Tariffs are an important element of cross-border ecommerce that businesses in Japan need to be familiar with prior to selling overseas. Since tariffs are different for each country, companies must know about the tariffs of countries they plan to conduct cross-border ecommerce with.

In this article, we’ll discuss the tariffs associated with cross-border ecommerce and give an overview of tariffs in China, the United States, South Korea, and Taiwan—Japan’s major trade partners.

What’s in this article?

• Tariffs explained
  
• Tariffs on cross-border ecommerce
  
• How to look up tariff rates
  
• Tariffs of major cross-border ecommerce trading countries with Japan
  
• Japan’s consumption tax is exempt for cross-border ecommerce
  
• Important notes on cross-border ecommerce tariffs and other taxes
  

Tariffs explained

Tariffs, sometimes called import taxes, are taxes applied to goods that are imported and exported overseas. The product importer (i.e., the recipient) bears the tariffs. And because the importer has to pay the tariffs, when they want to purchase a product from overseas and import it to their country, it is common practice for them to negotiate the price with the overseas business (i.e., the exporter).

Purpose of tariffs

There are two reasons that countries impose tariffs: the first is to protect their domestic industries, and the second is to secure national revenue. Protection of domestic industries, in particular, is a high priority for countries and regions that impose tariffs.

Protection of domestic industries

Hypothetically, if a country were to import a massive amount of low-priced products from overseas, its customers might only buy those imported products, putting the sales of domestically-produced goods at risk. A slump in the sales of domestically-produced products could lead to a decline in domestic industries, which would have a negative impact on the country’s economy. Countries impose tariffs to avoid situations like this. In other words, countries impose tariffs to ensure that the products imported from overseas are not excessively cheaper than domestically-produced products.

Securing national revenue

Countries impose tariffs on imported products as a source of revenue. This revenue can help support the countries’ finances.

Taxation method

Cross-border ecommerce businesses need to be aware that the method of taxation applied to their goods will differ by country and the goods involved. There are three categories of tariffs that could apply, making it important to verify the respective taxation method when selling multiple products.

• Ad valorem tariff: A tariff levied based on the price of the product
  
• Specific rate tariff: A tariff levied based on the quantity, weight, and volume of the product
  
• Mixed tariff: A tariff levied that is a combination of an ad valorem tariff and a specific rate tariff
  

Tariffs on cross-border ecommerce

The fact that countries levy tariffs on products imported from overseas means that tariffs apply to retail products purchased via cross-border ecommerce. As we’ve discussed, a tariff is a tax that the purchaser, or product recipient, usually bears; this means that a customer who buys products through cross-border ecommerce must pay the respective tariffs as an importer.

Businesses conducting cross-border ecommerce must provide tariff-related information to their customers to avoid potential issues, such as a customer being notified of their payment liability after a product arrives. It is preferable to set prices with the expectation that tariffs will be imposed, or to have the tariff rate and estimated tariffs clearly stated when the customer is purchasing the product.

How to look up tariff rates

Here, we’ll discuss tools that are useful for cross-border ecommerce businesses that want to check relevant tariff rates.

Harmonized System (HS) code

Countries categorize tariff rates for goods using a six-digit code called the Harmonized System, or HS, code. More than 200 countries and regions use this code. The HS code not only provides information on tariff rates but also on the regulations at the place of origin. The World Customs Organization (WCO) manages the HS code. In some countries, the HS code has additional digits, which are country-specific codes. The Customs and Tariff Bureau has published the customs tariff schedules of Japan for importation into Japan, which serves as a good reference.

World Tariff

World Tariff is a tariff rate database provided by FedEx Trade Networks, a major US carrier. As a cross-border ecommerce business owner, you can use World Tariff to search for the tariff rates of more than 175 countries around the world. If you are a resident of Japan, you can use it for free by registering with the Japan External Trade Organization (JETRO)—an access fee applies to doing so without going through JETRO.

The Rules of Origin Facilitator

Entering the HS code and the country of import and export into the Rules of Origin Facilitator created by the International Trade Centre (ITC) allows a user to determine whether a given product is eligible for a tax break (i.e., a preferential tax rate). The Rules of Origin Facilitator also lets users get information related to the regulations of places of origin.

Tariffs of major cross-border ecommerce trading countries with Japan

Here, we’ll look at the tariff systems in the main countries that Japan conducts cross-border ecommerce with; these include China, the United States, South Korea, and Taiwan.

China

Let’s start by looking at China’s tariffs system. This system is further described by JETRO’s “China’s customs tariffs system.”

In addition to tariffs, China imposes import and mail postage tax, as well as cross-border ecommerce consolidated tax.

Import and mail postage tax

Import and mail postage tax arises when a sent parcel is for personal (i.e., consumer) use. For example, if a customer in China receives a product directly from Japan using Express Mail Service (EMS), the customer, who is the importer, will need to pay this tax at the time of import. For import and mail postage tax rates for individual items, you can refer to JETRO’s “Revision of import and mail postage tax.”

