Invoice versus commercial invoice = different, sort of

What may sound like a novice question to an experienced shipper is really not a dumb one at all. How are you supposed to know that a “commercial invoice” is used specifically in international trade as it provides extra details (such as the country of origin and value for duty) required for customs export and clearance? The adjective “commercial” does not exactly suggest this.

How is it different than a normal invoice?

It’s not, really. An invoice is an invoice, but the amount of detail will change depending on who and what you are selling. If you are shipping abroad, you will need to prepare one, regardless of the situation of the sale. A commercial invoice should have, at least:

• names and addresses of the seller and buyer
  • as well as the consignee if a separate entity
• A description of the product sold
  • as well as its country of manufacture
  • the tariff code, if known
  • an end use statement for uncommon items
• the price of the product
  • date of the sale and any applicable terms (payment, INCO, or otherwise)

A “customs invoice” is similar, if not exactly the same. Apparently some old school merchants would use the term “consular invoice” interchangeably although I have never heard this.

Whats the easiest way to tell if its a “commercial invoice”?

“commercial invoice” is usually written at the top of the page : ) But seriously, any invoice will do as long as the necessary details are provided. You do not need to write “commercial invoice” on it although this does help distinguish it from a Pro Forma or other invoice type.

Can I make my own commercial invoice?

Of course, there is no standard form that must be filled out, although you can find many templates online.

Can I fill out the commercial invoice, even if I am the buyer and not the seller?

Yes, as long as you know the details of the transaction, the importer can fill out a commercial invoice. In this case, we recommend completing a Canada Customs Invoice. Be wary when declaring your value however, as you may still be asked for proof of payment by Customs (proof of wire transfer or credit card receipts) to back up your claim.

But the goods are shipped free of charge? Do I still need to make one?

Unfortunately yes. There are no exceptions and a commercial invoice will still be required at destination. Many couriers have solved this issue by automating invoice production into online pick up requests, but Customs are known to be skeptical of these so its best to attach a real commercial invoice anyway.

I don’t know the price yet, what do I declare?

You may use a Pro Forma invoice to clear customs which will declare the price and terms you agreed to pay the seller. However, if Customs doubts the value or if the actual cost of the goods augments you will need to provide proof (or file a claim if the entry was liquidated).

Coffee beans: coffee is the most commonly consumed beverage in Canada (other than water)

Coffee! The second most traded commodity on the stock market is also one of the most frequently imported.

But how do you get the beans into Canada? and what will it cost?

Coffee is a simple and affordable commodity to import. Most raw food and beverages are tax-free under Canada’s Excise Tax Act, meaning that coffee is not only free of duty but also GST. Unlike many other raw food items coffee beans require no permits or licenses, although the beans are subject to the approval of the CFIA.

A rising trend has seen smaller roasters work directly with vendors in countries who farm and produce the beans themselves, rather than buy from larger merchant conglomerates. Whether you are buying vendor-direct in Kenya or ordering from a merchant company, the process is the same:

Once you’ve found a vendor and made your order, you are ready to ship! Most beans will ship in an ocean container due to their weight, and chances are your vendor will arrange this for you. You should have a commercial invoice from your seller and the beans should be packaged in such a way that their country of origin is clearly indicated (most sellers will know to do this). While no duties or taxes will be collected on your cargo, a customs declaration must be prepared. Your customs broker will handle this for you, and can also assist you with the delivery of the goods from the port to your facility. From there, its roasting time!

Ancient punishments for faulty Customs declarations including flogging. Yikes! Luckily laws have advanced since then.

In the early days of international trade, when merchants refused to pay the high duty rates ransomed by monarchs, they were typically whipped or flogged publicly. Customs officers were not yet civil servants. Instead, the practice of tax-farming meant the job of collecting duty was chartered to the highest bidder, typically a private firm with little interest in the welfare of its clients.

Today’s merchants should be happy we no longer live in such a tumultuous era. While the bureaucracy of Customs may be challenging, an importer’s rights are enshrined in law (see the Customs Act) and one can re-determine or appeal any decision made by a Border Services Officer.

