Is declaring the invoice amount enough?
China Import Customs Valuation Guide: Freight, Insurance, Molds, Royalties, and Free-Issue Materials

Hello, this is Green Frog Seoul.

“The factory invoice is USD 10,000, so isn’t the customs value also USD 10,000?”
“We paid for the mold separately from the product price. Do we need to declare that too?”
“We supplied fabric and components to the factory free of charge, but they are not on the finished-goods invoice.”
“It is a sample, so we listed it as USD 1. Why is Customs asking for evidence of value?”

When importing goods from China, many people assume that the amount shown on the Commercial Invoice is automatically the basis for customs duties. An invoice is an important starting point for customs value, but it is not always the final answer. If it omits amounts paid outside the product price, materials or molds supplied to the factory free of charge, freight and insurance to the port of import, or royalties that meet certain conditions, the customs value you must declare may be higher than the invoice amount.

Conversely, where a transaction uses a DDP price that bundles costs such as post-arrival transport in Korea and duties, some clearly distinguished costs may need to be adjusted. What matters is not a single invoice, but the entire transaction, viewed through the contract structure, payment flows, logistics flows, and production support provided.

Customs value is not simply “the declared value you asked the factory to write down.” In principle, it starts with the price actually paid or payable for goods sold for export to Korea, adds any required elements not already included, and adjusts clearly distinguished deductible elements.

This guide covers the basic transaction-value structure; the six statutory additions; indirect payments and buying commissions; allocation of molds, design, and free-issue materials; the two tests for royalties; freight and insurance to the port of import; deductible elements; Methods 2 through 6 for free samples and non-sale goods; supporting documents to prepare; and the APR and ACVA advance rulings.

1. Starting point for customs value: how transaction value is determined

For ordinary import sales, the transaction value method, commonly called Method 1, is generally the starting point. In simplified form:

Transaction value = price actually paid or payable + additions not yet included − deductible elements included in the price actually paid or payable and clearly distinguished

The price actually paid or payable is not limited to the number printed on the invoice. It includes not only the product price paid directly by the buyer to the seller, but also amounts paid to a third party for the seller or at the seller’s direction as consideration for the imported goods. The same amount, however, must not be added twice because it appears both on the product invoice and in a separate remittance record.

To apply Method 1, the goods must first be sold for export to Korea. The transaction value may be difficult to use as-is where, for example:

• there are restrictions on the disposition or use of the goods that affect acceptance of the transaction value;
• the sale or price is affected by conditions or considerations that cannot be valued in monetary terms;
• a portion of proceeds from resale after import will accrue to the seller but cannot be objectively adjusted;
• a special relationship between the buyer and seller has influenced the actual import price; or
• objective, quantifiable evidence supporting amounts that must be added is insufficient.

The fact that the buyer and seller are related companies does not automatically disqualify the transaction value. The key question is whether the relationship influenced the price. Related-party transactions may nevertheless require additional materials, such as pricing policies, comparable prices, costs, and profit data.

2. Price actually paid or payable and indirect payments: substance matters more than the remittance memo

When money moves outside the product invoice, first determine whether it is an indirect payment. Labeling it a consulting fee, development fee, compensation, or settlement payment does not automatically exclude it from customs value.

The following payments may need to be reviewed for inclusion in the price actually paid or payable:

• amounts the buyer pays on the seller’s behalf to the seller’s raw-material supplier or another creditor at the seller’s request;
• amounts offset between the price of the imported goods and a debt the seller owes the buyer;
• amounts due to the seller that are remitted to an affiliate or designated third party;
• arrangements under which the buyer separately bears the seller’s costs in exchange for a lower product price; and
• post-import price adjustments or separate settlement payments connected to the price of the imported goods.

That does not mean every payment sent overseas is dutiable. You must distinguish payment for an independent service unrelated to the imported goods, a payment made for the seller, a cost that should instead be classified as a production assist or royalty, and a cost already reflected in the product price.

