10 things you need to know about import duty financing

What is Import duty?

Import duty is a tax imposed by a country’s customs authorities on imports and some exports in order to raise revenue for the government. Import duty may also be referred to as customs duty, tariff, import tax, or import tariff.

What is import duty financing?

Import duty financing is a great way to get your products into the country without having to pay for them first. This can be a huge advantage when you are importing from overseas and need some extra time to find the right buyers before you have to put down money. Because import duty financing is not a loan, it doesn’t require any credit checks. The best part? You get to import more goods than you would have been able to afford with cash savings.

1. Who can use import duty financing?

Import duty financing can be used by both businesses and individuals who are importing goods into their country. Import duty financing is a powerful tool for importers to use when they need an extra boost of cash flow. Import duty financing is great for import companies, startups, or even those looking to import a few expensive items they would not have been able to afford otherwise. This method of importation allows you to import more products than if you paid with cash savings.

It’s perfect for those who are selling products that have high import duties, or if you plan on purchasing goods from overseas and want the ability to pay over time. Import duty financing is beneficial for businesses of all sizes. If your business is starting out and lacks the capital, import duty financing can help finance some or all of the importation duties so that you are able to import the goods you need to get started.

This type of financing is beneficial because its interest rates are typically lower than those for traditional loans and, unlike cash down payment on the importation, there is no risk involved if your business fails as with other forms of import duty factoring or import finance.

2. How does Import Duty Financing work?

Importing duty financing works mainly using invoice factoring technology. Invoice factoring entails selling import documents to the import duty financing company. The business can then use those funds for any purpose, such as importing more goods or making other investments in their business. If they have a good relationship with their financier, they may also be able to access additional funding from them at a later date if needed. Many import duty financing institutions such as Mwananchi Credit Limited use this technology to help individuals and SMEs in Kenya to increase their ability for quick and effective credit decisions.

3. How Much Can Be Financed?

The import duty financing company can finance all or part of the import duties that have been paid to customs. The amount is usually based on a percentage of the invoice value, and sometimes it may be calculated as a flat fee.

What documents are needed for import duty financing?

You will need an official copy from your supplier showing how much you owe them in total. You also must provide proof of payment such as bank statements etc, so they know when this money came out of your account. If you don’t have these documents immediately available but plan to get them soon then let the lender know ahead of time.

4. Is It Expensive to Use Import Duty Financing?

Basically, interest rates on import finance are often cheaper than those on regular loans. For example, import duty financing can be cheaper than taking out a high-interest rate credit card to pay for an import.

Import Duty Financing Is the Cheapest Way to Import Goods

It’s also much easier and quicker to secure import finance online or over the phone compared with other forms of funding due to its quick application process which often only takes around 1 hour. Interest rates are usually lower too making it great value for money in comparison to some other types of loans on offer today.

Could My Business Fail While Using This Type of Finance?

The short answer is yes but that would be true if you were using any type of loan so there isn’t really anything special about this fact when it comes down to your business’s ability.

5. How much is import duty in Kenya?

Kenyan tax to be paid conform to international conformity assessment (HS) of goods categorization and Africa (Comesa (EAC) Common External Levy.

Duties and Taxes:

Taxes are due based on the value of the imported goods and the appropriate tax rate.

Tariffs

The East Africa Community Common External Tariff provides for import taxes ranging from 0% to 25% depending on the goods (CET). However, sensitive commodities attract a duty of above 25%. Schedule 2 of the EAC Common External Tariff lists the sensitive products.

Excise Tax

Imports are subject to excise duty if excisable. The Excise Duty Act 2015 sets the rates.

VAT (VAT)

The normal VAT rate is 16%. However, items exempt from VAT under the 2013 VAT Act are charged at 0%.

IDF & RDL (RDL)

Under the various Fees and Levies Act of 2016, 2% import declaration fees and 1.5%, Railway Development Levy are imposed on the value of imports.

6. What are major imports in Kenya?

Crude oil, chemicals, industrial goods, equipment, and automotive parts are the most important shipments. Kenya’s greatest global demand is in Africa, followed by the Eu Countries. Kenya’s biggest import partners include China, Pakistan, the Emirates, Zimbabwe, Arab Emirates, the United States, and the Japanese

7. How do you clear imported goods in Kenya?

Any imported goods, such as vehicles, machinery, or basic commodities, must be cleared by a qualified customs clearing agency. When working with your preferred clearing agent, be sure to always supply import credentials such as: Regarding regulatory items, a Certification of Compliance (CoC) from of the PVoC agency; whenever appropriate, an importing standard mark (ISM);

  • Pro Forma income invoices from the exporting company that are legitimate.
  • Trade Invoice from the office or workplace that is valid
  • Bill of Contract of carriage (sea or air)
  • Country certification
  • If the logbook is not in English, it should be transcribed to English (motor vehicle)
  • Valid driving and ownership licence
  • Identification Card Number (PIN) or Employer Identification Number (TIN) (PIN certificate)
  • Declaration of exclusion (in case goods are exempted)
  • Contracts/Purchase Orders
  • Automobile Vehicle inspections Certification
  • Checklist for Preparing
  • Payment Correspondence (if available)

