Inclusion of Raw Material Financing Interest in the Customs Valuation of Imported Apparel Released

Definition of Price Actually Paid or Payable and the Nature of Manufacturing Interest

The core issue of your inquiry concerns how to treat interest expenses separately itemized on a commercial invoice when determining the customs value of imported goods. According to Article 30 of the Korean Customs Act, the customs value is determined based on the transaction value—specifically, the price actually paid or payable (PAPP) by the buyer to the seller for the goods, adjusted by statutory additions.

In this case, the fabric purchase costs and the associated bank loan interest incurred by Seller S to manufacture the clothing are fundamentally components of the "manufacturing cost." Even if the interest amount is specified separately from the price of the goods on the invoice, the essence of this cost is merely a transfer of the production expenses incurred by the seller to the buyer. Therefore, the payment made by you (Buyer B) to the seller must be viewed as part of the total amount, including indirect payments made to or for the benefit of the seller as a condition of sale for the imported goods.

The Critical Difference Between Deferred Payment Interest and Manufacturing Interest

Under customs valuation principles, the types of "interest" that can be excluded from the customs value are strictly limited. A concept that may cause confusion is Deferred Payment Interest. This refers to financing costs paid by the buyer to the seller in exchange for delaying payment after the shipment or delivery of goods. To be excluded from the customs value, deferred payment interest must meet the following requirements:

• The interest must be distinguished in writing from the price actually paid or payable for the goods.
• The financing agreement must be executed in writing.
• The interest rate must not exceed the prevailing market rate.
• The goods must actually be sold at the price specified on the invoice.

However, the interest in this case is not a charge for a financial benefit due to a payment delay, but rather an amount intended to recover costs incurred during the manufacturing process. This is part of the price of goods itself, not a charge for financial services provided for the buyer's payment convenience. Consequently, such manufacturing-related interest does not meet the requirements for deferred payment interest and is not eligible for deduction from the customs value.

Customs Valuation Guidelines and Compliance Considerations

According to the Public Notice on the Operation of Customs Valuation and the WTO Customs Valuation Agreement, interest on funds raised by a seller for their own production activities is treated as one of the components of the selling price. If this is excluded from the declared customs value, it may lead to an investigation for under-valuation, resulting in the collection of additional taxes and the imposition of penalty surcharges.

In conclusion, although the "interest on fabric purchase costs" listed on the invoice for your imported apparel is labeled as interest, it is effectively part of the price of the goods. Since this amount is charged by the seller to recover manufacturing costs, the correct procedure under the Customs Act is to declare the total amount, including this interest, as the customs value. When filing your import declaration, please ensure that the total price actually paid or payable matches the total invoice amount.