Getting an accurate landed cost means knowing the order and basis on which duty and VAT are actually calculated. The concepts aren't hard, but getting the sequence wrong can throw your estimate off significantly.
1. CIF is the starting point
Duty isn't calculated on the goods' price alone. It's based on the CIF value: Cost + Insurance + Freight combined. If you only have an FOB price, you'll need to add freight and insurance to arrive at CIF first.
2. Duty = CIF × duty rate
The duty rate depends on the product's HS code, and can be reduced, sometimes to 0%, under an FTA (e.g., Korea-EU, Korea-US) if you have a valid certificate of origin.
3. VAT is calculated on CIF plus duty
Here's where estimates commonly go wrong. VAT isn't applied to the CIF value alone. It's applied to CIF + duty (the tax base). Forgetting to add the duty first will understate your VAT.
4. A worked example
Say your CIF value is ₩10,000,000 and the duty rate is 8%. Duty = ₩10,000,000 × 8% = ₩800,000. VAT = (₩10,000,000 + ₩800,000) × 10% = ₩1,080,000. Total estimated tax is ₩1,880,000, and total landed cost (CIF + tax) comes to roughly ₩11,880,000.
How Capra helps
Capra Logistics handles import declarations and tax calculations directly, with no outsourcing, through our licensed customs broker CEO. We confirm HS code classification and FTA eligibility up front, at the quoting stage.