What is Duty Drawback?
Do you import manufactured goods or raw materials into the US? Then you pay import duties on those goods and materials.
Do you export some of those goods overseas? You can get those duties refunded!
Although many eCommerce merchants sell their imported goods to customers in the US, approximately 5% to 10% of their customer base is international. Those goods are considered exported when they are shipped to an international customer. US export laws allow you to reclaim the duties on those goods – this is called a Duty Drawback.
History of Duty Drawback
The concept of a Duty Drawback has been around a long time; The Continental Congress drafted the concept in 1787. In short, a “drawback” means a refund on duties collected. The Continental Congress’ motive behind the law was to encourage commerce and provide jobs. They wanted to encourage other countries to send their materials to the US, have the workforce make or improve the products, and export them back out. A drawback on the duties collected on the imported materials could be claimed when the product was exported. This policy is in place today and similar policies exist in other countries.
How do I qualify for Duty Drawback?
There are different Duty Drawback categories, depending on why the goods were imported and how you used those materials. Ianto runs a successful online clothing store. He imports his products from South Korea and sells them without any modification. 10% of his sales are shipped directly to Australia. Ianto qualifies for the Duty Drawback category for Unused Merchandise.
Ripley runs a custom bicycle shop. She imports parts from India and uses them for her custom bicycles. Any custom bicycles that she sells internationally would then fall into the Direct Identification Manufacturing category.
Duty Drawback and destroyed goods
Duty Drawback not only covers exports, but goods that were imported that need to be destroyed.
For example, some of the parts that Ripley imported were in a horrible shipping fire and were melted beyond recognition. Ripley can go through a process to have the products destroyed under the supervision of a Customs & Border Protection (CBP) agent to get a refund on the duties paid on the import.
CBP refunds up to 99% of the duties you paid. The refund process takes anywhere from a few weeks to months to sometimes a year or more, depending on the situation. The CBP group treats these refunds as a privilege, not a right, so they’re generally careful and take their time to issue a refund.
What you need for Duty Drawback
To begin your Duty Drawback process, you’ll need to fill out the paperwork and include proof to support your claims. You’ll need certificates of entries, bills of lading, and evidence that the products were exported. Keep records of what products were exported by your carrier and eCommerce system so can provide them easily.
The CBP allows you to go back up to three years of records. You then fill out CBP Form #7551 and attach your paperwork to the form. There are only four offices in the US that handle drawback services and you’ll need to work directly with one of those four offices. The office locations are in San Francisco, Chicago, Houston, and Newark.
Because requesting a Duty Drawback takes time to understand and prepare the paperwork, most small businesses hire a Duty Drawback Specialist. These companies charge a fee for their service, but may be worth hiring for the convenience of working with a company that is in the business of helping your business get your refund.
Obtaining a duty Drawback could save you a lot of money on duties paid for the goods you import if you re-export the products you bring in. You can use iGlobal’s technology to help add and enhance cross-border sales functionality to your website to better export your products worldwide.