Incoterms Explained: How They Affect Canadian Import Duty Calculations

Incoterms (International Commercial Terms) define the responsibilities of buyers and sellers in international trade. They directly affect how CBSA calculates the value for duty of your imports and your total landed cost.

Most Common Incoterms for Canadian Imports

• EXW (Ex Works): Seller makes goods available at their premises. Buyer pays all freight, insurance, and export costs.
• FOB (Free on Board): Seller delivers to the port of shipment. Buyer pays ocean freight and insurance.
• CIF (Cost, Insurance, Freight): Seller pays freight and insurance to the Canadian port. Most complete seller obligation for ocean shipments.
• DAP (Delivered at Place): Seller delivers to the named destination, unloaded. Buyer pays import duties and taxes.
• DDP (Delivered Duty Paid): Seller pays everything including duties and taxes. Buyer receives goods with no further costs.

How Incoterms Affect Value for Duty

CBSA calculates value for duty based on the price paid or payable PLUS adjustments. The key rule:

• Freight to the point of export is included in VFD
• Ocean/air freight from the port of export to Canada is NOT included in VFD
• Insurance is NOT included in VFD

This means:

• EXW price = closest to VFD (may need to add inland freight to export port)
• FOB price = typically equals VFD (includes freight to port of export)
• CIF price = must subtract ocean freight and insurance to get VFD
• DDP price = must subtract freight, insurance, duties, and taxes

Common Mistake

Many importers use the CIF invoice value as the VFD. This is incorrect and leads to overpaying duties. Always deduct international freight and insurance from CIF values.

TariffCalc Tip

When using our duty calculator, enter the value for duty (not the CIF value). If you have a CIF price, subtract the freight and insurance components first. Don't forget that provincial taxes are calculated on the VFD plus all duties.