How Customs Bonds Work And Who Needs One

How Customs Bonds Work And Who Needs One

Anyone who wants to import more than $2,500 for commercial use will need to secure a customs bond if they want to get their goods past U.S. Customs and Border Protection (CBP). These bonds help keep the customs process moving along efficiently and protects the government from importers who fail to pay their taxes and duties. 

Keep reading for more insight into what customs bonds are and how they work. 

What is a Customs Bond?

Customs bonds act as a financial guarantee between an importer of record, the CPB and the insurance or surety company that issues the customs bond. Essentially, a customs bond guarantees that the importer complies with customs regulations and makes their payment of additional import duties, taxes, fines, and penalties. A customs bond makes it possible for CBP to clear the shipment without having to wait for additional payment from the principal as the bond ensures they’ll be paid. 

What exactly is a customs bond? A customs bond is a surety bond that is designed to guarantee that relevant fees and import duties are paid to CBP. The CBP’s job is to monitor and review any imports in order to secure the border from drugs and other undesirable things they don’t want entering the country illegally. 

Essentially, a customs bond makes it possible for goods to gain entry to the United States, like a passport of sorts. If this bond isn’t purchased and provided to the CBP at the time of entry, then the goods will be held at customs. The imported goods will remain in customs while pending approval until you can provide proof you have a customs bond. Only then can your goods be released. After your customs bond is posted, you can walk away with your goods, but have to pay duties within ten days. 

If you don’t have a bond, you can choose to pay your taxes and duties in cash up front in order to have your goods released. If you fail to pay your duties and taxes, the CBP can seek payment from the surety company. Eventually the bond holder will have to pay the surety company back. 

There are three parties involved in a customs bond:

    • Principal. The importer is known as the principal and they are the party required to hold the bond. 

      • Obligee. The party that requires the bond, which in this case is the CBP. 

        • Surety. The company that issues the bond and pays any initial claims to the obligee.  

        To better understand how a customs bond works, it helps to know the following terms. 

          • Bonding capacity. This is the maximum amount a claim filed against the surety bond can be. If the bonding capacity is $50,000 a claim can’t be filed against the bond for more than that amount.  

            • Bond premium. This is the cost to purchase the bond and typically is a certain percentage of the bonding capacity. 

              • Bond term. The bond term refers to how long the bond will be active for. 

              When Do You Need a Customs Bonds?

              When the following situations apply, you need a customs bond. 

                • When imports are for commercial use and have a value of more than $2,500 ( including shipments of duty-free items)

                  • When the imported goods must meet federal regulations

                    • When the imported goods are subject to additional government agency rules and regulations (in this case the bond amount has to be either equal to or three times the value of the goods)

                    Different Types of Customs Bonds

                    There are multiple types of customs bonds and each type of bond is labeled with a different Activity Code.

                      • Import Bond / Activity Code 1. This type of bond is required by importers in order to clear U.S ports of entries.

                        • Drawback Bond / Activity Code 1a. This bond makes it possible for importers to receive up to a 99% refund of all duties paid, but only if the goods were exported out of the U.S.

                          • Custodian Bond / Activity Code 2. Coverage for specific bonded merchandise working through businesses such as warehouses, carmen, container stations and carriers comes from a custodian bond which is also known as “in-bond”. 

                            • International Carrier Bond / Activity Code 3. International Carrier Bonds provide coverage for goods and passengers international goods, as well as covering the overtime for workers processing the goods. 

                              • Foreign Trade Zone (FTZ) Bond / Activity Code 4. You need a FTZ bond for custom clearance in non U.S. territories. 

                                • Airport Security Bond / Activity Code 11. Companies you outsource to for moving goods to secure areas of airports need airport security bonds. 

                                  • Importer Security Filing Bond / Activity Code 16. This bond type applies to ISF filings and helps protect against and oversee fines and penalties that may occur for late ISF Filings.