Landed Cost Formula: CIF + Duty + VAT + Local Charges
The line-by-line landed cost formula, why the customs value base matters, how CIF and FOB stack up differently, and where hidden charges normally hide.
Landed cost is what you actually pay to get an imported unit of stock into your warehouse - not what the supplier's invoice says. Every line matters, and small differences in the customs valuation base or the VAT stacking rule change the final number by 3 to 5 percent. This guide walks through the complete formula and calls out the recurring traps.
The formula, line by line
- FOB value - supplier's invoice at the export port
- + International freight - ocean or air to the import port
- + Insurance - marine/air insurance premium
- = CIF value - the customs valuation base in most jurisdictions
- + Customs duty - duty rate × customs value (CIF in EU/UK/IN/GCC, FOB in US)
- + Import VAT/GST - VAT rate × (CIF + duty) in most jurisdictions
- + Port & terminal handling - THC at destination, per container or per BL
- + Customs brokerage - per-entry clearance fee
- + Inland transport - port to final warehouse
- + Finance cost - LC charges, forex spread, working-capital interest
- = Landed cost
Why the base matters
A 5 percent duty rate is not always 5 percent of the same number. In the EU, UK, India and the GCC, duty is applied to CIF value - so freight and insurance get duty applied on top of them. In the US, duty is applied to FOB transaction value - freight and insurance do not attract duty. On a USD 100,000 shipment with USD 5,500 of freight and insurance:
- EU / UK / India / GCC 5% duty: USD 5,275
- US 5% duty: USD 5,000
VAT/GST is then usually applied to CIF + duty, compounding the effect. A 20 percent VAT on top of a 10 percent duty adds 32 percent to CIF, not 30 percent - because you pay VAT on the duty.
The six places hidden charges hide
- Destination terminal handling (THC) - quoted separately from ocean freight, USD 250 to 500 per container.
- Demurrage risk - if customs clearance takes longer than free time, USD 75 to 300 per container per day. See Demurrage vs Detention.
- Customs brokerage & bond - USD 100 to 400 per entry; bond fee if this is a first-time importer.
- Chassis and drayage - inland trucking rates fluctuate weekly. Get a real quote, not an estimate.
- Regulated-cargo surcharges - fumigation for wood packaging (ISPM 15), cleaning for tanks, reefer PTI inspection for perishables.
- Finance costs - LC charges (see LC Cost Breakdown), forex spread on payment, and working-capital interest between payment and sale.
Worked example: 20ft container, EU import
USD 100,000 FOB, USD 4,500 freight, USD 500 insurance, HS-tariff duty 8 percent, VAT 20 percent, USD 400 THC, USD 250 brokerage, USD 800 inland transport, USD 1,500 LC cost:
- CIF = 100,000 + 4,500 + 500 = 105,000
- Duty (8% of CIF) = 8,400
- VAT (20% of CIF + duty) = 20% × 113,400 = 22,680
- Local charges = 400 + 250 + 800 + 1,500 = 2,950
- Landed cost = 139,030 USD - 39% uplift on FOB
Model it before you buy
The Landed Cost Calculator handles the full formula for every major destination, with the correct duty base per country and VAT/GST stacking rules preset. For the duty component alone use the Import Duty Calculator. To compare CIF vs FOB quotes on the same shipment, use the CIF vs FOB Calculator.
Frequently asked questions
What is the landed cost formula?#
Landed cost = FOB value + international freight + insurance + customs duty + import VAT/GST + port and terminal handling + inland transport + brokerage + finance cost. Duty is applied to the customs value (usually CIF); VAT/GST is usually applied to CIF + duty. The formula compounds - a 10 percent duty and 20 percent VAT together add 32 percent to CIF, not 30 percent.
What is the difference between CIF and FOB landed cost?#
FOB is the price to the export port only - no freight, no insurance. CIF adds international freight and insurance to arrive at the border. Landed cost adds every downstream charge to CIF: duty, VAT, terminal handling, inland transport, brokerage. Comparing supplier quotes: always convert to CIF or to full landed to avoid comparing apples to oranges.
How does the customs valuation base change the formula?#
The EU, UK, India and the GCC use CIF as the duty base. The US uses FOB (transaction value at the port of export). On a USD 100,000 shipment with USD 5,000 freight and USD 500 insurance, EU duty at 5 percent is USD 5,275 (5% of 105,500) while US duty at the same 5 percent is USD 5,000 (5% of 100,000). VAT/GST in CIF-based jurisdictions is then charged on CIF + duty.
How do I model landed cost before I buy?#
Get a quote from the supplier in CIF or FOB terms, add each downstream charge with its own line, and apply the correct duty rate for the destination HS code. The Landed Cost Calculator handles this per-country with default duty tables and lets you override any line. Cross-check with the Import Duty Calculator for the exact CIF vs FOB base.