Returns are expensive. For cross-border merchants, they’re even more so — because duties and taxes paid to import goods into a foreign market are not automatically refunded when those goods come back. Recovering them requires understanding how the original import was processed, which market you’re dealing with, and whether your compliance infrastructure is set up to support a claim.
This guide covers the duty and tax refund landscape for the markets most relevant to U.S. direct-to-consumer merchants: Canada, the United Kingdom, the European Union, and returns back to the United States.
How Duties and Taxes Work on Imports
In most markets, duties and taxes are assessed during customs clearance when goods enter the country. A customs broker files an import entry on behalf of the importer of record (IOR), declaring the goods, their value, and their classification. Duties are calculated as a percentage of the customs value; VAT or GST is assessed on top of both. The IOR is ultimately responsible for these charges, though the broker often advances payment and bills the IOR.
Low-Value Goods Are Different
In the UK and EU, low-value goods are treated outside the standard import process. Rather than paying VAT through customs clearance, VAT is collected at the point of sale — remitted by the seller, an e-commerce platform, or a Seller of Record (SOR) — and never assessed at the border. In the UK, this applies to goods at or below £135. In the EU, the threshold is €150, with VAT collected via the Import One-Stop Shop (IOSS) scheme.
Whether VAT was collected at the border or at the point of sale determines how a refund is possible. For merchants operating through a SOR, it’s the SOR’s tax registration that governs recovery.
What Recovery Actually Requires
Before diving into market mechanics, three requirements apply everywhere.
The Goods Must Leave the Country
Duties and taxes are assessed because goods enter a market for consumption. Recovery is only available when the goods physically leave the customs territory. Refunding a customer and letting them keep the item forfeits any claim — the goods are still in market, and the liability stands. Merchants who offer “keep it” return policies on international orders trade recovery for operational simplicity.
Import Entries Must Be Cancelled for High-Value Returns
For goods that cleared through a formal customs entry, recovery requires that entry to be cancelled or invalidated. This creates a significant complication for partial returns: if three items were imported on a single entry and only one is returned, there is no mechanism to cancel just that portion. Customs entries are all-or-nothing instruments.
Data Matching Is Essential
Customs authorities require proof that the goods being exported are the same goods that were imported and that they are returned in the same condition. In practice, this means having:
- The original import entry number or equivalent reference
- The export tracking number or departure declaration reference
- Consistent commodity descriptions and values across documents
- In some markets, movement reference numbers (MRNs) linking import and export
Merchants who lack visibility into their import entries — because a third-party logistics provider handled clearance without sharing data downstream — will struggle to build these bridges after the fact. Capturing import data at the time of clearance is the clearest operational argument for structuring your cross-border program carefully.
Canada
Canada is one of the more accessible markets for duty and tax refund on returns, but the mechanics depend significantly on how goods were originally imported.
Goods Cleared on a Customs Broker’s Account
Low-value D2C shipments are often cleared on a customs broker’s business number, not on the merchant’s own importer account. This means the merchant may not have direct standing to file a refund claim. Canada does have a standing process for consumers to recover duties and taxes through the Casual Refund Program.
CBSA administers the Casual Refund Program for goods imported under casual (non-commercial) entry. To qualify, the goods must be returned in their original, unaltered condition. The claimant submits a completed B2G Informal Adjustment Request with the original import receipt, proof of export, and evidence of the return. CBSA processes claims and issues refunds to the importer of record — for D2C shipments, that’s the Canadian consumer. The program is functional but not fast, and claims without complete records are routinely rejected.
U.S. Merchants as Non-Resident Importers
Many U.S. merchants ship directly to Canadian consumers as Non-Resident Importers (NRIs). The NRI program allows a U.S. merchant to act as the IOR for goods entering Canada, taking on liability for duties, taxes, and compliance at the border. This gives the merchant direct control over import entries and standing to file refund claims through CBSA’s CARM portal.
