What is Customs Duties?
Customs duties are taxes imposed by a government on goods crossing its borders, mainly on imports. They are calculated based on the customs value of the goods, the tariff classification under the harmonised system (HS code), and any applicable trade agreements. In accounting, they are added to the cost of inventory under IAS 2.
How It Works
- Classify imported goods using the correct HS code from the Saudi Customs tariff book.
- Determine the customs value (usually CIF: cost, insurance, freight).
- Apply the duty rate and calculate the amount payable to Saudi Customs.
- Capitalise the duty into the cost of inventory; recover any VAT separately as input tax.
Saudi Context
Saudi Customs (part of ZATCA since 2021) administers import duties under the GCC Common Customs Law. Most goods carry a 5%-15% duty rate, with some categories (raw materials, medical supplies) at 0%. VAT at 15% is calculated on the duty-inclusive value and is recoverable as input tax for VAT-registered businesses.
Example
A Saudi importer brings in machinery worth SAR 100,000 (CIF). Duty at 5% is SAR 5,000 and is capitalised into the cost of the machine. VAT of SAR 15,750 (15% × SAR 105,000) is paid to Customs and reclaimed as input tax.