Duty drawback is an often-overlooked opportunity for businesses engaged in international trade. This comprehensive guide explains how your company can recover up to 99% of import duties and taxes, improving cash flow and reducing costs in today's complex trade environment.
What is duty drawback?
Duty drawback is a U.S. Customs and Border Protection (CBP) program that allows businesses to reclaim up to 99% of the duties, taxes, and fees paid on imported goods that are later exported or destroyed. It is an often-overlooked opportunity for companies engaged in international trade to recover costs and improve cash flow.
What businesses can benefit from duty drawback?
Duty drawback applies to a variety of industries, including manufacturing, retail, e-commerce, and logistics. If your company imports goods and later exports them—either in their original form or after processing—you may be eligible for refunds on import tariffs paid. Common beneficiaries include:
- Importers that export surplus inventory or sell surplus to exporters.
- Exporters that also import or purchase imported material.
- Manufacturers that import raw materials, process them into finished goods, and export them.
- Retailers and wholesalers that re-export surplus or unsold inventory.
- E-commerce businesses that deal with international shipping and returns.
Types of duty drawback
There are several types of duty drawback, each designed for specific trade scenarios:
- Unused Merchandise Drawback applies when imported goods are exported without being used.
- Manufacturing Drawback applies when imported materials are used to manufacture goods that are later exported.
- Rejected Merchandise Drawback applies when imported goods are defective, do not meet specifications, or are returned to the supplier and then exported or destroyed.
The duty drawback process
Claiming duty drawback involves several steps, and businesses need to be meticulous about documentation to ensure compliance with CBP regulations. Here's an overview of the process:
- Identify eligible imports and exports – Ensure your company has records of duties paid and shipments exported.
- Determine the correct drawback provision – Each drawback provision has a unique set of rules. Work with a drawback specialist to determine which provision to use.
- Submit applications – Submit a privilege application, and for manufacturing provisions, submit either a ruling application or letter of intent to operate under an existing ruling.
- Maintain proper documentation – Keep import records, invoices, shipping records, inventory records, and proof of duty payments.
- Calculate and file a duty drawback claim – Properly calculate and submit the drawback claim to CBP electronically through the Automated Commercial Environment (ACE).
- Upload DIS documents – Documents such as 214 Forms, IRS tax forms, certifications, and reconciliation worksheets must be uploaded to the Document Image System within 24 hours of filing a drawback claim.
- Receive your refund – Once CBP reviews and approves the claim, businesses can receive a refund of up to 99% of duties paid.
- Retain documents – Documents supporting a drawback claim must be retained for 3 years after liquidation. Customs may ask to see documents supporting your drawback claim.
- Audit your drawback program at least annually – Validate internal procedures to ensure they are compliant with regulations, examine documents for accuracy, trace linkage of imports to exports for direct identification drawback, and review past claims for accuracy.
Best Practices for Maximizing Duty Drawback
To make the most of the duty drawback program, businesses should:
- Automate record-keeping – Use software to track imports, exports, and documentation efficiently.
- Apply for accelerated payment – Expedite the refund process by applying for accelerated drawback payments.
- Stay compliant – Understand CBP regulations and avoid common mistakes that can lead to claim denials.
- Work with a drawback specialist – Many businesses partner with customs brokers or consultants to streamline the process and maximize tariff refunds.
Duty drawback is a powerful tool for businesses engaged in international trade. It allows them to reclaim significant costs associated with importing and exporting goods. By understanding eligibility, maintaining proper records, and leveraging expert assistance, companies can turn duty drawback into a strategic advantage.
Are you ready to explore duty drawback for your business? Contact Pax to get started today!