CIF vs FOB: Customs Valuation Explained
How much import duty you pay depends on what "value" customs uses for the calculation. CIF and FOB are the two main valuation methods—and they can produce significantly different duty amounts. Here's what you need to know.
The Core Difference
Cost + Insurance + Freight
Duty is calculated on the total of goods + shipping + insurance.
Used by: UK, EU, Australia, Japan, most of the world
Free On Board
Duty is calculated only on the goods value at export point.
Used by: United States (primary)
Why This Matters for Your Wallet
The difference between CIF and FOB valuation directly impacts how much duty you pay. For high-value shipments or expensive freight, the impact can be substantial.
Same shipment, different duty
Goods value:
$5,000
Shipping:
$800
Insurance:
$50
At 10% duty rate:
CIF Country (UK, EU, etc.)
Customs value = $5,000 + $800 + $50 = $5,850
Duty = $585
FOB Country (US)
Customs value = $5,000
Duty = $500
Difference: $85 more duty under CIF valuation. The higher the shipping cost relative to goods value, the bigger this gap becomes.
Which Countries Use Which Method?
| Method | Countries/Regions |
|---|---|
| CIF | UK, EU (all 27 countries), Australia, New Zealand, Japan, China, India, South Korea, Singapore, Hong Kong, most of Africa, most of South America, most of Southeast Asia |
| FOB | United States (primary), Canada (modified FOB for some purposes) |
Rule of thumb: Unless you're importing to the US, assume CIF valuation. The US is the major exception to the global norm.
Don't Confuse Valuation with Incoterms
Here's a common source of confusion: CIF and FOB are both Incoterms (delivery terms between buyer and seller) AND customs valuation methods. They serve different purposes:
As Incoterms (Shipping Terms)
Incoterms define who pays for shipping, who bears risk, and when ownership transfers. Your purchase contract might be "FOB Shanghai" or "CIF London"—this affects responsibility between buyer and seller.
As Customs Valuation
Customs valuation determines the tax base for import duty. This is set by the destination country's law, not your contract. Even if you bought "FOB," you may pay duty on CIF value.
Example: You purchase goods FOB Shanghai (you arrange shipping). You import to the UK, which uses CIF valuation. Even though your contract is FOB, UK customs calculates duty on goods + your shipping cost + your insurance cost.
Complete Worked Example
Importing machinery: UK vs US
Goods value:
$20,000
Shipping:
$3,000
Insurance:
$200
Duty rate:
6%
Importing to UK (CIF):
Customs value = $20,000 + $3,000 + $200 = $23,200
Duty = $23,200 × 6% = $1,392
Importing to US (FOB):
Customs value = $20,000
Duty = $20,000 × 6% = $1,200
Difference: $192 more duty importing to the UK under CIF vs the US under FOB—a 16% increase in duty cost. For high-shipping-cost items, this gap widens further.
Calculate with the Right Valuation Method
Our calculator lets you toggle between CIF and FOB duty bases to match your destination country.
Practical Tips
Know before you ship
Determine your destination's valuation method before finalizing costs. CIF countries will charge duty on shipping, which you need to factor into landed cost estimates.
Document shipping costs
In CIF countries, customs may ask for shipping invoices to determine customs value. Keep freight documentation handy.
Consider shipping mode impact
Air freight costs more than sea freight. In CIF countries, this difference directly increases duty. Sea freight may be doubly beneficial: cheaper shipping AND lower duty.
Don't undervalue shipping
Customs authorities may challenge suspiciously low declared shipping costs. Use actual freight invoices to avoid reassessments.
When Results Can Vary
- Domestic shipping: Only international freight is included in CIF. Domestic shipping from port to final destination is not part of customs value.
- Partial shipments: For split shipments, allocate freight proportionally to each customs entry.
- Related party transactions: Customs may adjust values for shipments between related companies if prices seem artificially low.
- Insurance requirements: Some countries require adding a standard insurance percentage even if you didn't purchase insurance.
Key Definitions
- CIF
- Cost + Insurance + Freight valuation.
- FOB
- Free On Board (goods value only).
- Customs Value
- The value on which duty is calculated.
- Incoterms
- International trade delivery terms.
Frequently Asked Questions
What does CIF mean for customs valuation?
CIF (Cost, Insurance, and Freight) means customs duty is calculated on the total of goods value + shipping cost + insurance cost. Most countries worldwide use CIF for customs valuation.
What does FOB mean for customs valuation?
FOB (Free On Board) means customs duty is calculated only on the goods value at the point of export, excluding international shipping and insurance. The US is the main country using FOB for customs valuation.
Which countries use CIF valuation?
Most of the world uses CIF, including: UK, all EU countries, Australia, Japan, China, India, and most of Asia, Africa, and South America. CIF is the default under WTO rules.
Which countries use FOB valuation?
The United States is the primary country using FOB for customs valuation. A few other countries have FOB-based systems, but CIF is far more common globally.
Does CIF or FOB result in more duty?
CIF results in higher duty because the customs value includes shipping and insurance. For a $1,000 shipment with $200 shipping and 10% duty: CIF duty = $120, FOB duty = $100.
Is CIF the same as the Incoterm?
CIF can refer to both the Incoterm (delivery terms) and the customs valuation method. They're related but distinct. Even if your shipment terms are FOB, you may still pay duty on CIF value if that's your destination country's method.
Can I choose which method to use?
No. The customs valuation method is determined by the destination country's laws, not by your preference or shipping terms. You must use whatever method that country requires.
How do I know which method applies to my shipment?
Check your destination country's customs regulations. As a general rule: importing to the US = FOB; importing anywhere else = likely CIF. When in doubt, assume CIF for conservative estimates.