NRI status comes with real obligations: GST/HST registration, CRA filing, and rigorous documentation. Errors create audit exposure. The trade-off is clear — NRI gives you recovery access and compliance accountability in equal measure.
United Kingdom
Refunding VAT on Low-Value Returns (Below £135)
For goods at or below £135, VAT is collected at the point of sale — not at the border. There is no customs-based VAT refund mechanism. Refunds flow through the VAT registration of whoever collected and remitted the tax.
A UK VAT-registered merchant can issue a VAT credit note on return and account for the reversal in their VAT return. When Passport acts as Seller of Record for UK transactions, this recovery flows through Passport’s own VAT registration — no UK VAT registration required from the merchant.
Refunding Duty and VAT on High-Value Returns (Above £135)
For goods above £135, standard import procedures apply: duties are assessed on classification and value, and import VAT is paid at the border or deferred through an HMRC-approved deferment account. These goods have a formal Customs Declaration, and recovery requires working within that framework.
If the customs broker cleared the goods on behalf of the UK consumer — which is common where the foreign merchant has no UK EORI — only the consumer, as the named importer, has standing to seek a refund. The broker pays duties and VAT directly to HMRC but is not the legal seller of the goods and cannot reclaim VAT or raise a VAT invoice. The party with standing to claim (the consumer) is rarely equipped to navigate the process; the parties who are (the merchant and broker) lack the legal basis.
HMRC’s established route for importers is Form C285 — an application for repayment or remission of customs charges. Where the merchant or its IOR arrangement has standing, C285 is manageable with clean records and an experienced customs agent. The time limit is generally three years from the date the customs debt was incurred. Passport supports high-value UK returns by maintaining the import data and entry records needed to substantiate C285 submissions.
European Union
Refunding VAT on Low-Value Returns (Below €150)
Goods at or below €150 currently enter the EU duty-free, with VAT collected at point of sale via IOSS. On return, the IOSS registrant reduces its quarterly remittance by the VAT associated with returned orders — clean in principle, but dependent on consistent order-level tracking across the sale and return cycle. Merchants operating through Passport’s SOR infrastructure benefit from Passport’s IOSS registration handling this process.
A significant change takes effect July 1, 2026. The EU is eliminating duty-free treatment for low-value goods and replacing it with a €3 flat-rate duty assessed per unique HS6 code on any order cleared on or after that date — with no grace period. Unlike IOSS-collected VAT, this duty cannot be paid through IOSS; it is assessed to the customs broker, who invoices the shipper. A separate €2 handling fee per unique HS code takes effect no later than November 1, 2026, bringing the combined charge to €5 per HS code.
For return purposes, the €5 is largely unrecoverable. The flat-rate duty is technically reclaimable in principle, but no established mechanism or regulatory guidance exists for doing so on returned low-value goods. The handling fee is not reclaimable under any circumstance. Until clear guidance emerges, merchants should treat the full €5 per HS code as a sunk cost in their return economics.
Refunding Duty and VAT on High-Value Returns (Above €150)
For goods above €150, import duties and border VAT apply through a formal customs declaration in the destination member state. Recovery requires engaging with that entry.
When a customs broker clears goods on behalf of the EU consumer — common for D2C shipments where no merchant-side IOR is established — only the consumer has standing to seek a refund. The broker pays duties and VAT to the relevant customs authority but cannot reclaim VAT or raise a VAT invoice. The structural gap is the same as in the UK: the party with standing lacks the capacity to claim; the parties with capacity lack the standing.
Merchants who act as the importer of record in the EU — through an established entity, fiscal representative, or third-party IOR arrangement — close this gap. Under the Union Customs Code, the IOR can apply for refund or remission of import duties when goods are re-exported in the same condition. The application goes to the customs authority of the member state where the original entry was filed, and the applicant must demonstrate:
- The goods were exported from the EU customs territory
- The goods are in the same condition as when imported
- The import and export declarations can be matched by MRN
Without MRN-level data from the original import, the claim is difficult to substantiate. Passport supports high-value EU returns by maintaining import documentation and ensuring export records align with what’s required for customs refund applications.
