US Ends Tax Exemption on Low-Value Parcels
If you export goods directly to US consumers, you’ll be aware of the de minimis exemption. Under the rules, goods under $800 were not subject to the US’s existing tariffs and import taxes.
But in a shock turn of events, US President, Donald Trump, has signed an executive order that ended the global import tax exemption on low-value parcels. This change took effect on 29 August and affects all goods and deliveries entering the US.
Let’s take a look at what this means if your small business exports directly to US consumers.
Removing the de minimis exemption on low-cost parcels will have three specific outcomes:
1. Increased costs
As the $800 de minimis exemption has been eliminated, you now face import duties and taxes on all parcels you send to the US, regardless of value. This may also introduce customs brokerage and processing fees, directly increasing your export costs.
2. Operational and logistical challenges
With every parcel now requiring full customs clearance, you can expect significant delays at the border and increased paperwork. Faced with the overwhelming cost of delivering to the US, many international postal services have made the decision to suspend services to America – including Australia Post and many European and Asia Pacific postal providers.
NZ Post and the UK’s Royal Mail initially suspended US deliveries but have now recommenced services.
3. Impact on business models
If you’re an e-commerce business that relies heavily on the duty-free exemption for low-cost international shipping, you’ll need to re-evaluate your pricing and logistics. This policy shifts the competitive landscape, potentially favouring US-based businesses.
What options do you have for delivering goods to the US?
If you’ve been using your national postal carrier as a key part of your logistics process when delivering to US customers, these suspensions are a major challenge!
So, what can you do to overcome the problem while international postal services scramble to find a workaround that will reduce the cost of delivering to the US.
Let’s look at four key options:
- Partner with private delivery companies:
Try working with major private couriers like FedEx and UPS. These companies have not suspended services and are actively helping businesses with customs documentation to ensure a smoother, reliable delivery, despite the new tariffs.
2. Move to a delivered duty paid (DDP) model:
Absorb the new taxes and duties upfront to provide your customers with a transparent, final price at checkout. This prevents unexpected fees for the consumer and can reduce cart abandonment. However, higher prices may have a negative impact on your sales.
3. Suspend US operations and diversify into other markets:
If the US market becomes too unprofitable, you may be forced to suspend deliveries to the US until the situation is revised. Instead, you could expand into other international markets that have more favourable trade agreements – removing the problem of high tariffs.
Come and talk to our team about the hurdles, cost implications and logistical stumbling blocks you now face. We’ll be happy to review your current model and offer alternative solutions.