Since the current Customs regime is based around expedited clearance, more and more Customs verification activity is taking place in the importer’s premises rather than at the port of release. Combing through books is an easy way for Customs to find lost revenue.

Generally, if you are an importer concerned about their compliance record, here are some easy steps to sleep soundly at night:

• Customs cares about primarily about revenue. This is never directly stated, but the logic is behind every regulation in the Act. If you paid a foreign vendor for something, chances are it was taxable and you should have included it in your customs declaration (a.k.a. a form B3).
• Keep your records for six years!
• Avoid undervaluation: Customs keeps track of selling prices for each vendor and commodity in the world. They know its value and its origin. It is easy for them to discern when an importer has been dishonest about a declaration.
• Keep your sellers honest too: if you seller declare’s less than what was paid for the goods to save on insurance, you–the importer–will be held responsible rather than the shipper. Be sure to buy from sellers with experience in international markets, or to double-check the paperwork for any new vendors you may purchase from.

An undervalued invoice will not fool Customs as they have other means of verification

The truth is that Customs knows everything already. If they have shown up at your premises and requested access to your records, it is already too late. Canada Customs has access to trade data from every vendor in the world–they know what your competitors pay for the same products you buy, and therefore can easily detect any attempts at undervaluation.

“Undervaluation” is one of many schemes an importer can use to lower the amount of tax and duty required to be collected on their imports. With a little bit of winking to a vendor, the stated price for the product they are buying can be lowered on the customs invoice so that the duty and tax amount reduces as well. This practice is a real sore spot with Customs. Importers should know that pleading ignorant will not wash as it is the importer of record’s responsibility to verify the accuracy of their declarations.

What does Customs do when they uncover such a practice?
Penalties and the potential withdrawal of importing privileges can be used by Customs to ensure good faith amongst its stakeholders. For cases where importers have dodged duties and taxes, these amounts also must be repaid along with interest.

This article is not meant to scare the average importer or assume they are involved in foul play. If you are at all concerned about your compliance record as a company, you are already ahead of the game. The CBSA is not interested in hurting Canadian business or making them less competitive, and many options exist to reduce your exposure should you find an importing error that has dated back a few years. Please follow these five steps to ensure a healthy compliance record:

1. Keep everything. For six years.

You can throw out those ancient invoices if they are collecting dust in your office–the CBSA is only concerned with the past six years of your importing activity. “Records” could be any of the following:

-invoices and receipts for payments to vendors

-Bills of Lading

-B3s

-certificates of origin

-communications  to vendors as well as any contracts

The records do not need to be kept in hard copy, but must be organized and in a media format that can be reproduced on paper (any computer file is fine). Customs has the right to search any and all files but it will be in your best interest to make the audit process easy for them.

2. Use a Customs broker
We have had more than one self-clearing client who assumed that because a BSO (Border Services Officer) was releasing their entries, that their declarations and classifications were being done properly. This turned out not to be the case as we had one importer who had been underpaying duties on their self-cleared entries for years. BSOs are not classification experts and their decisions can be repealed at any time by a higher authority at the CBSA (what Customs calls a “re-determination”). Customs brokers are not perfect and can also file erroneously on your behalf, but they remain your best bet to stay compliant.

3. Double-check your entries
Whether you self-clear or use a broker, double-checking your entries as they are processed is a sure way to stay free from errors. Watch out for changes in classification or prices that do not match what you have paid to your seller.

4. Correct any vendor’s errors
Vendors are vulnerable to errors when invoicing you, and may even reduce the value on your purchases to save themselves additional costs on shipping and insurance. Even though it was your vendor’s fault, you as the importer will be held responsible by Canada Customs.

5. File claims
If you do notice an error, have your broker file a claim to correct the problem. This does not need to be the same broker that filed your original entry. A claim is filed on Form B2 and is presented by your broker to the Customs office for review where it is typically approved in 90 days or less. A B2 has the effect of changing the recorded status of the original entry wherever there is a mistake–whether revenue is owed or not.

As a final word, not all audits are bad. In many cases, you may be overpaying on your customs entries and be due a refund from the CBSA. However, it is not the policy of the CBSA to investigate cases where revenue is owing or neutral, so let this be motivation to stay vigilant.