The import and export business is subject to different types of bonds. A bonded importer of record (IOR) will secure multiple customs bonds over many years of serving customers. Such bonds are not optional in most cases. If you are an IOR importing goods with a value in excess of $2500, you must secure your shipments with a customs bond.
Customs bonds must be worth a certain monetary value in order for U.S. Customs and Border Protection (CBP) to honor them. The value of a particular bond is related to the type of bond it is and the type and value of the goods being imported. If this all sounds confusing, it is. That is why companies like Vigilant Global Trade Services exist.
Vigilant GTS offers a full range of global trade compliance services to companies of all sizes. They define a customs bond as an insurance policy of sorts. A customs bond essentially tells CBP that all appropriate duties and taxes will be paid on goods being imported into the country.
A Contractual Agreement
From a legal standpoint, a customs bond is a contractual agreement involving three parties: the IOR, CBP, and the bond company. Moreover, it is a contractual agreement requiring a form of surety. What is surety? It is a voluntary commitment by one party to cover the financial obligations of another.
In the case of a customs bond, the bond company provides surety for the IOR. An IOR with a customs bond is known as a bonded IOR. At any rate, the bond company expects the IOR to pay duties and taxes on its own. But if something goes wrong – like a bankruptcy, for example – the customs bond kicks in. Duties and taxes are paid by the bond company so that the shipment can be released by CBP.
Two Types of Customs Bonds
Each country has its own rules regarding duties, tariffs, and customs bonds. As previously mentioned, any commercial goods in excess of $2,500 must be secured by a bond. Proof of a customs bond must be supplied whenever a U.S. agency with appropriate authority request to see it.
There are two types of bonds for U.S. importers:
Single Transaction Bond
A single transaction bond is also known as a single-entry bond (SEB). As its name implies, it covers a single import transaction. The value of the bond is calculated by adding together the total value of the shipment plus any applicable duties, taxes, and fees.
There are occasions when a shipment is subject to other regulations, such as quota and visa status. The end result might be that at an SEB of three times the value of the shipment be secured.
The other type of customs bond recognized in the U.S. is the continuous bond. This covers all the shipments handled by a single IOR at any and all ports of entry. Continuous bonds are valid for a single year. They must be for a minimum of $50,000.
For purposes of calculation, continuous bonds are often based on the total amount of taxes, duties, and fees the IOR paid during the previous year. A continuous bond valid for the entire 2021 calendar year would be valued at 10% of the amount paid in 2020.
All IORs bringing goods into the country must obtain and furnish customs bonds if any of their shipments exceed $2,500 in value. The bonds ensure that all taxes, duties, and fees will be paid. In light of that, bonds are more or less import duty insurance policies.