Review the contract first for discounts and credit notes

It can also be risky to deduct an amount from customs value simply because it is called a discount. Confirm when the discount terms were agreed, whether they are reflected in the actual amount paid, and whether they are tied to another obligation. If the price is adjusted after import, consider separately whether a provisional-value declaration or final-value declaration is required.

3. The six additions to transaction value

The following items may be added to customs value to the extent they are not already included in the price actually paid or payable. Do not mechanically add all six to every import. Instead, determine separately whether the cost actually exists, relates to the imported goods, and can be objectively calculated.

Buying commissions are excluded, but the label alone does not decide the issue

A genuine buying commission paid by the buyer to an agent acting for the buyer’s benefit, such as by locating suppliers, negotiating prices, or managing orders overseas, is excluded from dutiable commissions and brokerage. But writing “Buying Commission” in a contract is not enough.

Review the agent’s actual role: whom it works for, its relationship with the seller, whether it bears inventory or price risk, whether it takes title to the goods, and how it is compensated. If it acts for the seller or functions as a party to the transaction, the conclusion may differ from its label.

Check separate invoices for containers and packing as well

If the product price excludes containers that are imported with the goods, such as cases, bottles, and boxes, or the cost of packing materials and packing labor, review whether they must be added. It is best not to combine, as one cost, repackaging for retail sale after arrival in Korea and packing performed at the Chinese factory before export.

4. Molds, design, and free-issue materials: a zero-value factory invoice does not erase value

In China OEM and ODM transactions, production assists are among the items most often missed. When a buyer provides goods or services needed to produce and export imported goods to the factory free of charge or below normal cost, their cost may not appear on the factory invoice. Yet because they were actually used in producing the finished goods, they need separate consideration in customs value.

Common production assists include:

• raw materials, components, semi-finished goods, labels, and parts incorporated into the finished goods;
• molds, dies, jigs, tools, and similar equipment used in production;
• materials consumed during production; and
• offshore engineering, development, design, artwork, and similar services necessary to produce the imported goods.

For example, suppose a Korean buyer purchases fabric and electronic components directly from Chinese suppliers, sends them free of charge to an assembly factory, and the assembly factory invoices only its processing charge and some material costs. Declaring only the finished-goods invoice may omit the value of the free-issue materials separately borne by the buyer.

For mold costs, first break down the payment structure

Depending on the structure of the transaction, a mold cost may need to be reviewed as part of the price actually paid or payable, a production assist, or a cost of another character. Start with these questions:

• Was the mold paid to the seller of the finished goods or to a separate mold maker?
• Who owns the mold, and which factory uses it?
• Is the mold cost already included in the finished-goods unit price?
• Which products and models use it?
• What are the expected and actual production quantities?
• Is it also used to produce goods other than those imported into Korea?

Should the full amount go into the first shipment or be allocated across imports?

Production assists should be allocated to the relevant imported goods using a reasonable and consistent basis. In practice, calculate an amount by product and shipment based on expected total output, contracted production quantity, actual production, period of use, accounting treatment, and other relevant information. If the underlying assumptions change, revisit the cumulative allocation.

If production increases or decreases materially from expectations, the mold is used for other models, or it is discarded early, do not leave the initial calculation unchanged. Review the actual facts and whether an adjustment is needed. Tracking the allocation basis, applicable products, cumulative output, and cumulative additions in a table from the beginning makes it easier to apply the same logic to every import declaration.

For design fees, examine who performed the work, where, and for what purpose

Design and development costs are not automatically added in full or excluded in full. Confirm whether the work is necessary to produce the imported goods, where it was developed or performed, who bore the cost, and whether it is already included in the factory’s unit price. Rather than treating Korean and offshore design alike, it is safer to review the contract, work product, and payment evidence together.

5. Royalties: payment alone does not mean they must be added

Paying for the use of a trademark, patent, design right, technology, or similar right does not automatically put every royalty into customs value. In general, confirm both of the following:

1. Relationship to the imported goods: Is the right being paid for related to the imported goods themselves, their method of production, their trademark, design, or similar feature?
2. Condition of sale: Is payment of the royalty a condition of purchasing the imported goods?

