Exporting and shipping from the U.S. to Canada and Mexico

Customs clearance and import duties in Canada and Mexico

How to calculate import duties and VAT when shipping from the U.S. to Canada or Mexico

When a U.S.-based company sells to Canada or Mexico, it is important to consider five key operational aspects related to exporting and shipping. This page provides detailed insights into each of these factors.

Shipping products from the U.S. to Canada or Mexico is straightforward. However, businesses must carefully consider duties, VAT, and customs clearance fees, ensuring these costs are properly factored into the invoice for the customer or importer in Canada or Mexico.

Country of origin for goods exported from the U.S. to Canada or Mexico

The country of origin of the goods remains the original manufacturing country, even if the shipment originates from the U.S. If a U.S. company imports products made in Europe, their country of origin remains unchanged unless the goods undergo substantial transformation in the U.S.

During customs clearance in Canada or Mexico, one of the key questions will be: “What is the country of origin of the goods?” If no significant processing has occurred in the U.S., the original country of manufacture remains applicable, meaning that import duties and regulatory requirements are the same as if the goods were shipped directly from the original country.

For products to be considered "U.S.-origin," they must undergo substantial transformation, altering their value or nature. In such cases, the goods become classified as U.S. products and are subject to the trade agreements between the U.S. and Canada/Mexico.

Shipping products from the U.S. to Canada or Mexico

Arranging transportation is simple: businesses need to contact a U.S.-based logistics provider for a shipping quote to Canada or Mexico and add the shipping cost to the invoice.

Customs clearance procedures for importing to Canada or Mexico

Before providing a final quote to Canadian or Mexican customers, it is crucial to:

• Consult a customs broker to obtain a cost estimate for customs clearance.
• Ensure all necessary documentation is prepared in advance.
• Work with shipping companies that have customs brokerage partners in Canada or Mexico.

Most freight carriers can also provide customs clearance services, including import duty calculation and tax handling. These costs should be incorporated into the final invoice.

Calculating and paying import duties for exports from the U.S. to Canada or Mexico

Businesses can choose between two options:

• Including import duties in the invoice and paying them on behalf of the buyer through a customs broker.
• Charging the buyer a duty-exclusive price, making them responsible for the import duty payment.

The importer is always responsible for paying duties. Defining these terms clearly in the Incoterms is essential.

Important note on duty payments
Since customs brokers typically advance duty payments to Canadian or Mexican authorities, they may require sellers (rather than buyers) to prepay duties before processing clearance.

Tip: discuss duty payment arrangements with the customs broker before quoting a final price to the Canadian or Mexican buyer.

VAT payment for exports to Canada and Mexico

VAT is applied upon importation and is typically paid by the buyer. However, it is advisable to confirm this arrangement with the customs broker handling the import process

VAT is settled by customs at the time of clearance and then billed to the buyer. This is because the seller (a U.S. company), not having a VAT registration in Canada or Mexico, would not have the means to pay VAT in those countries. As a result, customs authorities will directly charge VAT to the Canadian or Mexican buyer.

VAT in Canada, in particular, is quite complex, as it varies by region and sometimes even by city. In this sense, its complexity is similar to that of the U.S. sales tax system.

Tip: 
When quoting a price to Canadian or Mexican buyers, always specify that VAT is not included and that the buyer is responsible for VAT payments.

Shipping to Canada and Mexico with express couriers (FedEx, DHL, UPS)

Be mindful of duty charges, customs clearance fees, and VAT payments

When using a courier, these services are typically set up so that the cost of customs clearance, duties, and VAT is automatically charged to the buyer/importer by default. If you have already collected duty and customs clearance fees from the Canadian/Mexican buyer, you may run the risk that the courier will charge the buyer for these same costs again.

INCOTERMS: impact on sales and shipments to Canada and Mexico

Always reference the terms of delivery in contracts, purchase orders, and invoices

For sales and exports from the U.S. to Canada and/or Mexico, we strongly recommend NOT relying solely on INCOTERMS definitions when quoting or drafting contracts. Instead, clearly specify what is included in the price, what is excluded, and exactly who is responsible for paying each cost (e.g., transportation details, customs clearance fees, insurance, VAT, and duties).

We also advise against committing to specific delivery dates, as customs may hold shipments for physical inspections or unexpected delays may occur due to high traffic volumes.