De Minimis Value in Inventory Management
14 Jan 2022
Literally translated from Latin, the phrase “de minimis” means that something is too small to have a significant influence. Depending on the industry, de minimis value can indicate different things. For example, de minimis is the small number of goods in taxing that does not make the producing company liable to pay taxes.
Regarding the meaning of the de minimis concept in inventory management or commerce, you might often meet the terms de minimis rule, de minimis rate, etc. This article will explain what those terms mean and how you can use them in your business practices.
De minimis value threshold
The minimal threshold is usually applicable for global e-commerce companies that deal with shipment of non-originating low-value materials to the U.S. The de minimis threshold is the financial value of products, under which they can be shipped to the U.S. without assessment of taxes and duties.
As you might guess, the higher is the de minimis threshold, the more beneficial it is for exporting companies. This means they can save money by exporting more goods.
The positive impact of the increased threshold
Let’s talk about the real example of the U.S., which increased the de minimis value threshold from $ 200 to $ 800 in 2016. That meant that products valued at or lower than $ 800 could enter the country without paying duties.
This change has an undeniable positive impact on importing companies and U.S. consumers in general. After increasing the threshold, the Customs and Border Protection (CBP) reported about a 50% increase in international packages.
Benefits of increasing de minimis threshold
- A higher de mimimis threshold promotes a favorable trade environment.
- A positive impact in one country boosts the global e-Commerce operations.
- The residents of the country enjoy lower prices of imported goods.
- To keep up with the competition, other countries also increase the value.
- A country with a high de minimis rate is an attractive business spot.
How should eCommerce companies benefit from de minimis value?
The product’s final price depends on different factors. Among them, an important role has the duties producers have to pay when entering a foreign market. If no additional cost is added in a foreign country, it’s becoming easier for a company to withstand the local competition and offer better prices to foreign customers.
Companies build their marketing strategies by knowing the exact value at which the imported goods are duty-free in a foreign country. For example, if the de minimis rate is $ 800 in the U.S., an international eCommerce company can hardly promote its product packages at or below $ 800. In this case, it will be free from additional fees and will not have to pay additional charges.
Differences in the de minimis value in different countries
All countries can’t operate with the same de minimis rate. Some countries can eliminate it, depending on their economic structure and policy.
To understand why the de minimis threshold varies in different locations, here are the two key factors that influence it.
- That’s true that a higher de minimis threshold creates a more active trading flow from international organizations. However, it also decreases the tax revenues from the country’s perspective. Therefore, each country has to decide which direction is more beneficial for them.
- De minimis value eliminates duties and some documentation and administrative hassle for the exporting company. However, there is a cost associated with each imported goods’ administering customs duties. So, the country should also evaluate this cost before deciding on the de minimis rate.
Having that said, businesses should carefully check the procedures and regulations of the country they are about to enter with their production. Here, you can find the de minimis values of different countries.
Note: The mentioned values might be changed by the time you read this article. Therefore, please double-check the most recently updated information on the specific country’s de minimum threshold. Doing otherwise might result in building your business strategy on wrong assumptions.
De minimis value in the European Union
The de minimis threshold was stable in the U.S. since 1993. It was 150 EUR before mid-2021. However, E.U. removed the de minimis value last year because of many fraudulent activities. Some companies were declaring their goods at a lower than the actual value.
As a result, all the goods entering the E.U. are currently equally liable for the import duties.
De minimis value in the U.S.
As mentioned before, the de minimis threshold in the U.S. is $ 800, which makes the United States a country with the highest de minimis value. This goes aligned with the U.S.’s state strategy to promote the activation of international trade.
De minimis value in the US-Mexico-Canada (USMCA) Agreement
In 2020, the de minimis value was modified within the agreement, and the de minimis value was set at $ 117 for Mexico and $ 150 CAD for Canada.
To wrap up
De minimis threshold is the minimum value of the exported goods, at which the goods are free of the accepting country’s duties. That’s one of the key factors that can activate international trade. Therefore, eCommerce companies watch an eye on regulations in different countries to choose the exporting spots with more competitive advantages for them.