Hong Kong customs duty: what entrepreneurs need to know

What is customs duty?

Customs duty is a type of indirect tax levied on goods that are transported across international borders. Think of it as an entry fee that a country charges for products coming in from another country. The primary purpose of these duties is twofold: to generate revenue for the government and to protect domestic industries from foreign competition by making imported goods more expensive¹.

This tax is a cornerstone of international trade policy and is calculated based on several factors, including the value of the goods, their type or classification, and their country of origin. For instance, importing luxury leather goods from Italy might incur a different duty rate than importing electronic components from South Korea.

Understanding customs duty is essential if you're engaged in international trade. It's a critical component of the total landed cost of a product, which is the full price of a product once it has arrived at the buyer's doorstep. Failing to account for customs duty can lead you to unexpected expenses, delayed shipments, and a significant hit to profit margins.

For consumers, these duties often translate to higher retail prices for imported items. The system itself is intricate. For example, the United States uses a Harmonised System (HS) code to classify every conceivable item, each with its own specific duty rate. This illustrates the complexity businesses must navigate when dealing with international trade.

The difference between customs duty and other import charges

When engaging in international trade, you’ll often encounter terminology that can seem interchangeable but carries distinct meanings. "Customs duty," "tariffs," and "excise duty" are frequently used in discussions about import taxes, but they are not the same thing. Clarifying these terms is the first step toward mastering your import-export operations.

Customs duty vs tariffs

While often used synonymously, "customs duty" and "tariff" have a subtle but important difference.

A tariff is the broader system or schedule of taxes imposed on imported goods. It's the official list or "menu" published by a government that outlines the different duty rates for various categories of products. A tariff schedule is based on the classification of goods (using the HS code) and their country of origin. Some countries may have preferential tariff rates due to free trade agreements.

Customs Duty is the actual amount of tax you pay on a specific consignment of goods. It's the calculated financial charge based on the rates set out in the tariff schedule.

So, if a tariff schedule (the menu) states that imported leather shoes have a 10% tax rate, the customs duty (the bill) for a HK$1,000 shipment of those shoes would be HK$100. The tariff sets the rule, and the duty is the result of applying that rule.

Customs duty vs excise

The distinction between customs duty and excise duty lies in the scope and purpose of the tax.

Customs Duty is an external tax applied broadly to goods when they are crossing an international border into the country. Its primary focus is on imports.

Excise Duty (or excise tax) is an internal tax levied on a specific class of goods, whether they are produced domestically or imported. The government typically imposes excise taxes to discourage the consumption of certain products deemed harmful or to fund specific projects related to the taxed item.

Common examples of goods subject to excise duty include:

• Alcoholic beverages 
• Tobacco products 
• Hydrocarbon oils (like petrol and diesel) 

A key takeaway is that an imported product could be subject to both customs duty and excise duty. However, in a free port like Hong Kong, most goods are free from customs duty, but a select few are still subject to excise duties. This is a crucial distinction for importers dealing with these specific commodities².

Customs duty in Hong Kong: all you need to know

Hong Kong is renowned globally as a free port, a status that makes it a highly attractive hub for international trade and logistics. For importers, this means that the vast majority of goods and articles can be imported into Hong Kong without incurring any customs duty. This duty-free status applies to everything from clothing and electronics to machinery and raw materials².

However, "duty-free" does not mean "regulation-free." While you won't pay customs tax on most items, the Hong Kong Customs and Excise Department still oversees all imports to enforce health, safety, and security regulations. Furthermore, Hong Kong levies excise duties on four specific categories of commodities, regardless of whether they are imported for personal use or for sale.

The four categories of dutiable goods in Hong Kong are²:

• Liquor: Alcoholic beverages.
• Tobacco: Cigarettes, cigars, and other tobacco products.
• Hydrocarbon Oil: Such as motor spirit and diesel oil.
• Methyl Alcohol: A type of industrial alcohol.

Import restrictions in Hong Kong

Beyond the four dutiable commodities, importers must be aware of goods that are prohibited or restricted. Importing these items without the proper licenses or permits can result in severe penalties, including fines and imprisonment.

Prohibited Articles are strictly banned from entering Hong Kong. These include items that pose a threat to public safety, security, and morality, such as³:

• Narcotic drugs and psychotropic substances
• Firearms, ammunition, and explosives
• Controlled chemicals

Restricted Articles are goods that require a valid license or permit issued by the relevant government authorities before they can be imported. This control is in place to protect public health, the environment, and intellectual property rights. Examples include³:

• Pharmaceutical products and medicines
• Radio communication equipment
• Pesticides
• Rough diamonds
• Endangered animal and plant species and their parts (e.g., ivory, certain woods)
• Meat, poultry, and seafood

Before shipping goods to Hong Kong, it is crucial to check with the Customs and Excise Department and the Trade and Industry Department to verify if your products require any special documentation.

How the excise tax is calculated in Hong Kong

Calculating the excise tax in Hong Kong depends entirely on the type of dutiable commodity. The valuation method differs for each category. Therefore, you need to declare the goods accurately and pay the correct amount to avoid delays and legal issues.

1. Liquor

The duty on liquor is calculated based on its alcohol by volume (ABV) percentage and its type⁴.

• Wine and liquor with 30% ABV or less: 0% duty (duty-free)
• Liquor with more than 30% ABV: subject to a two-tiered system.
  
  • If the quantity imported is not more than 1 litre, the duty is 100% on the first HK$200 of import value and 10% on the remainder import value.
    For example, if you import 1 litre of liquor with a value of HK$400, then your duty payable is:
    
    • First HK$200 = HK$200 x 100% = HK$200
    • Remainder HK$200 = HK$200 x 10% = HK$20
    • Total duty payable = HK$200 + HK$20 = HK$220
  • If the quantity imported is more than 1 litre, the duty payable is calculated using the formula: A = D x L.
    
    • A = the amount of duty payable
    • D = duty-per-litre for the bottle of liquor (set by Customs based on the two-tiered system)
    • L = the subject volume of the liquor (in litres)

2. Tobacco

Tobacco duty is calculated on a specific per-unit basis. The rates are:

• Cigarettes: HK$3,306 per 1,000 sticks
• Cigars: HK$4,258 per kilogram
• Chinese prepared tobacco: HK$811 per kilogram
• All other manufactured tobacco: HK$4,005 per kilogram

3. Hydrocarbon Oil

The duty on hydrocarbon oil is also calculated on a specific per-litre basis 4.

• Motor Spirit (leaded): HK$6.82 per litre
• Motor Spirit (unleaded): HK$6.06 per litre
• Diesel Oil: HK$2.89 per litre
• Euro V Diesel: HK$0.00 per litre (to promote environmentally friendly fuel)

Customs duty payment methods

The Hong Kong Customs and Excise Department offers several convenient methods for paying excise duties, ensuring a smooth and efficient clearance process⁵.

• Online Payment: Importers can use the "Internet Payment" service provided by the e-Tradelink platform. This allows for electronic payments via bank accounts, streamlining the process significantly.
• By Phone: While less common for large commercial transactions, some services may offer phone-based payment options.
• In Person: Payments can be made directly at the Customs and Excise Centre. Accepted methods typically include cash, cheques, or cashier's orders. This is a reliable option for those who prefer face-to-face transactions or need to resolve issues on the spot.

Power your global trade with Aspire's all-in-one solution

If you're engaging in international trade, understanding and managing customs duties is essential to keeping your business operations running smoothly. But succeeding in global trade also requires streamlining international payments with a solution that lets you send and receive funds in foreign currencies without incurring high FX fees.

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