What are Customs Duties

A ship loaded with full of electronic items, clothing and food that sails across the sea, the journey is not merely about crossing the oceans or about handling the land routes but it’s about crossing rules and regulations that comes along the way. Before these goods reach their destination or shelves in a different country, they pass through several checkpoints which are known as customs. Every country has its own rules when it comes to importing or exporting, which is not just limited to quality or security. One critical part of this process is to pay custom duties which is a legal form of tax. Custom duties are the tolls of international trade, they are same as you pay to drive on a highway, business must also pay to pay to move their goods from one border to another.

These taxes support the government in collecting revenues and keeping control over the flow of goods, while also protecting the local industries from unfair comparison.  This article will further shed light on Custom duties in Saudi Arabia, its types, benefits, and how firms like SSCOKSA helps in custom duties compliance.

What are Custom Duties

Custom duties alternately known as tariffs, are the taxes charged on goods when they are shipped across international borders. These duties are mainly taxed by the importing country and are calculated as a percentage of the total value of the imported goods or as per the type of the product. No matter if it’s a luxury car from Germany entering in KSA, or dates from the Kingdom are being exported to Europe, each transaction goes through a series of formal proceedings, declarations, inspections and approvals and on top of it comes duty charges. They might seem like another shipping invoice but in actual they play a foundational role in evolving economies, shifting prices and even implementing global practices. All the businesses that are involved in import or export are familiar with the fact that these duties are not just optional but an obligatory regulation that must be complied with. The goal of these duties is to protect local industries, boost government revenues and keep control on importation of specific products.

Purpose of Custom Duties

Custom Duties in Saudi Arabia serves multiple purposes that keep the national objectives in line with global trade standards like:

1.     Revenue Generation

Custom duties play a huge role in contributing to the national budgets, they offer a path of income that encourages public sectors, infrastructure projects and social welfare programs.

2.     Protection of Local Industries

By imposing tariffs on the imported items, KSA emphasizes the growth of domestic manufacturing and agricultural sectors. They help in protecting local industries from any unfair competition, which gives them a possibility to innovate, expand and become competitive on global levels.

3.     Regulations of Import

Custom duties assist the government to manage the volume and kind of goods entering the Saudi Market. For example, these duties minimize the import of harmful and non-essential goods and promote the import of raw material and machinery items for industrial use.

4.     Control of Trade Deficit

By impacting the levels of import, custom duties can balance the trade. Since, increased tariff on luxury and non-essential items minimize the need for foreign currency, stabilize internal economy and safeguard national resources.

5.     Environmental and Social Objectives

Custom duties aid in a sustainable and ethical consumption of imported goods. Higher tariff rates on environmentally damaging products or goods made under the poor condition of labor can reduce consumption behaviors.

Legal Framework Governing Custom Duties in Saudi Arabia

The legal framework used for the custom duties in Saudi Arabia is built under the Unified Customs Law of the GCC States, which offers standardized custom legislations for all Gulf Cooperation Council (GCC) member states. Apart from that the Saudi Custom Authority which is now recognized as ZATCA looks after the implementation and imposition of custom laws and regulations. The key regulations it includes are:

• GCC Common Customs Law
• Harmonized System (HS) Code classification
• Excise and Value Added Tax (VAT) laws

ZATCA generally collects custom duties and other related taxes, it also prevents the smuggling of goods and facilitates legal trade. ZATCA conducts custom valuation and classification to ensure national security for increased control. In case of non-compliance, it also imposes heavy fines, confiscation of goods, suspension of import privileges and takes legal action for smuggling.

Types of Customs Duties in Saudi Arabia

Custom Duties in Saudi Arabia varies depending on several factors like the nature of goods that are imported:

1. Ad Valorem Duty: A percentage-based duty measured on the entire value of the imported goods (e.g., 5%, 12%, 20%).
2. Specific Duty: A settled amount taken as per unit of quantity (e.g., per kilogram or per liter).
3. Compound Duty: This is actually a blend of both ad valorem and specific duties.
4. Prohibitive Tariffs: Exceptionally immense tariffs have aims to demoralize the importation of specific hazardous items.
5. Zero-Rated or Exempt Goods: Certain useful items or raw materials may be exempt from customs duties to contribute to local manufacturing and lower the cost of living.

Customs Valuation

Custom Valuation is important to find out the amount of duty that is needed to be paid. Saudi Arabia follows the WTO Valuation Agreement. It focuses on the transaction value method (price paid or payable for the goods). The other methods it includes are transaction value of identical, deductive value method, computed value method and fallback method.

Saudi Arabia uses the Harmonized System (HS) created by the World Custom Organization (WCO) to classify the goods for custom purposes. Each item is given a distinct code that is used to find out its relevant duty rate and other important requirements. The general rates range from 0% to 25% depending on the type of product, such as:

• Basic Items of Food: 0%-5%
• Luxury Goods Items: Up to 25%
• Automobile: 5% to 15%
• Tobacco Products: also subject to excise tax along with custom duties.

There are certain goods that have higher custom duties due to their greater impact on local industries like poultry, clothing, furniture, tobacco, and automotive parts. The government adjusts and reviews the rates as per the local industries, to deal with inflation and to align with the economic trends. Some of the products are exempt from custom duties under specific condition, including personal belongings, charitable purpose import, raw material for manufacturing industries, goods imported under free trade license agreements and diplomatic & consular imports.

Impact of Customs Duties on Businesses

Custom duties are not just taxes they transform the way a company operates, plans and competes in the international market. Businesses that are in cross-border trade, understanding and managing these taxes are mandatory to maintain profitability, proficiency and compliance.

• Cost Structure: Custom duties increase the total price of imported items, which affects the profit margins and influences the decisions of sourcing.
• Pricing Policy: Duties must be added to the price of products, if companies fail to do so it results in losses and uncompetitive prices.
• Cash Flow: Import taxes are many times paid upfront, which puts the pressure on cashflow, specifically for SMEs
• Supply Chain: Higher rates lead to local sourcing or in-time inventory models to minimize the costs related to duty.
• Market Entry: The increase in duties can demotivate the entrance into new markets or push companies to set up local production to qualify for exemptions.
• Compliance Risks: Miss-handling, incorrect valuation or paperwork errors can cause fines, delays and damage the reputation.

How SS&CO KSA Can Help with Customs Duties Compliance

SS&CO KSA offers comprehensive range of tax services Riyadh, including the custom duties for the businesses of all sizes. With skilled expertise and familiarity with local and international trade regulations, we make sure that your imports and exports always stay compliant and cost efficient. What do we offer? Have a look:

• Support of Duty Classification and management to avoid overpaying
• Ensuring that all the documents are accurately and completely managed with right HS codes
• Identifying any reliefs, exemptions or trade agreements for tariff optimization
• Preparing for audits and custom-made professional support
• Through advisory support of products from product valuation to clearance processes.

No matter if you are a startup or a large-scale importer, we help you turn down risks, save money and organize trade operations. With us by your side you can focus on growing business while we focus on your paperwork.