fees may apply, so ask a local broker for a current calculation before relying on one.

Who pays duties and taxes under each Incoterm?

How to reduce duties legally

• Use trade preferences when your goods qualify and the margin is real.
• Classify correctly: a precise description often reveals a more accurate, sometimes lower, tariff line. Ask for an advance ruling when in doubt.
• Value correctly: show freight after the border, assembly, interest and buying commissions separately so they stay out of the customs value.
• Use special procedures: bonded warehouses defer duty until sale; inward processing suspends it on goods re-exported; returned goods relief avoids paying twice.
• Watch the origin of your inputs when trade remedy duties apply to a supplier country.

Common mistakes

• Calculating duty on the FOB or EXW price in a country that values goods CIF
• Forgetting that VAT is charged on top of duty, not on the goods alone
• Leaving out local levies and fees, which can add several percent
• Counting recoverable VAT as a cost, or forgetting the cash it ties up
• Quoting DDP without knowing the duty rate and VAT position in the buyer's country

The same build-up from the seller's side is explained in export pricing, and the follow-up of actual costs after delivery in shipment profitability.

Putting it into practice

On Incoforms, each product in your catalogue carries its HS code and unit, and each shipment has a costing section where you enter customs duties, taxes, port charges and other costs alongside freight and insurance. The platform then calculates the landed cost and the margin per product for that shipment, so you can compare quotes by destination and see what each border really costs before you commit to a price.