August 10, 2022
It is nothing new though.
Back in 2016, The US Congress passed a bill increasing the United States de minimis rate from $200 to $800 for shipments arriving from international companies, and being shipped into the US.
So what exactly is de minimis?
De minimis is a term used in international trade that refers to the value of goods below which duties and import VAT do not have to be paid.
OK. Enough of the technical talk.
But most importantly, how will this so-called “increased de minimis” affect you, me, and all the other eCommerce retailers around the world?
Overall, the increase in the de minimis rate is something cheerful for both online retailers and US online consumers.
Here is why:
Let’s say previously you wanted to sell your products to Americans, you would have to charge that buyer a sales tax on top of the price of the product.
The de minimis threshold by then was $200, meaning any product worth more than $200 would incur duty.
This put a lot of financial pressure on the small eCommerce business and online retailers, as they would either have to increase the price of their goods or eat into their profits.
Now, with the increase of de minimis, the threshold now goes up to $800, meaning any imported product worth less than $800 will not be taxed anymore. Hooray!
Since you’re already here. Let’s read on to find out more about de minimis and how it affects your business as an online retailer.
De minimis is a Latin phrase that translates to mean "about minimal things."
According to the ICC Customs Guideline, de minimis is defined as a valuation ceiling for goods, including documents and trade samples, below which no duty or tax is charged, and clearance procedures, including data requirements, are minimal.
Simply put, there are no formal procedures, such as taxes or duties, for goods with a value below the de minimis, which in this case, is 800 USD for the United States.
The de minimis threshold varies from country to country.
Some countries don't even have a de minimis threshold, meaning almost everything gets taxed. While some other countries don't have customs duties so nothing gets taxed.
To an online customer, the final price usually is the full price the customer will pay, which includes taxes and any other fees. By understanding which de minimis threshold applies to which country, you can give your customers an accurate estimate of the final cost.
In a nutshell, If your main customers are US based or you're shipping to the United States from time to time, you're in luck as the de minimis is now set to $800.
In fact, the de minimis was first introduced in the 15th century and has been amended a few times over the years.
But altering de minimis is a difficult and controversial decision for national governments.
When deciding whether to adjust de minimis levels, governments must carefully weigh the pros and cons.
On one hand, raising the de minimis level can encourage more cross-border trade and economic activity and ultimately boost the economy.
SMEs (Small and medium enterprises) can make it easy to sell their products internationally.
On the other hand, lowering the de minimis level may generate more revenue for the government from customs duties and import taxes, as a way of protecting domestic industries from foreign competition.
The benefits of such changes could include:
- Increased revenue from imported goods
- Encouragement of entrepreneurship and innovation
- More job opportunities are created
Potential drawbacks might include:
- Financial fallout
- Foreign competitions
- Political shakes
Determining whether the benefits of adjusting de minimis levels outweigh potential drawbacks is a challenging task for all governments.
It is never an easy decision as it would significantly impact a country's economy.
Clearly, the increased de minimis means opportunities, especially for online retailers, and eCommerce business owners who plan to expand their reach to the US market.
If you are selling goods worth less than $800 to Americans, this is good news for you. Your customers will not have to pay any duties or taxes on their purchases anymore.
You see, the way people shop has been shifting significantly since the Covid.
Shopping online has become more popular than ever, and with the increase in de minimis, online shoppers will be more likely to purchase small products or low ticked items from overseas vendors.
One thing worth noticing is that the increase in de minimis will also help result in faster procedures and border clearance, which, in turn, will generally speed up international delivery and increase their sales revenue.
Here are some other major benefits for online retailers who are planning to expand their business to the US market. (according to UPS):
- It accelerates shipment delivery
- It improves business efficiency
- It expedites customs procedures and border clearance
- It improves merchandise transit time
- It stimulates trade and business growth
- It reduces paperwork and record keeping
- It decreases compliance costs
- It lowers costs borne by consumers
- It shrinks the shipping time to get products to market
One metric that every online retailer can’t care about enough is the shopping cart abandonment rate.
Shopping cart abandonment happens when a shopper adds items to their online shopping cart but leaves the site before completing the purchase.
There are many reasons why this might happen, but one of the most common reasons could possibly be a higher shipping fee, tax, or anything they find unexpected and inappropriate.
Duties and taxes are often hidden until the very end of the checkout process, which can come as an unpleasant surprise to shoppers and cause them to abandon their purchase.
According to a study, nearly 50% of online shoppers abandon their shopping carts due to unexpected fees.
Now, it is different!
Since the bill increased the rate was passed the de minimis rate was raised all the way from $200 to $800, and all online retailers selling orders up to $800 to the United States are tax and duty exempt meaning international shipping for eCommerce retailers becomes as much as two-thirds cheaper.
That sounds like helping a lot, right?
US-based retailers can also take advantage of this by setting up their eCommerce fulfillment centers outside the country.
A popular choice for retailers sourcing from Asia is Hong Kong, a free-trade logistics hub.
Being one of the largest air freight hubs in the world, Hong Kong offers fast and cost-effective deliveries to most countries around the globe.
Since the entire process of cross-border shipping gets faster and cheaper for overseas companies, US-based companies can bring their products to the market faster, and reduce costs by saving on bulk shipping, taxes, and duties.
That said, other costs like storage and warehousing might be lowered or even completely avoided, given that these companies may no longer need to stock as much inventory as they would have had to otherwise.
Ever consider outsourcing your fulfillment process? There you go!
Outsourcing your order fulfillment process will be one of the smartest decisions you will make for your business.
Not only will it save you time and money in the long run, but it will also allow you to focus on what your core business is.
Stork Up is one of the leading eCommerce order fulfillment companies based in Hong Kong with an extensive network across 70 countries worldwide.
If you're looking for a reliable company to ensure that your product is picked, packed, and delivered efficiently to your customer's doorstep, there is no better option than our team of professionals.
Streamline your eCommerce logistics with Stork Up. Contact us today!