Without it, imported items look cheaper than they are, and margins are overstated, sometimes by 10% or more. This guide covers what to include, how GCC customs duty and import VAT are calculated, how to allocate costs, and a worked example of a container from China to Jebel Ali.
What goes into landed cost, and what doesn't?
Every cost you must pay to get the goods into your warehouse, ready to sell. Costs after that point, and taxes you can recover, stay out.
| Cost | Include in landed cost? | Notes |
|---|---|---|
| Supplier price | Yes | At the exchange rate on the date you account for the purchase |
| International freight | Yes | Sea, air or road, if you pay it under the agreed Incoterm |
| Marine insurance | Yes | If you arrange and pay it |
| Customs duty | Yes | Not recoverable, so it is part of cost |
| Import VAT | No, if you are VAT registered and can recover it | It goes to the VAT account, not the item |
| Clearing agent and customs service fees | Yes | Per declaration or per shipment |
| Port and terminal handling, demurrage | Yes, for normal charges | Abnormal demurrage from delays is usually expensed |
| Inland transport to your warehouse | Yes | Port or airport to warehouse |
| Inspection, testing and certification | Yes | If needed to import or sell the goods |
| Bank charges on letters of credit | Often yes | Agree a policy and apply it consistently |
| Warehouse storage after arrival | No | An operating cost |
| Delivery to customers | No | A selling cost |
The Incoterm on the supplier's invoice decides who pays which leg. On FOB terms you pay freight and insurance from the loading port; on CIF terms the supplier does, and it is already in the price.
How are customs duty and import VAT calculated in the GCC?
Duty is a percentage of the CIF value; import VAT is charged on the CIF value plus the duty. Duty is a cost; import VAT is usually recoverable.
| UAE | Saudi Arabia | |
|---|---|---|
| Customs value | Transaction value plus freight, insurance and handling to the port of import (CIF) | Same, under the GCC Common Customs Law |
| General duty rate | 5% of CIF | 5%, but higher on many goods; for example, duty on many steel products rose to 20% in 2020 |
| Import VAT rate | 5% | 15% |
| Import VAT base | Customs value plus duty and any excise | Customs value plus duty and any excise |
| How a registered importer accounts for VAT | Reverse charge on the VAT return | Paid at customs, or on the return with ZATCA approval |
| Free zones | Duty paid when goods leave the free zone for the local market | Rules vary by zone |
The GCC customs union means duty is generally paid once, at the first point of entry, for goods moving on within the GCC. Check the HS code of each item: the rate comes from the tariff for that code, and a wrong code is the most common cause of duty errors.
For most UAE importers, duty adds 5% of CIF to the item cost, while import VAT is recorded on the VAT return and does not affect cost at all.
How do you allocate shared costs across items?
Freight, clearing and handling are charged for the whole shipment, so they must be spread across the items in it. Choose the basis that matches what drives each cost.
| Method | How it works | Best for |
|---|---|---|
| By value | Each item's share of the shipment's purchase value | Duty, which is charged on value; insurance |
| By weight | Each item's share of total weight | Air freight and heavy goods |
| By volume (CBM) | Each item's share of cubic metres | Sea freight for bulky, light goods |
| By quantity | Equal amount per unit | Shipments of similar items |
You can use different methods for different costs in the same shipment: freight by volume, duty by value, clearing by value. What matters is applying the same rules every time, so item costs are comparable from one shipment to the next.
Duty needs extra care when items carry different duty rates. Then it should be calculated item by item, as customs does, not allocated.
How do you calculate landed cost? A worked example
A Dubai lighting distributor imports one 40-foot container from Ningbo to Jebel Ali on FOB terms. It holds 2,000 LED panels at USD 12 each, taking 18 cubic metres, and 400 cable drums at USD 40 each, taking 10 cubic metres. The exchange rate is AED 3.6725 to the dollar. Charges are illustrative.
Step 1: the shipment costs
| Cost | AED | Allocation basis |
|---|---|---|
| Supplier price: LED panels | 88,140.00 | Direct |
| Supplier price: cable drums | 58,760.00 | Direct |
| Sea freight, USD 2,400 | 8,814.00 | By volume |
| Marine insurance | 600.00 | By value |
| CIF value | 156,314.00 | |
| Customs duty at 5% of CIF | 7,815.70 | Calculated per item on its CIF value |
| Customs declaration fees | 90.00 | By value |
| Clearing agent | 600.00 | By value |
| Terminal handling | 1,100.00 | By value |
| Transport to warehouse | 900.00 | By value |
| Landed cost | 166,819.70 |
Import VAT of AED 8,206.49, 5% of the CIF value plus duty, is recorded on the VAT return through the reverse charge and stays out of item cost.
Step 2: cost per item
| LED panels | Cable drums | |
|---|---|---|
| Supplier price | 88,140.00 | 58,760.00 |
| Freight (18 and 10 cubic metres) | 5,666.14 | 3,147.86 |
| Insurance | 360.00 | 240.00 |
| Duty at 5% of each item's CIF | 4,708.31 | 3,107.39 |
| Fees, clearing, handling and transport | 1,614.00 | 1,076.00 |
| Landed cost | 100,488.45 | 66,331.25 |
| Per unit | 50.24 | 165.83 |
| Supplier price per unit | 44.07 | 146.90 |
| Uplift | 14.0% | 12.9% |
Priced on supplier cost alone, every panel would appear to earn AED 6 more than it does. Allocated by value instead of volume, the bulky panels would carry too little freight, and the drums too much.
Which landed cost errors distort margins?
Most come from timing: the goods are received and sold before the freight and clearing invoices arrive, so the costs land in expenses instead of stock.
| Error | Effect | Prevention |
|---|---|---|
| Freight and clearing booked as expenses | Item cost understated; margin overstated on imports | Record them against the shipment, not the expense account |
| Costs arrive after goods are sold | Cost of sales understated that month | Accrue estimated landed costs on receipt; adjust when invoices arrive |
| Recoverable import VAT added to cost | Item cost overstated | Post import VAT to the VAT account |
| Wrong exchange rate | Purchase value off | Use the rate on the date of the purchase or receipt, consistently |
| One allocation basis for everything | Bulky, cheap items carry too little freight | Freight by volume or weight, duty by value |
| Landed cost not updated in pricing | Prices set on supplier cost alone | Review prices when landed cost changes materially |
Checklist for each shipment
What does HYP see at importers and distributors?
The gap between the margin management believes and the real one. When we load a distributor's history into HYP and recalculate item costs with freight, duty and clearing included, some product lines that looked profitable turn out to be marginal, usually bulky, low-value items where freight is a large share of cost.
The fix is a shipment record that collects every cost as it arrives, with estimates on receipt so stock is never valued at supplier price alone. Allocation then happens once, by the rules agreed, and every later sale carries the right cost.
Landed cost also changes the purchase decision itself. With approval limits in place, buyers can see the full cost of an order before it is approved; our guide to purchase approval limits covers that step. See how HYP calculates landed cost per shipment on our Wholesale Distribution page.
Sources
- UAE Government portal: rate of customs duty (5% of CIF)
- ICP: GCC customs union
- UAE Federal Decree-Law No. 8 of 2017 on VAT (Article 35, import value; Article 48, reverse charge)
- ZATCA: VAT Guideline on Imports and Exports, May 2026
- EY: Saudi Arabia increases customs duty rates, June 2020
- Dubai Customs: service guide 2025 (declaration fees)