8. What are the benefits of using import duty financing?

There are many benefits to import duty financing and they include:

  • Not having the down payment means you can import goods without affecting your cash flow too much
  • With import duty financing there is no guarantee that your business will succeed so it’s less risky for lenders compared to traditional loans which usually require a repayment even if the business fails. They may also be able to recover some of their money through other assets like property etc.
  • Interest rates on import duty financing tend to be lower than those offered by banks or other sources for traditional finance because these types of loans have a higher risk attached. This makes them better value for money as well as being easier and quicker to apply online or over the phone, taking around an hour in most cases.
  • Enable the importer to avoid high storage and demurrage charges at the port
  • Enable the importer to avoid the auction of goods imported, due to non-payment of duty.
  • Enable importers who import expensive items like cars to avoid paying large down payments on their purchase which would otherwise be required by vendors
  • Import Duty Financing can help businesses import goods they couldn’t otherwise afford
  • The benefits of using import duty financing include being able to import more goods without needing a large cash deposit

9. What are the disadvantages of using import duty financing?

There are a few disadvantages of import duty financing. One is that you don’t own the goods until they are paid for in full, so if your business fails or something goes wrong with the import, then you might end up losing them.

Secondly, import duty financing is riskier than most other types of loans so these are not suitable for everyone. Individuals need to be over the age of 18 and hold a bank account with an accepted lender, as well as have an income that will last at least three months after applying for the finance.

Another disadvantage is that interest rates can fluctuate based on changes in currency exchange rates while the loan isn’t being repaid which increases volatility risk for importers while their debt isn’t yet fully repaid. This means it’s a good idea to repay as quickly as possible to avoid these fluctuations making repayment more difficult than expected.

It’s important to understand that import duty financing comes with short repayment periods which could mean smaller repayments, but these need to be made on time for your loan provider. If you miss a single payment it will affect the good credit rating of your business and result in higher interest rates or fees applied when applying for future import duty financing or other types of funding. It’s also possible that missed payments may lead to the cancellation of import duty finance contracts so always ensure you can pay back what you owe before committing yourself financially.

Frequently asked questions (FAQs) about import duty financing

How is Import Duty calculated?

The following is the formula for calculating the fees:
Your vehicle’s CRSP will be provided by KRA.
The import duty is equal to 25% of the CRSP.
Excise duty is equal to 20% of the CRSP plus import duty combined.
VAT accounts for 16% of the CRSP plus import duty and excise duty.
The IDF Fee accounts for 2.25% of the CRSP.

Can import duty be deferred on imported goods?

Who can apply for import duty financing and what are the requirements needed before applying? Is a business required to own their premises or office building before they can qualify for import duty finance?
Others require the company to actually own a place of business prior to making any loans available. On the contrary, Mwananchi Credit LTD may allow importing companies that don’t yet own property but do rent an office space to qualify for Import duty Financing.


Who can apply for import duty financing and what are the requirements needed before applying?

Is a business required to own their premises or office building before they can qualify for import duty finance?
Others require the company to actually own its place of business prior to making any loans available. On the contrary, Mwananchi Credit LTD may allow importing companies that don’t yet own property but do rent an office space to qualify

What is custom duty?

Customs duty is the charges applied on goods that are being transported across borders internationally. The custom duty applies to both exported and imported goods across all countries. There are no fixed rates for customs duties since custom duty keeps on changing depending on the rates, policies, and procedures for each of the respective countries.

What is import duty tax?

Import duty is a tax imposed by a country’s customs authorities on imports and some exports in order to raise revenue for the government. Import duty may also be referred to as customs duty, tariff, import tax, or import tariff

What does it cost to ship a car from Japan to Kenya?

Importing an automobile from Japan to Kenya would cost users approximately 30 and 60% of the car’s value. For instance, a vehicle in Japan with a selling value of Ksh. 500,000 may cost you about Ksh. 240,000 in import tariffs just.
The customs duties cost does not include taxes such as registrations, marine duty, shipping fees, fuel, and driving configurations. You must also budget for delivery, import service charges, equipment, and insurance coverage.
It is, therefore, necessary to establish whether the automobile complies with the Kenya Board of Standards code of conduct and motorized vehicles evaluation, guaranteeing that the car satisfies safety regulations quality.

What is excise duty in Kenya?

In Kenya, excise duty, sometimes known as “compulsory levy,” is an additional tax. Import or export or local production of specific items, as well as the provision of excise tax service Indirectly, indicates that the KRA collects the duty also on producer or supplier, who would then transfer that on to the customer by including it in the price of the goods. National excise duty is collected on a regular basis or upon the introduction of products.

10. Conclusion

Import duty financing is a way to finance all or part of the import duties on an imported item. This type of financing can be used by both businesses and individuals who are importing goods into their country. The benefits of using this type of financing include being able to purchase the good without having the down-payment, the ability to import more goods than you would have otherwise been able to afford with cash savings, no guarantee that your business will succeed so it’s not as risky for lenders, interest rates are usually lower than those for traditional loans because there isn’t any collateral involved in these types of transactions. A disadvantage could be if importers don’t pay off their balance at some point during the repayment period then they’ll be charged late fees.

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