A royalty is not automatically excluded merely because the recipient is a foreign brand headquarters or another related company rather than the Chinese seller. Conversely, it is not always added merely because it is paid to a company in the same group as the seller. Consider the link between the license and supply agreements, the freedom to choose suppliers, whether the import transaction would be possible without payment, and the relationship between the rights holder and seller.

A percentage of sales does not by itself determine the result

The fact that a royalty is calculated as a percentage of Korean sales only describes how the amount is calculated. You must still determine separately whether it relates to the imported goods and is a condition of sale. If one agreement combines rights related to imported products with domestic advertising, training, or separate services, also confirm whether the amounts can be distinguished using the agreement and objective evidence.

Where the royalty amount is not fixed until after sales, the addition may not be known when the import declaration is filed. In that case, consult a customs broker in advance about whether provisional-value declaration and post-import finalization procedures are needed.

6. Freight and insurance: add costs to the port of import, separate post-arrival costs

Customs value generally reflects freight, insurance, and other transport-related charges to the port of import. Under FOB terms, international freight and insurance are likely to sit outside the invoice; under CIF terms, they are likely already included in the product price.

Do not reach a conclusion from the Incoterms label alone. Even with FOB, the buyer may separately bear inland transport costs in China; even with CIF, additional transport costs or later settlements may arise. Review both the contract terms and the actual amounts borne.

If domestic transport, domestic insurance, or warehouse-transfer costs after arrival at the port of import are mixed into an all-in transport quote, ask the forwarder for a segment-by-segment breakdown. A quote showing only a total makes it difficult to distinguish costs to add from costs to adjust.

7. Deductible elements: you cannot subtract a cost simply because it is included in the price

Where the following costs are included in the price actually paid or payable and are clearly distinguished and verifiable in the contract or invoice, they may be adjusted out of customs value.

If a supply agreement merely says “installation included” without separating product price from installation cost, it can be difficult for the importer to deduct an amount unilaterally. From the contracting stage, it is better to list the product, overseas transport, domestic transport, installation, and taxes as separate items.

8. Free samples and non-sale goods: listing USD 1 does not make the customs value USD 1

For genuine free samples, gifts, donated goods, leased goods, or loaned goods where there is no sale for export to Korea, Method 1 based on the price actually paid or payable may be difficult to apply. That does not make the customs value zero.

Here too, the substance of the overall contract matters more than the label. Goods provided as “10 free units with every 100 purchased,” for example, may be interpreted not as separate free samples but as a pricing condition for the total quantity. Do not look only at the line marked free. Review the annual agreement, promotion terms, total payment, and total quantity supplied together.

Methods 2 through 6 to consider when Method 1 is unavailable

These methods are not options that let the importer choose the lowest value. In principle, review them in order, beginning with whether an earlier method can be applied. The application order of Methods 4 and 5 may change in accordance with legal requirements and at the taxpayer’s request.

9. Evidence protects your customs value: connect contracts, payments, logistics, and accounting in one line

Customs-value issues are often decided by supporting evidence rather than by the number itself. For the same cost, you need to be able to explain under which contract it was paid, to whom, and why.

Create a one-page customs-value adjustment sheet

For each import declaration number or shipment, it is helpful to prepare an adjustment sheet that shows:

1. invoice amount and settlement currency;
2. direct and indirect payments outside the invoice;
3. for each of the six additions, whether it is included, paid separately, or not applicable;
4. allocated amounts for molds and free-issue materials, with calculation support;
5. clearly distinguished deductible elements; and
6. final declared customs value and the exchange-rate materials applied.

Rather than leaving zero-value items blank, record “not applicable” and the basis for that conclusion. This supports consistent declarations even when personnel change and makes it easier to explain later what documents were reviewed.

