Customs Duty Refunds Explained

At a glance

• The main takeaway: Customs duty refunds may be available in certain scenarios, such as when duties are overpaid or when importers qualify for special programs, like duty drawbacks.
• Impact on your business: Pursuing a customs duty refund can help your business recover valuable funds when the proper requirements are met and processes completed.
• Next steps: Work with a skilled, trusted advisor to navigate the refund process and improve cash flow.

The full story:

In today’s competitive and sometimes uncertain marketplace, many businesses conducting imports are unaware that duty refunds may be an option. If your company imports goods, an often-overlooked opportunity for smarter trade practices and cost recovery lies in customs duty refunds and duty drawbacks. These refunds allow importers to reclaim duties paid on goods for which the importer overpaid, or, in the case of duty drawbacks, for goods that are subsequently exported, unused, or destroyed. In more rare circumstances, refunds may also be available if a tariff is overturned in court.

Used appropriately, refunds and drawbacks offer a valuable way to reduce expenses and improve cash flow. Whether you’re a manufacturer exporting finished products assembled from imported components or a retailer returning unsold inventory to a foreign supplier, understanding how customs duty refunds work can unlock financial benefits and improve your global trade strategy.

Understanding Duty Drawbacks

As described above, a certain kind of refund is the duty drawback. While a general customs duty refund may apply if your business overpaid due to an incorrect tariff classification, for example, the duty drawback is an option if your business imported goods that were later exported or destroyed. Goods that are later exported must be in the same condition as when they were imported.

The U.S. Duty Drawback Program allows importers to recover up to 99% of duties and fees paid on imported goods that are subsequently exported or destroyed under Customs supervision. The two major types of duty drawback include:

1. Unused Merchandise Drawback: refunds on duties paid for unused goods, which are defined as imported goods that are exported in the same condition as they were received, without being used.
2. Manufacturing Drawback: refunds on duties paid for imported components used in the manufacture of exported goods.

The Trade Facilitation and Trade Enforcement Act (TFTEA) of 2015, implemented in 2018, significantly modernized the drawback program by simplifying recordkeeping, extending the claim period to five years, and allowing for substitution drawbacks based on eight-digit HTSUS classifications rather than direct part-number matching.

To process a duty drawback, you must file a claim with U.S. Customs and Border Protection (“CBP”). Gather required documentation, such as entry summaries and commercial invoices, file forms 7551 (Drawback Entry Form) and 7553 (Notice of Intent to Export, Destroy, or Return Goods), and file the claim electronically using the Automated Commercial Environment (ACE), the primary digital platform used by CBP to streamline trade processing and risk management.

Claiming a Refund on Overpaid Duties

If you believe you overpaid duties, then you may wish to begin a refund claims process. Overpayment can result from incorrect tariff classification, valuation, or incomplete documentation. The process of claiming a customs duty refund – as distinct from the duty drawback described above – involves communicating with CBP. All claims are generally filed electronically, and it can be helpful to leverage the experience of customs and tariffs specialists who regularly communicate with CBP. Customs and tariffs specialists can help your business determine eligibility for refunds and duty drawbacks, as well as help to gather required documentation before filing and monitoring the claim.

To begin, your business will need to determine the entry’s liquidation status. Liquidation refers to the process by which CBP calculates the final amount of duties and taxes owed on imported goods. CBP compares the estimated duty your business paid at the time of entry to the final duty. The final duty can differ from the estimated duty because of factors such as duty rates, valuation, and classification. If the final duty indicates that your business overpaid, you may qualify for a drawback.

Liquidation status determines whether your business will pursue a Post Summary Correction (“PSC”) or a Protest.

Post Summary Correction

If companies wish to correct inaccuracies in their customs filings and recover savings, and the entries are still unliquidated, they should employ a PSC. Companies generally have 300 days from the date of entry or 15 days before the scheduled liquidation date to file a PSC. Filing is done electronically via ACE.

A PSC completely replaces the initial entry summary. However, it is important to note that some data cannot be changed from the initial summary to the PSC. Examples include the importer of record, port of entry, and location of goods code. For more information on PSCs and the types of changes eligible, visit CBP.gov.

Protest

If your entries have been liquidated and you disagree with the CBP or want to correct an entry, filing a protest is the appropriate method. A protest can be filed within 180 days after liquidation and requires specific, written justification for the objection. It is generally filed on CBP Form 19, though the form is not strictly required. Protests can be filed electronically or via paper submission at the port where entry occurred, although filing through ACE allows you to see the status of the protest.

Protest filing includes a refund request letter, entry data, exhibits, and other required documentation. Maintaining and submitting sufficient documentation is critical; once a protest is denied, the filer faces limited options, such as initiating action with the Court of International Trade (“CIT”).

Implementing a Post Summary Correction or Protest

In determining which method to employ, whether a PSC or a Protest, follow these steps to make the most of your claim:

1. Review your import data, identify relevant entries, and assign updated customs values. This exercise may involve a Stock Keeping Unit (“SKU”) level or part-level review. This will also require assistance from company personnel to access internal shipping data and entry documents.
2. If the identified entries have not yet been liquidated (i.e., not finalized by CBP for duty assessment purposes), a trusted business advisory service can help you prepare Post Summary Corrections with supporting reasoning and adjusted import data. Once the PSCs are ready, the business advisory service can coordinate with company personnel and the company’s customs broker for filing.
3. If any of the identified entries have already been liquidated, rely on a trusted business advisory service to assist you in preparing and filing Protests via ACE.

The bottom line

With changes to international trade regulations and shifting customs requirements, it is wise to review your imports with a trusted advisor. Doing so can help you uncover opportunities to claim customs duty refunds, reduce costs, and boost your business. Schedule a consultation today with Aprio’s Tariffs and Customs Services.