What is a Customs Bond?

Customs Bond

If you're new to the imports business, then you know that you're going to be hearing the phrase "customs bond" and “customs bonding” quite a bit in the years to come.
In the simplest terms, a customs bond functions as an insurance policy. A customs bond ensures that the U.S. government will be paid all required duties and taxes by your import business, even under extreme circumstances where your business cannot pay them directly. Once you've purchased a customs bond, your imported goods become "customs bonded."
There are different kinds of customs bonds available for import businesses. Read on to get the most relevant and up-to-date information concerning the different types of customs bonds available and the easiest way to handle customs bonding for your import business.

How Do Customs Bonds Work?

Since you're new to customs bonding, let's spend a little bit of time dealing with how these required insurance instruments work. When you purchase a customs bond, there are three interested parties.
The first interested party is U.S. Customs & Border Patrol; they want to make sure that your business can pay all required duties and taxes to import your goods into the United States.
The second interested party is your import business, referred to as the principal. The interested third party in the transaction is the surety, which is the financial guarantee within the customs bond that pays all of the relevant duties and taxes incurred when your company imports goods overseas into the United States.

When Do Customs Bonds Take Effect?

The most important rule you need to understand for customs bonding is that the customs bond only comes into effect when your company, as the principal, is for any reason unable to pay the duties and taxes that would normally come due on imported goods.

Under normal circumstances, when your import business is operating smoothly, you as the principal are required to directly pay all relevant duties and taxes incurred by the act of importation.

If, for example, your imports business went bankrupt while there were still goods in transit and you couldn't pay all relevant duties and taxes, the customs bond would take effect, paying all the duties and taxes even if you didn't have the funds at your disposal.

In this extreme scenario, the customs bond helps you (the principal) ensure that you don't incur any further fees or penalties. It helps the CBP by paying all taxes and duties on your customs-bonded goods, allowing them to cross the border without incident.

Which Customs Bond Is Right For Me?

Customs Bond

There are two main types of customs bonds; for importers who are new to the world of customs bonding. In this section, we'll spend a little time dealing with each one.

Continuous Bonds

The most popular category for customs bonding is a continuous bond. A continuous bond is purchased by the principal, either directly from the U.S. government or through a third-party customs broker or shipping company.
A continuous bond protects all of the goods imported into the U.S. by the principal annually, with the continuous bond coming up for renewal at the end of 12 months. Under a continuous customs bond, all of your goods are considered customs-bonded for the entirety of the 12-month window.
For most import businesses, continuous bonds are a standard insurance instrument for day-to-day operations. There are several kinds of continuous bonds for customs bonding imported goods, including drawback bonds, FTZ bonds, and warehouse bonds.

Different Types Of Continuous Bonds

The following are the different types of continuous bonds:
FTZ Bonds
FTZ stands for foreign trade zone. FTZ bonds are customs bonds that protect goods at the U.S-. administered overseas ports that facilitate international trade. Foreign trade zones are located worldwide, as well as in all 50 U.S. states and Puerto Rico.
Warehouse Bonds
With a warehouse bond, imported goods can be stored for a specified period at a bonded warehouse without incurring additional taxes or duties. Warehouse bonds are a popular option for companies with extensive international operations and complex supply chains.
Drawback Bonds
A drawback bond is a type of continuous bond that protects the importer from drawback. Drawback refers to the exportation or destruction of imported goods. With a drawback bond, if a third party destroys an importer's goods, the bond issuer would refund all the relevant taxes, duties, and fees incurred by the original importation of the destroyed goods.
Customs Import Bond
The Customs Import Bond is a type of guarantee that the importer or exporter must provide to cover the duty and taxes on products being imported into the United States. The import bond guarantees payment even if there are unforeseen circumstances such as bankruptcy, fraud, or other situations that could cause a business to go out of business before their obligation has been met.

Single-Use Bonds

The second type of customs bond is a single-use bond, sometimes referred to as a transactional bond. A single-use bond covers imports on a case-by-case basis for import companies and individuals who only occasionally import specific goods.
For companies and individuals who are customs bonding imported goods occasionally, be aware that single-use bonds will usually only cover a single shipment. If you end up needing to ship more goods, you'll have to purchase an entirely new customs bond, and if you have to do this repeatedly, the costs can add up fast.

Single-use bonds are also extremely time-sensitive and are generally in effect only for very specific time windows.

How Do I Obtain A Customs Bond?

According to the U.S. government's most recent information, the easiest way to obtain a customs bond directly is through a surety issued by the U.S. Department of the Treasury. You can find a list of approved sureties at the Bureau of the Fiscal Service.
Whether you've chosen a single-entry bond or a continuous bond to cover all of your customs bonded imports, you can obtain a surety directly from the U.S. government or obtain one through a local customs broker international freight forwarder.
To find a local customs broker or an international freight forwarder, check the local business listings in your area, or consult with the Customs & Border Patrol officials who oversee the relevant port of entry. You can find a government-provided directory of licensed customs brokers and freight forwarders here.
Whatever types of goods you're importing into the United States, protect your business and your reputation by ensuring all of your shipments are customs bonded and in compliance with all current import regulations as set forth by American law. If there's anything we can do to clarify your shipping needs as your customs bonded warehouse, please contact Gilbert International today.