10. If uncertain, confirm before importing: APR and ACVA advance rulings

If you repeatedly import under a structure that is difficult to assess, such as mold costs, royalties, indirect payments, free imports, or related-party pricing, consider an advance customs valuation ruling rather than trying to resolve the issue after the first shipment.

General advance ruling: APR

APR is the Korean Customs Service’s general Advance Customs Valuation Ruling process. Before a value declaration, an importer may seek a determination in ordinary import transactions where there are questions about the price actually paid or payable, additions and deductions, transaction-value requirements, or the valuation method when Method 1 cannot be used.

Related-party advance ruling: ACVA

ACVA is the Advance Customs Valuation Arrangement for importers that conduct ongoing transactions with related parties, such as an overseas headquarters or affiliate. It allows advance review of the effect of the special relationship on price, applicability of Methods 1 through 6, additions and deductions, and the method for determining customs value.

An advance ruling is different from general consultation on an abstract question. It is a procedure for obtaining a determination based on actual materials, including supply agreements, pricing support, business structure, and payment flows. The result is premised on the submitted facts and transaction terms, so reconsideration may be necessary if the contract, pricing policy, or transaction structure changes.

11. Practical customs-value checklist

Before placing an order or signing a contract

• The supply agreement clearly states the product price, Incoterms, payment terms, and price-adjustment terms.
• All separate contracts for molds, design, royalties, commissions, inspection fees, and other costs outside the product price have been collected.
• The existence of a special relationship between buyer and seller and its impact on price have been reviewed.
• Samples and gifts have been checked to determine whether they are truly free transactions or pricing terms under the overall purchase agreement.

During production

• A list has been created of raw materials, components, labels, and molds supplied to the factory free of charge or at a reduced cost.
• The factory has confirmed in writing whether mold and design costs are included in the product unit price.
• The applicable products, expected production quantities, and allocation basis for production assists have been recorded.
• Shipment quantities, factory receipts, and product-level usage of free-issue materials have been linked.

Before shipment and import declaration

• Direct and indirect payments outside the invoice have been reconciled against foreign-currency remittance records.
• Actual agency work has been reviewed to determine whether a commission is a genuine buying commission.
• Both the relationship of royalties to the imported goods and their condition-of-sale status have been reviewed.
• It has been confirmed whether freight and insurance to the port of import are included in the invoice.
• Documents clearly distinguishing post-arrival transport costs and taxes have been obtained.
• For free and non-sale goods, the grounds for the applicable method among Methods 2 through 6 and comparable materials have been prepared.

After declaration

• Differences between provisional freight, royalties, price adjustments, and final amounts have been reviewed.
• Actual production quantities and cumulative allocated amounts for molds and production assists have been updated.
• Contract, remittance, logistics, and accounting records are retained by import declaration number.
• If recurring imports carry substantial uncertainty, the need for an APR or ACVA has been considered.

Conclusion: the invoice is not the answer, but the first line of the customs-value calculation

The riskiest assumption in China import customs valuation is: “We declared the invoice the factory gave us, so we are done.” Even where an invoice accurately shows the actual product price, it may omit separately paid mold costs, free-issue materials, qualifying royalties, freight borne by the buyer, or indirect payments.

Conversely, automatically adding every overseas payment is not the answer either. You must distinguish genuine buying commissions, independent services unrelated to the imported goods, royalties that meet both tests, and amounts already included in the product price. The core of customs valuation is not producing a higher or lower value, but explaining the actual transaction through consistent documentation and calculations.

Before ordering, organize the contract and cost structure. During production, record molds and free-issue materials. Before shipment, reconcile freight, insurance, and separate remittances once more. For recurring transactions where the analysis is difficult, consultation with a customs broker or an APR or ACVA advance ruling can reduce uncertainty.

Green Frog Seoul helps Korean importers organize transaction documents into a form that is easier to review with customs experts, including verifying contracts and unit-price structures with Chinese suppliers, requesting information on molds and free-issue materials, mapping product-level cost flows, and preparing evidence for freight and royalties. Confirm the final customs value and declaration method with a customs professional based on the actual transaction documents.