Understanding Canada’s Customs Duty Standard – FOB vs. CIF Explained

One of the most common points of confusion for Korean exporters shipping products to Canada is whether customs duties are calculated based on FOB (Free on Board) or CIF (Cost, Insurance, and Freight) value.While many exporters prepare quotations using FOB pricing, the Canada Border Services Agency (CBSA) assesses import duties based on the CIF value, which includes the product cost, shipping, and insurance. Understanding this difference is crucial for accurate cost estimation, tax forecasting, and customs documentation.

Why Canada Calculates Duties Based on CIF

According to Canada’s Customs Act (Section 48), the “Value for Duty” is not limited to the selling price of the goods. It must include all costs incurred up to the point the goods arrive in Canada, such as freight, insurance, and handling fees.

In other words, the customs duty base value includes the total landed cost of goods at the Canadian port of entry.

CBSA Official Reference (Customs Act, Section 48, paragraph 5):

“The value for duty of goods shall be the transaction value, which is the price paid or payable for the goods when sold for export to Canada, adjusted by adding the cost of transportation, loading, unloading, handling and insurance and any other cost incurred in respect of the goods to the place within Canada to which the goods are shipped directly.”— Source: CBSA - Customs Act, R.S.C., 1985, c. 1 (2nd Supp.), Section 48

Example: How Duties Are Calculated in Practice

Let’s assume the following shipment details:

Item	Amount (USD)	Description
Product Value (FOB)	10,000	Price at port of loading (Busan, Korea)
Freight (Ocean Shipping)	600	Busan → Vancouver shipping cost
Insurance	50	Cargo insurance
CIF Value for Duty	10,650	(10,000 + 600 + 50)
Duty (6.5%)	692.5	10,650 × 0.065
GST (5%)	567.1	(10,650 + 692.5) × 0.05
Total Tax Payable	1,259.6 USD	Duty + GST

In this case, the importer will pay approximately USD 1,259.6 in total duties and taxes.This CIF-based calculation applies consistently across all Canadian ports.

Why Duties Are Still CIF-Based Even for FOB Contracts

Most Korean exporters use FOB terms, meaning they cover costs only up to the port of shipment (e.g., Busan or Incheon), while the buyer covers freight and insurance.However, CBSA does not consider who pays for freight—it only considers the actual freight cost amount.

If shipping costs are not listed on the invoice, CBSA will estimate them based on average freight data and apply that estimated CIF value for duty calculation.

Therefore, even if your sales contract is FOB, the customs declaration in Canada will automatically use the CIF value for duty assessment.

Practical Compliance Tips

• Always include freight and insurance costs on your invoice.If these fields are left blank, CBSA will estimate them—often resulting in higher taxable values.

• EXW shipments (Ex Works) must also be converted to CIF.Domestic inland freight, international shipping, and insurance must all be included.

• Avoid under-reporting CIF values.CBSA actively audits shipments suspected of undervaluation, especially when freight or insurance data is missing.

Trufulfillment’s On-the-Ground Insight

At Trufulfillment, we frequently encounter cases where Korean exporters are surprised by higher-than-expected import duties in Canada.The reason is simple: CBSA applies CIF-based duty calculation, not FOB.

By calculating your CIF-based total cost (product + freight + insurance) in advance, you can:

• Prevent unexpected duty adjustments.

• Ensure transparent pricing when negotiating with Canadian importers.

• Improve accuracy in profit margin planning.

It’s also worth noting that under the Korea–Canada Free Trade Agreement (CUKTCA), products may qualify for 0% customs duty—but the 5% GST is still applied based on the CIF value.

Key Takeaways

• Canada’s import duties are calculated based on CIF, not FOB.

• Value for Duty = Product Price + Freight + Insurance.

• If freight and insurance are not listed, CBSA will estimate them.

• Even under FTA zero-duty conditions, GST (5%) applies on the CIF value.

• Official Reference: CBSA Customs Act, Section 48.

Korean exporters preparing to enter the Canadian market should move beyond simply quoting FOB prices.A clear understanding of CIF-based customs valuation will ensure accurate tax forecasting and smoother import clearance.

Trufulfillment supports Korean brands with end-to-end logistics and customs strategies tailored for the Canadian market—covering cost analysis, FTA documentation, and compliant customs submissions.

Opportunities come to the sellers who prepare.

Contact Trufulfillment for reliable, professional export and customs support in Canada: support@trufulfillment.ca