What are royalties and licensing fees?
Royalties are usage-based payments from one party to another. Licensing fees are paid as part of an agreement that define the terms under which a tangible property is licensed for use by one party to another.
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Royalties are usage-based payments from one party (a “licensee”) to another (the “licensor”).
Licensing fees are paid as part of an agreement that defines the terms under which a tangible property is licensed for use by one party (a “licensor”) to another (the “licensee”).
Royalties and license fees are generally paid on:
- Items consisting of an imported product with any of the above
All goods imported into the US must be appraised.
Transaction values are Customs’ preferred methods of appraisement. They are defined as “the price actually paid or payable for merchandise when sold for exportation to the US” plus certain enumerated additions.
Royalties and licensing fees can be part of these additions and are thus dutiable by Customs.
When are royalties and licensing fees dutiable?
Royalties or licensing fees that a buyer must pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States are added into the goods’ transaction value. Ultimately, whether these additions are dutiable will depend on:
- Whether the buyer had to pay them as a condition of the sale; and
- To whom and under what circumstances they were paid.
What factors does U.S. Customs consider to determine if fees are dutiable?
- Was the merchandise manufactured under patent? If so, the fees are dutiable.
- Was the royalty involved in the production or sale of the merchandise? If so, the fees are dutiable.
- Could the importer have bought the product without paying a fee? If not, the fees are dutiable.
- Payments for the right to manufacture a good are dutiable.
- Payments for the right to export a good are dutiable.
- Payments that are at all a part of the price paid or payable are dutiable.
- Payments for the right to sell the good in the destination country might be dutiable.
- Payments for the right to reproduce the good in the US are generally not dutiable.
- Payments to an unrelated third party who is separately called in to handle exportation are not dutiable.
Dutiable statuses are decided on a case-by-case basis.
Customs requires a copy of all royalty and license agreements when goods are being imported into the U.S.
If you have questions about this, contact your Flexport team!