Landed Cost in Korea: How Do You Calculate It?

Landed cost is the goods price plus freight and insurance to the Korean port, customs duty, import VAT, and port, clearance and inland transport costs. Korea levies duty on a customs value that adds freight, insurance and other items to the price paid (Customs Act, Article 30), and import VAT is 10% of that customs value plus duty and certain other taxes (VAT Act, Articles 29 and 30). Pricing from the supplier quote alone usually understates your real cost.

Key takeaways

• The customs value is the price actually paid plus additions such as freight and insurance up to the Korean port of import (Customs Act, Article 30(1)).
• Duty is the customs value times the rate for the HS code; import VAT is 10% of the customs value plus duty and any other applicable taxes.
• Landed cost should also include destination costs such as terminal handling charges (THC), customs broker fees and inland trucking.
• Import VAT is paid at clearance, but VAT-registered businesses can usually claim it back as input tax (VAT Act, Article 38).

What is landed cost?

Landed cost is the total cost of getting goods into a Korean warehouse, ready to sell. It adds up the goods price, international freight and insurance, customs duty and import VAT, port and clearance charges, and inland transport; divide it by the quantity to get a unit cost. Comparing that unit cost with your selling price shows your real margin.

Who pays which cost depends on the trade term (Incoterm). If you buy FOB or EXW, you pay freight and insurance separately; if you buy CIF, freight and insurance to the port of import are already in the price. See our Incoterms 2020 summary for how costs split under each term.

How is the Korean customs value set?

The customs value is the transaction value: the price the buyer actually paid or will pay, plus statutory additions and minus allowed deductions (Customs Act, Article 30). The additions include freight and insurance up to arrival at the Korean port of import, so even goods bought FOB are valued with freight and insurance added. That is why Korea’s customs value is often described as CIF-based.

Article 30(1) lists the additions: commissions and brokerage other than buying commissions, container and packing costs, goods or services the buyer supplied free or at a reduced price for production (assists), qualifying royalties and licence fees, proceeds of resale that accrue to the seller, and freight and insurance up to the port of import. Amounts that can be separated from the price paid, such as transport after import or domestic taxes, can be deducted. Our guide Korea Import Customs Value: Is the Invoice Enough? covers the additions and deductions in more detail.

Foreign-currency prices are converted at the weekly customs exchange rate set by the Korea Customs Service (Customs Act, Article 18). It can differ from the rate you paid at, so check the weekly rate in the customs portal UNI-PASS.

In what order are duty and import VAT calculated?

Fix the customs value first, multiply it by the duty rate to get the duty, then take 10% of the customs value plus duty to get the import VAT. If the goods also carry individual consumption tax, liquor tax or similar taxes, those are added to the VAT base too. Changing the order or leaving duty out of the VAT base gives the wrong figure.

1. Set the customs value (goods price + freight and insurance to the port of import + other additions − deductions).
2. Multiply by the rate for the HS code to get the duty. To use an FTA preferential rate, you need to meet its requirements, such as a certificate of origin.
3. Work out the VAT base: customs value + duty + individual consumption tax, liquor tax, education tax, special tax for rural development, and transportation-energy-environment tax where they apply (VAT Act, Article 29(2)).
4. Multiply the VAT base by 10% to get the import VAT (VAT Act, Article 30).

Check the rate for your product first with our HS code guide, and if you want an FTA rate, see how to get a certificate of origin.

How do you calculate landed cost in practice?

Build the customs value from the goods price, freight and insurance, add duty and VAT, and then add destination costs last. The figures below are assumptions chosen to show the order of the calculation; real rates, exchange rates and fees depend on the product and the filing date. The example assumes goods with no internal taxes other than duty. To check what goes into the freight figure, see Ocean Freight Quote: Which Line Items Should You Check?. To see how order volume changes the unit price you start from, read Korea sourcing MOQ and pricing.

Assumptions: FOB goods price KRW 10,000,000 (already converted at the customs exchange rate), freight to the port of import KRW 800,000, insurance KRW 50,000, duty rate 8%, destination costs (THC, broker fee, inland trucking) KRW 300,000.

Step	Calculation	Amount (KRW)
Customs value	10,000,000 + 800,000 + 50,000	10,850,000
Duty	10,850,000 × 8%	868,000
VAT base	10,850,000 + 868,000	11,718,000
Import VAT	11,718,000 × 10%	1,171,800
Destination costs	assumption	300,000
Landed cost (with VAT)	10,850,000 + 868,000 + 1,171,800 + 300,000	13,189,800
Landed cost (after VAT credit)	13,189,800 − 1,171,800	12,018,000

A VAT-registered business recovers the import VAT later as input tax, so for margin purposes KRW 12,018,000 is the better cost figure. At clearance, though, the VAT has to be paid as well, so plan your cash around KRW 13,189,800. For what THC covers, see our THC guide.

Should import VAT be part of landed cost?

For cash flow, yes; for profit and loss, it depends. Import VAT is paid together with duty when you file the import declaration, but a VAT-registered business can claim it as input tax using the import tax invoice issued by customs (VAT Act, Article 38). If you are VAT-exempt or cannot claim the credit, the VAT stays in your cost.

So it helps to show both figures in your costing sheet: landed cost with VAT and after the VAT credit. Whether you can actually claim the credit depends on your business type and how the goods are used, so confirm with your tax adviser.

What mistakes are common when calculating landed cost?

The most common mistake is applying the duty rate to the FOB price only and leaving freight and insurance out of the customs value. Another frequent one is taking 10% VAT on the customs value alone without adding the duty to the VAT base. Both understate the tax and push your real cost above your estimate.

• Missing an FTA preferential rate because the certificate of origin was not ready
• Leaving out destination costs such as THC, broker fees and inland trucking
• Calculating with your remittance rate instead of the customs exchange rate
• Ignoring the charges that build up when clearance runs past the free time (demurrage and detention guide)

FAQ

Do I have to include VAT in landed cost?

Include it in your cash plan, because it is paid at clearance. A VAT-registered business can usually claim it back as input tax and leave it out of its profit-and-loss cost; if you cannot claim it, it stays in the cost.

Is the customs value always the CIF price?

Freight and insurance up to the port of import are additions in principle, so the result is close to a CIF value. If you bought FOB or EXW, add freight and insurance yourself. Under the proviso to Customs Act Art. 30(1)6, part of the freight can be left out for certain goods set out in the Enforcement Rules.

Which exchange rate applies?

The weekly customs exchange rate set by the Korea Customs Service under Article 18 of the Customs Act. It can differ from your actual remittance rate, so check the weekly rate on UNI-PASS.

What changes if I use an FTA rate?

A preferential rate lowers the duty, and because duty is part of the VAT base, the import VAT falls too. You need to meet the agreement’s requirements, such as a valid certificate of origin.

Sources

• Customs Act, Article 30 (principles for determining customs value), Korea Customs Service CLIP
• Customs Act, Article 18 (customs exchange rate), Korea Customs Service CLIP
• Value-Added Tax Act, Article 29 (tax base), National Law Information Center
• Value-Added Tax Act (Article 30 tax rate, Article 38 deductible input tax), National Law Information Center
• Korea Customs Service help center, what is the customs exchange rate? (Korean)