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Tariff Codes for Infotech Products January 18, 2018  
IT Tariff Categories, Witholding Taxes, and Other Taxes

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TARIFF CATEGORIES
For your reference, for trade purposes products are categorized globally according to one of two systems: the Harmonized System (HS) or the Brussels Tariff Nomenclature (BTN). Most countries, including the United States, classify exports and imports using a standard set of HS codes.

Computer hardware falls in HS headings 84.71 (“units of automatic data processing machines”), or in 84.73 (“parts thereof”).

Computer software falls in HS heading 85.24 (“records, tapes, and other recorded media…”). Specfically, computer software is classified either in HS heading 8524.31, 8524.39, 8524.40, or 8524.91, depending on the medium on which the software resides (optical disc, magnetic disc, or magnetic tape).

Particular products are classified by more specific HS numbers that can be six or more digits in length. Only the first six digits of HS codes are harmonized globally. Countries may designate more specific product classifications beyond those six digits. U.S. export codes, called Schedule B codes, are administered by the U.S. Census Bureau’s Foreign Trade Division. This Census Bureau website can help exporters classify their products and find the appropriate Schedule B number. If additional clarification is needed, please call the Census Bureau’s Commodity Classification Division at 301-763-3484.

TARIFF APPLICATION
Tariffs on computer hardware are applied to the cost, insurance, and freight (C.I.F.) value, unless noted otherwise. Tariffs on computer software are generally applied either to the value of the underlying optical or floppy disk or tape (media) only, or the full market value of the software (content). Countries differ in terms of which method they choose. When we have this information, it is indicated in the software column under M for media or C for content (or U for unknown). Computer services such as training and maintenance are uniformly tariff-free.

WITHHOLDING TAX ON SOFTWARE ROYALTIES
For taxation purposes, software sales are treated as income from royalties. Income derived from international software sales is subject to foreign income tax laws, although some countries have bilateral tax treaties with the United States, which means that sofware sales in that country are subject to tax only in the United States. For information on bilateral tax treaties, withholding taxes, or how software sales to a certain country are treated for tax purposes, contact the Treasury Department's Office of International Tax Counsel at 202-622-1317.

OTHER TAXES
Value added taxes (VATs) are applied to the C.I.F. value of the good plus the duty charged on the good, unless otherwise noted: [C.I.F. + (tariff rate x C.I.F.)] x VAT rate. For informaiton on the tax basis of other taxes listed in this column, contact the appropriate U. S. Department of Commerce country desk officer.

It is important to bear in mind that tariffs and taxes for IT products will be applied differently. Although a country may have a zero tariff for hardware or software products, there may still be taxes that will have to be paid on the merchandise.

Special information for software:
Since Customs officials will assess tariffs (if applicable) and taxes based on different information, it is important for U.S. companies to include a variety of information on their Shippers Export Declaration to allow these officials to expeditiously process shipments. If information is missing or incomplete, Customs may bar entry of the product until they are satisfied that their country's regulations and conditions have been met. It is recommended that U.S. companies include separate information on the invoice for the customer and for Customs officials. The following information has proven to be helpful in previous instances: price charged to the foreign customer, quantity, value of the media, value of manuals and other supplementary materials, and the value of the intellectual property on the media. (The value of the media plus manuals plus intellectual property should equal the price charged to the foreign customer.)

Although tariffs (if applicable at all) will most often apply only to the media (i.e. the disk or CD-ROM), taxes often will be levied on the total value or on the intellectual property. Understanding the difference between these concepts, and providing Customs officials with complete information, can substantially ease potential problems at the border.

Visit the Trade Information Center for more information on tariffs and taxes.

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