Cross-border ecommerce consolidated tax

Cross-border ecommerce consolidated tax refers to a levy at a certain preferential tax rate on overseas goods that have met the requirements (see JETRO “Overview of cross-border e-commerce in China and points to note: Exports to China”).

While the cross-border ecommerce consolidated tax rate is lower than that of import and mail postage tax, it has stricter requirements; China restricts applicable items to those on the “Cross-border ecommerce Retail Import Product List.” For the cross-border ecommerce consolidated tax rate for each item, you can refer to JETRO’s “China’s ecommerce market and how to make use of it.”

United States

In the United States, ad valorem tariffs, specific rate tariffs, and mixed tariffs exist for each imported item. The US categorizes and identifies these tariffs by the HS code. For this reason, the United States determines tax rates based on the imported quantity and price.

The United States categorizes its tariff rates into three types.

General tariff rates

Most of the countries that trade with the United States fall under the Normal Trade Relations (NTR) designation. General tariff rates apply to countries that are under the NTR. Imports from Japan are subject to these general tariff rates. Certain items covered by a trade agreement between Japan and the US are exempt from the general tariff rate, however.

Preferential tariff rates

Preferential tariff rates fall under the United States’ Generalized System of Preferences (GSP), and they are applied to countries that have entered into a Free Trade Agreement (FTA) or other special trade agreement. In the case of Japan-US trade, the United States applies special tariff rates to certain items as a preferential measure in accordance with a trade agreement between the two countries.

Statutory tariff rates

The United States applies statutory tariff rates to Cuba, North Korea, Russia, and Belarus. In the past, these rates were only applicable to Cuba and North Korea, but the United States added Russia and Belarus in April of 2022 as a result of Russia’s invasion of Ukraine.

To look up tariff rates of the United States, first check the Harmonized Tariff Schedule (HTS) code—which categorizes items imported into the US—from the official website of the United States International Trade Commission. Once you have verified the HTS codes, look up the tariff rates in the tariff database from the United States International Trade Commission (USITC).

South Korea

Next, let’s take a look at South Korea’s tariffs, as noted in “South Korea’s Tariffs System” from JETRO.

South Korea has two major categories of tariffs:

• National tariff rates, which include basic tariff rates, provisional tariff rates, and flexible tariff rates
  
• International cooperation tariff rates
  

The country further divides its flexible tariff rates into:

• Antidumping tariffs
  
• Countervailing tariffs
  
• Retaliatory tariffs
  
• Emergency tariffs
  
• Special emergency tariffs on agricultural, forest, and livestock products
  
• Adjusted tariffs
  
• Quota tariffs
  
• Seasonal tariffs
  
• Beneficial tariffs
  
• Generalized System of Preferences (GSP)
  

South Korea applies World Trade Organization (WTO) rates to imports from Japan. According to the Customs and Tariff Bureau of the Ministry of Foreign Affairs, WTO rates refer to South Korea capping the tariff rates of WTO members in accordance with the WTO agreement. South Korea has agreed not to levy tariffs exceeding said cap. These WTO tax rates are also known as conventional tax rates.

While we won’t delve into the details of each category, there are three important points you need to be aware of.

• Basic tariff rates: These are the most common tax rates that South Korea applies when no special trade agreement exists between itself and the other country.

• Antidumping tariffs: South Korea levies these tariffs when certain products could have a negative impact on the domestic industry if buyers were to import them at prices below those of the local market. South Korea imposes antidumping tariffs to prevent unfair trade practices.

• Generalized System of Preferences (GSP): South Korea uses the GSP to support developing countries (i.e., GSP-eligible countries) under Special and Differential Treatment (S&D), and sets a low tax rate for items that buyers import from eligible countries.

Further, there are three major types of tariffs in South Korea.

• Import tariffs: Import tariffs are for products imported to South Korea, in order to protect domestic industries and for market adjustment purposes.

• Export tariffs: Export tariffs are taxes South Korea levies on products when customers or companies export from South Korea.

• Transit tariffs: Transit tariffs are applied to products passing through South Korea on their way to another country.

South Korea also categorizes these three tariffs into revenue tariffs and protective tariffs, depending on the purpose of taxation. Furthermore, the country divides the three tariffs into national tariffs and agreement tariffs, depending on the reason for taxation, and into ad valorem tariffs and specific rate tariffs, depending on the method of taxation.

Taiwan

According to information from JETRO, Taiwan’s government divides import tax rates into three categories: Column 1, Column 2, and Column 3. A reciprocal agreement exists between Japan and Taiwan, and therefore Column 1 applies to Japan.

• Column 1: Preferential tax rates are for WTO national and regional members, and countries with which Taiwan has reciprocal agreements.

