Reader Question Regarding Taxes and Duties

Greetings Dave!

I had a quick question for you. I am senior at the University of Arkansas majoring in International Logistics and supply chain. I am fluent in Mandarin Chinese and have lived in Beijing and Shanghai for internships and study abroad programs. I am starting a business importing products from China to sell to the domestic market through various channels.

My question is the following: As someone who is just starting out, what legal and tax implications should I be aware of? I'm currently only shipping small amounts of product via carriers such as DHL. The factories that I am working with have been a huge help and have coordinated most of the logistics for me. If I am receiving these shipments to my front door, and using my garage as a distribution center, then do I need to be paying taxes on my imports since they are being shipped via DHL? Am I currently operating under the table? Any other advice, warnings, or additional tips would be greatly appreciated as well! Thanks again!

My Response

I'll say the obligatory “I'm not a tax expert” bit, but with that being said…

As I understand it, you're having products shipped from China to your front door via DHL, and then you're selling them to customers (and maybe shipping them to customers).

There's generally no tax on imports, but there are duties on most items. DHL should be responsible for charging these duties to you and remitting them to the government. It's one of the reasons why services like DHL/UPS/etc. often work out cheaper than shipping sea freight for small packages as you don't need to use a customs broker (or do the customs brokerage yourself). Now if your supplier is not declaring the items for the full purchase price (i.e. writing $10 as the declared value instead of $1000) then you are technically tax evading and you should ask your supplier to always declare the full price.

Aside from that, you are of course responsible for any regular business income tax  and possibly sales tax (which is totally irregardless of whether you're doing an import business or a lemonade stand).

Hopefully that helps a bit.