Customs Duty Drawback Guide

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How often does the government pay you? This guide will help you understand the basics of the Duty Drawback program and give you step-by-step instructions so your business can take advantage of any duty refunds available.

What is Duty Drawback?

Duty Drawback is a refund of duties, fees and taxes paid on certain categories of goods imported into the US that are then exported from the US. Similar to how sales tax is refunded when you return an item to a store, you can claim a duty refund when you export an item that was previously imported.

The Duty Drawback Program was originally established by the Continental Congress back in 1789 with the initial purpose of encouraging manufacturing and exports. It has since evolved to include provisions to drawback law that covers more products and commodities.

What are the Different Categories of Customs Duty Drawback?

There are several different categories of Duty Drawback, but the two most common categories are manufacturing and unused merchandise.

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Graphic comparing manufacturing duty drawback and unused merchandise duty drawback

Manufacturing Duty Drawback applies when you import an item that is then manufactured into a different item.

For example, if you import bicycle tires and export finished bicycles, then you can get the duty you paid for the bicycle tires refunded when you export the finished bicycle.

Unused Merchandise Duty Drawback applies when you import something, and then export it in the same, unused condition.

If you import bicycle tires, and then export them again without changing them, then you can get a refund for the duty you paid when you export the tires.

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Who Qualifies for Duty Drawback?

If you import into and export goods from the US, then there’s a good chance you qualify for Duty Drawback. Even if you don’t do both, if importing and exporting happen along your supply chain, you may still be able to qualify.

The driving factor for qualification is the exportation or destruction of goods that were imported. Companies across different industry sectors have taken advantage of drawback as long as they (or their suppliers or customers) import and export in sufficient amounts to sustain a drawback program.

What Duties and Fees are Eligible for Duty Drawback?

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99% of certain duties, fees and taxes are eligible for reimbursement if you are eligible for drawback. Eligible duties for drawback include, but are not limited to:
- Ordinary customs duties, including Section 301 duty
- Merchandise processing fees (MPF)
- Harbor maintenance taxes (HMF)

Duties that are not eligible for drawback include, but are not limited to:
- Antidumping and countervailing duties
- Section 232 duties imposed on aluminum and steel products
- Agriculture products that are over quota

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What is the Duty Drawback Process?

This step-by-step process will show you how to file a duty drawback claim, after your goods have been cleared through Customs.

Send an Application

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Send an application to Customs and Border Protection (CBP)

The application requires sample transaction documents and details about your business operations and is then used by CBP to determine if you are eligible for the drawback program. Accelerated payment can also be requested, but you must have a valid drawback bond with CBP. If the request for accelerated payment is approved, you will typically receive a refund within six weeks of Customs accepting the claim. To learn more about the Customs Clearance process, check out our Customs Clearance Guide that walks you through the step-by-step clearance process.

Read our Customs Clearance Guide

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Gather Documents

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Gather Documents

When you are ready to file, you will be required to gather documentation for CBP. Some of the required documents includes: CBP Form 7501, proof of duties paid, manufacturing records, commercial invoices, proof of import and proof of export or destruction.

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Keep Record

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Keep Record of Your Claims

Accurate and diligent record-keeping is a key component when filing for drawback. After filing, you must maintain all submitted records for an additional three years from the date of drawback claim liquidation. CBP might also contact you for additional documentation, clarifications, or questions about documents that were submitted.

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Things to Consider with Customs Duty Drawback

The Duty Drawback program has the potential to provide companies with significant duty savings, but it might not be suitable for everyone since it is a time-consuming process that requires extensive resources. Having access to the right historical data is key to performing a cost-benefit analysis and ultimately filing for drawback where the return is worthwhile. Although you can self-file, working with an experienced customs broker or trade attorney can ensure information is filed correctly and accurately and help you navigate through the complexities.

How to Get Started

The Duty Drawback program is often underutilized due to the lack of awareness or not knowing where to start. It is a complex process, but UPS^® Trade Advisory Services is here to guide you through the filing process.

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To get started, take the 2-minute questionnaire to help determine your company’s potential for drawback refunds.

Our team of trade professionals will review the questionnaire and be in touch if your situation is a good fit for Duty Drawback.

Fill Out the 2-Minute Questionnaire

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Duty Drawback FAQs

Are Section 301 Duties Eligible for Drawback?

Yes, Section 301 duties are eligible for drawback. Other eligible duties include, but are not limited to, Merchandise processing fees (MPF) and Harbor maintenance taxes (HMF).

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When Is It Worthwhile to File for Duty Drawback?

You could technically file for Duty Drawback to get a refund of any duty paid, even as low as $20. However, there’s a substantial amount of setup, systems integration, permission from Customs and work that goes into filing for Duty Drawback. Because of that, we generally recommend pursuing drawback if you expect at least $100,000 of refunded duties per year. This amount of duty refund helps ensure a good return on investment for the time you’ll need to put into getting everything set up.

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Do I Need to Request Permission from the Government to Claim Drawback?

Yes, depending on the type of drawback you qualify for, there are various applications and rulings that you may be required to file to qualify. These rulings and applications are subject to approval by US Customs and Border Protection (CBP).

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What if My Applications are Pending with CBP, May I File Drawback Claims Pending Those Approvals?

Yes, you may file drawback claims pending approval of the required applications or rulings. However, CBP won’t process or pay those drawback claims until the required applications or rulings are approved.

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We’ve Never Participated in a Duty Drawback Program Before. Can We File Drawback on Past Transactions?

Yes, you may qualify for drawback on import and export transactions that already occurred over the past five years. You can file a drawback claim today for goods that were imported five years ago and exported after the import date.

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When Can I Expect My First Drawback Refund?

We’ve seen clients receive their first refund within six months of first contacting UPS Trade Advisory Services. However, the majority of our clients receive their first refund about twelve months after first contacting us. Now, there’s a lot of variability in time – some controllable and some not. The main variable is how long it takes to get our systems to talk to your systems, having a dedicated information technology team can expedite this process. Drawback, however, does require approvals from the government, and those timelines are less controllable.

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My Company Does Not Do Both Import and Export, but My Supply Chain Does (vendors, customers, etc.) – Can I Still Receive Duty Drawback?

In many cases, you can still receive Duty Drawback even if you are not importing and exporting. For example, if you buy imported products from a US vendor, then export those goods, UPS Trade Advisory Services can work with you and your vendor to set up an agreement to claim Duty Drawback. There’s often concerns about confidential data (cost data, etc.). We’ve navigated this before and can act as the intermediary to keep confidential information safe. In the end, everybody can win as the Duty Drawback is claimed and divided up between the parties without any trade secrets being shared.

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Is There an Option to File for Drawback for One Specific Shipment (or Destruction)?

Yes, but with some additional requirements. For this to be a viable option for a customer, UPS Trade Advisory Services must be engaged prior to the export of the planned shipment (or the destruction of the goods.) Due to the inherent complexities of this type of drawback, it is generally not an ideal option for lower value shipments.

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