• Column 2: These tax rates are for specific developing countries and regions, as well as countries and regions with which Taiwan has free trade agreements.

• Column 3: These tax rates apply to imported goods that do not fall under Column 1 or Column 2.

Taiwan’s taxation methods are similar to those of the United States and other countries in that they incorporate ad valorem tariffs and specific rate tariffs.

Japan’s consumption tax is exempt from cross-border ecommerce

Japan levies consumption tax on items that buyers consume domestically. Since products that customers purchase via cross-border ecommerce are exported and intended for consumption in overseas countries, consumption tax is not applied. This is called an export tax exemption.

If cross-border ecommerce businesses in Japan want to receive an exemption from consumption tax, they can either apply for an export tax exemption or pay the consumption tax and receive a refund later.

Export tax exemption

When taxable businesses in Japan conduct export transactions, they are exempt from consumption tax. Export transactions that are exempt from Japan’s consumption tax are as follows:

• Exported goods: Goods exported overseas from Japan, including items purchased in duty-free shops in Japan by foreign visitors who do not reside in Japan.

• International communications: This includes all international communications, international mail, and correspondence exchanged between Japan and other countries.

• Transfers or loans of intangible property rights: These include patent rights, industrial property rights, copyrights, and business rights transferred or loaned to non-residents, such as foreign national individuals and companies.

• Services provided to nonresidents: Provision of services received directly in Japan, such as food and accommodation, are subject to tax.

According to Japan’s National Tax Agency, in order for taxable businesses to be eligible for export tax exemptions, they must prove that the transactions in question are export transactions. Furthermore, depending on the type of export transaction, businesses must retain documents—such as export permits and ledgers recording the export—for seven years.

Refund of consumption tax

As previously stated, cross-border ecommerce businesses do not need to pay consumption tax to the national government for their transactions. If you operate a cross-border ecommerce business and have already paid consumption tax—for example, when purchasing a product—you can have the consumption tax refunded at a tax office.

In order to receive a refund for consumption tax, you must meet certain conditions and prepare the necessary documents. For this reason, it is important to be familiar with the rules of consumption tax in cross-border ecommerce in advance.

Important notes on cross-border ecommerce tariffs and other taxes

If you are a business owner in Japan, cross-border ecommerce has the potential to expand your business beyond the domestic market and into overseas markets. Japan is also experiencing an increase in inbound tourism, which could mean an increase in the number of foreign visitors who buy your products—travelers sometimes buy products in Japan and then return home and buy them again online. Businesses in Japan have an opportunity to spread their companies’ products to the global market while banking on the unique strengths of Japan’s brand.

To successfully expand your business through cross-border ecommerce, however, it is important to do the following things.

Clearly state the tariff amount the customer will pay on your cross-border ecommerce website

Customers shouldn’t be charged tariffs that they weren’t aware of when making their purchases. For this reason, it’s important to ensure that your cross-border ecommerce website clearly displays the tariff rate of each product—and you need to do this before customers make any purchases. Displaying retail prices that include the tariffs is ideal.

Providing useful information to customers ahead of time can lead to a more favorable impression of your brand, which in turn can prevent returned products, declined shipments, complaints, and other problems.

Check the tariff rates of each country

In order to establish a retail price that takes tariffs into consideration, it is necessary to understand the tariffs that apply to the field in which the item belongs. To accomplish this, you must not only gain basic knowledge in HS codes that countries across the world use, but also check the tariff rates of the country with which you intend to trade, before conducting cross-border ecommerce business.

Watch out for value-added tax (VAT) as well

In addition to tariffs, you must also watch out for value-added tax (VAT) in cross-border ecommerce. In particular, all EU member countries must impose VAT regardless of a product’s price. Most countries add a minimum tax rate of 15% to products sold to EU member countries through cross-border ecommerce.

EU member countries are not the only countries that implement VAT, either. Asian countries—namely Singapore, Taiwan, Thailand, the Philippines, Malaysia, Vietnam, and Indonesia—also use VAT. Even if a cross-border ecommerce company is not based in an EU member country or any of the VAT-implementing Asian countries, as a general rule it must still register for VAT and file a VAT declaration if it intends to sell products to the customers of those countries.

Although the minimum VAT rate is 15%, there is no maximum rate, and the rate varies from country to country. It is also important to bear in mind that there are countries that impose both tariffs and VAT. It is therefore important to know if a target country (i.e., a country you plan to do business in) levies VAT and, if so, what the tax rate is.

Stripe offers various features that can help cross-border ecommerce businesses. For example, Stripe Tax can handle tax calculations for more than 90 countries—including those that apply VAT—and all states in the US, thereby reducing the complexities of global tax compliance. Furthermore, with Stripe Tax, you can automate tax calculation and collection in online transactions. Stripe Tax can even generate a comprehensive report necessary for a tax return.