CIF vs FOB: which value is your import duty based on?

What "customs value" means — and why the basis matters

When you import goods, duty is charged as a percentage of a number called the customs value. The percentage (your duty rate) gets all the attention, but the number it's applied to matters just as much — and that number is not the same in every country. The two main conventions are CIF and FOB, and which one your destination uses changes the duty you pay on the exact same shipment.

The short version: most of the world assesses duty on the CIF value (Cost, Insurance, Freight) — your goods plus the cost of getting them to the border. The United States and Australia are the big exceptions: they use an FOB / transaction-value basis, which excludes international freight and insurance from the dutiable value.

CIF: goods plus freight and insurance to the border

CIF stands for the cost of the goods plus insurance and international freight to the port or border of importation — not to your warehouse door, but to the point where the goods enter the destination country. A customs authority on a CIF basis wants the full cost of landing the goods at its frontier as the base for duty.

So in a CIF country the duty base is:

Goods value + international freight + insurance (to the border)

This is the default for most of the world — the EU, the UK, Canada, India and many others assess customs duty on a CIF-type value.

FOB: international freight and insurance stripped out

FOB ("free on board") values the goods as loaded for export at the origin — international carriage and the marine insurance on it are excluded from the duty base. This is the basis used by the US and Australia, where the dutiable figure is essentially the transaction value: what you paid the supplier for the goods themselves.

One trap worth flagging, because it costs people money the other direction: FOB is not "the product price alone." Costs incurred before the goods leave the origin country — foreign inland freight to the port, export packing, loading and handling — are part of the transaction value and stay in the duty base. What comes out is the international leg: the ocean or air freight and insurance from origin to destination.

The same shipment, two bases

Here's why this isn't academic. Take one shipment: goods $10,000, international freight $1,000, insurance $100, and suppose your illustrative duty rate is 5%.

On a CIF basis: duty base = 10,000 + 1,000 + 100 = $11,100. Duty at 5% = $555.

On an FOB basis: duty base = $10,000 (freight and insurance excluded). Duty at 5% = $500.

Same goods, same rate, $55 difference in duty — purely because of the valuation basis. Scale that up over containers and across the year and the gap is real. The higher your freight cost relative to the goods (bulky, low-value cargo, or air freight on something heavy), the bigger the CIF-vs-FOB swing.

The VAT/GST base can differ from the duty base — the Australian twist

Here's where it gets genuinely confusing, and where even experienced importers slip. Import VAT/GST is usually charged on a different, larger base than duty — and it almost always compounds on the duty itself.

In a CIF country the freight and insurance you already counted toward duty also sit inside the VAT base, so it's consistent: freight is in both. But Australia exposes the divergence sharply. Australia excludes international freight and insurance from the duty base (FOB), then adds them back for GST. The GST base is the Value of the Taxable Importation (VoTI):

VoTI = customs value (FOB) + duty + international transport + insurance

So in Australia, freight is out of the duty base but back in for GST. Work a concrete example — goods AUD 5,000, freight AUD 600, insurance AUD 50, illustrative duty 5%, GST 10%:

Customs value (FOB) = 5,000 → duty = 5% × 5,000 = 250
VoTI = 5,000 + 250 + 600 + 50 = 5,900 → GST = 10% × 5,900 = 590

Notice the GST is calculated after the duty is added in — that's the compounding — and the AUD 650 of freight and insurance that was excluded from duty is fully back inside the GST base. You can run the full Australian calculation, including the Import Processing Charge and biosecurity fee, on the Australia import duty calculator.

The United States is the clean counter-case: there is no federal VAT or GST on imports at all. State sales/use tax is a separate matter and isn't collected at the border. So in the US the "second base" question simply doesn't arise — duty is on the FOB value, full stop, and any Section 301/232 or other special tariffs stack on that same value. The US import duty calculator handles that stacking for you.

Your contract Incoterm is not the customs basis

This is the part that catches importers out. The Incoterm you negotiated with your supplier (CIF, FOB, EXW, DDP and the rest) governs who pays for what in your commercial deal. It is not automatically the basis your customs authority uses to value the goods. The two use the same letters and mean different things in different contexts.

Two ways this bites:

You buy CIF but import into the US or Australia. Your supplier's price already bundles freight and insurance, but those countries value on FOB — so you must strip the freight and insurance back out of the invoice price to reach the dutiable value. Pay duty on the full CIF invoice and you've overpaid.
You buy FOB but import into a CIF country. Your invoice is goods-only, but the customs authority wants freight and insurance added in. Declare the bare FOB price and you've under-declared the customs value.

This is exactly why our calculators ask for freight and insurance separately, even when your Incoterm already includes them — so the engine can add them in or back them out to match your destination's basis. If the Incoterm side is fuzzy, the Incoterms 2020 guide walks through what each term puts in the price.

The practical takeaway

Before you estimate duty on any shipment, ask two questions in order:

What basis does my destination use — CIF or FOB? That decides whether international freight and insurance belong in the duty base. US and Australia: FOB (exclude them). Most everywhere else: CIF (include them).
Is there a separate VAT/GST base? If so, it's usually larger than the duty base and compounds on the duty — and a freight cost you excluded from duty (as in Australia) may well come back for the tax.

Get the basis right and the rate does the rest. Get it wrong and you're either overpaying duty on freight that shouldn't be there, or under-declaring a value the customs authority will recalculate for you.