What Is a Customs Bond?

A customs bond is a financial agreement between the IOR, a surety company, and customs authorities. It guarantees that all duties, taxes, and fees associated with importing goods into a country will be paid. Customs bonds are designed to simplify international trade while safeguarding government revenue.

This article discusses the necessity of customs bonds, who needs them, and how they work.  

Reasons for a customs bond

Customs bonds are necessary for these reasons:

Ensuring compliance

A customs bond serves as a guarantee that importers and other parties involved in the trade are compliant with all applicable laws and regulations. Failure to meet these requirements could lead to penalties, confiscation of goods, or lengthy delays. The bond serves as a safety net, compelling these parties to fulfil customs duties and other responsibilities.

Mitigating risks

Customs authorities require bonds to reduce the risk of non-payment. If the importer fails to pay duties or violates regulations, the bond provides the necessary financial security to governments and ensures accountability in trade practices.

Who requires a customs bond?

Customs bonds are required by:

• Importers: When bringing goods into a country, importers must secure a bond to cover potential costs associated with taxes, duties, and penalties.

• Customs brokers: Brokers liaise between importers and customs authorities, often requiring bonds to encourage adherence to customs regulations.

• Transportation carriers: Carriers moving goods through customs, especially in bonded shipments, need to secure customs bonds to guarantee proper handling and payment of duties.

When you need a customs bond

A customs bond is needed in these circumstances:

• High-value shipments: Customs authorities mandate bonds for shipments with significant monetary value to safeguard against potential financial risks, such as non-payment of duties or lost revenue.

• Regulated goods: Importing goods subject to stringent regulations — such as food, pharmaceuticals, and hazardous materials — requires a customs bond to ensure compliance with laws and safety standards.

• Bonded warehouses and foreign trade zones (FTZs): Goods stored in bonded warehouses or moved through FTZs require a customs bond to guarantee payment of duties when the items are brought into the domestic market.

Types of customs bonds

Common types of customs bonds include:

• Single transaction bond (STB): Also known as a Single Entry Bond (SEB), this type of bond is specific to one shipment and covers the duties, taxes, and fees associated with that particular transaction. It must be acquired before each shipment.

• Continuous bond: A continuous bond is used for multiple consignments over a predefined period, typically one year. A payment is needed by the end of each term to renew it. It is an economical option for frequent importers who need to manage ongoing shipments.

• Activity-specific bond: This type of bond is tailored to a specific activity, such as operating a bonded warehouse (warehouse bond) or moving goods through FTZs (FTZ bond). It ensures compliance for unique or specialized operations.

• International carrier bond (ICB): This type of bond is required for carriers, including shipping lines and airlines that transport goods into a country. It ensures compliance with customs regulations and payment of duties. It is tied to the carrier’s operational activities.

• Custodian bond: A custodian bond is required for parties, such as customs brokers and freight forwarders, who assume custody of goods while they are under customs control. The bond guarantees the safekeeping of the goods and ensures compliance with customs regulations.

How customs bonds work

Parties involved

Three key parties are involved:

• Principal: The IOR or party responsible for fulfilling customs obligations.

• Surety: The company issuing the bond and guaranteeing the payment of duties.

• Obligee: The customs authority enforcing import laws and regulations.

Process

These steps are involved in obtaining a customs bond:

• The importer applies for a customs bond through a licensed surety company by filling out a bond application with a customs broker.

• The surety company assesses the importer’s financial health and compliance history to determine the cost of the bond and whether it should be approved.

• After approval, the bond is issued to allow the importer to proceed with shipments.

• The importer must pay the agreed-upon fees, including any duties and taxes specified in the agreement. In case of non-payment, the surety company covers the costs that must be reimbursed later by the importer. 

How the cost is calculated

The cost of a customs bond varies based on several key factors, such as:

• Type of bond: STBs typically cost a percentage of the shipment’s value, while continuous bonds have a fixed annual premium based on the total import volume.

• Bond rate: The percentage of the estimated duties and taxes. For STBs, this is usually between 0.5% to 5% of the duties and taxes owed. For continuous bonds, the rate is typically 0.25% to 2% of the expected annual duties and taxes.

• Industry and commodity type: Certain industries and commodities carry higher risks. For example, regulated goods like alcohol and electronics may increase the bond price due to stricter compliance obligations.

• Importer’s risk profile: Importers with strong financial standing and a history of compliance are often offered lower bond premiums.

• Bond limit: The maximum amount payable by the surety. Higher bond limits result in higher premiums.

Customs bonds in different countries

The laws around customs bonds differ depending on the jurisdiction. Here are some examples:

• The US: Customs bonds are mandatory for shipments valued at $2,500 or more or for regulated goods like alcohol, tobacco, and firearms. Bonds can be secured through licensed surety companies.

• Canada: Canada requires customs bonds for businesses participating in programs like the Customs Self-Assessment (CSA) or for goods stored in bonded warehouses. These bonds ensure payment of duties and compliance with Canadian Border Services Agency (CBSA) regulations.

• The EU: Customs bonds in the EU are required for transit operations, temporary imports, and bonded warehousing. They play a critical role in facilitating trade across member states while ensuring adherence to the Union Customs Code (UCC).