Returns to the United States
How HTS 9801 Works
When goods exported from the United States are returned, Harmonized Tariff Schedule 9801 provides a mechanism to re-import them duty-free. The provision covers two categories:
- U.S.-origin goods exported and returned, with no time limit
- Foreign-origin goods previously in the United States, exported, and returned without being advanced in value or improved in condition while abroad — provided they are returned within three years of exportation
The second category is the relevant one for most Shopify merchants. The majority of goods sold by U.S. D2C merchants are manufactured abroad, imported into the United States, and then re-exported to international customers. When those goods are returned, 9801 still applies — because the goods were exported from the United States, regardless of where they were originally made.
To support a 9801 claim, the customs broker must document that the goods are the same goods previously exported and that they were not altered or improved abroad. This requires commercial documentation linking the return to the original export — invoices, packing lists, and return merchandise authorizations — as well as supporting declarations including an Importer’s Declaration and Foreign Shipper’s Declaration for each shipment.
How This Differs from U.S. Duty Drawback
9801 is frequently confused with duty drawback, but they are distinct mechanisms.
Duty drawback — governed by 19 U.S.C. § 1313 — allows an importer to recover duties paid on imported goods when those goods are subsequently exported. The classic e-commerce application: a merchant imports goods, pays U.S. duties, and later exports to international customers. Drawback recovers up to 99% of the duties originally paid on the exported goods.
HTS 9801, by contrast, applies to goods already exported from the U.S. that are now returning. No duties were paid on the outbound export — the provision simply ensures those returning goods don’t face a new duty liability on re-entry.
Final Thoughts
Duty and tax recovery on international returns is achievable, but never automatic. Every market has its own procedural requirements, its own data standards, and its own constraints on what can be recovered. The mechanics for a low-value UK return differ from a high-value EU return, which differ again from a Canadian return processed through NRI versus a broker’s business number.
The merchants who recover the most design for it upfront: structuring import programs to capture the data they’ll need later, working with partners who share that data, and understanding which mechanisms apply before they have a warehouse full of returned goods and no documentation.
If you’re a U.S. merchant looking to understand what duty and tax recovery might look like for your return volume, contact Passport to walk through your specific program structure.
Frequently Asked Questions
How do exchanges work?
Exchanges involve two independent customs events: the return of the original goods and the shipment of a replacement. For the return leg, the mechanics are the same as described above — the goods must be exported, the import entry matched or cancelled, and the appropriate refund claim filed. For the replacement shipment, the goods are treated as a new import and assessed for duties and taxes at the applicable rate. No provision exempts replacement goods from duty simply because they are substituting for returned goods.
The net result is that exchanges can effectively double a merchant’s duty exposure. Merchants operating at scale need both legs to work — a functional return refund process and a clean import structure for outbound replacements.
Can I recover duties on partial returns?
In most cases, no. Most customs systems require full entry cancellation. Partial recovery may be technically possible in limited circumstances, but it is complex, inconsistent across markets, and not scalable.
Can a customs broker handle duty and tax recovery?
A customs broker can support recovery — filing claims and providing documentation — but typically cannot manage the full process alone. Brokers often do not control the return or the commercial transaction. Successful recovery requires coordination between the broker, the merchant, and return logistics.
What is the difference between duty drawback and duty and tax recovery?
Duty drawback applies to U.S. exports: it refunds duties paid when goods were imported into the U.S. and later exported. Duty and tax recovery applies when goods are imported into foreign markets and then returned. Different mechanisms, different jurisdictions, different triggers.
How long does recovery take?
Weeks to months, depending on the market. Processing times are often delayed when documentation is incomplete or import and export records cannot be matched.
Do I need proof of export?
Yes, without exception. You must demonstrate that goods physically left the country — typically through export tracking data or a formal export declaration. Without proof of re-export, claims are denied.
Who should be the importer of record for better recovery outcomes?
Merchants acting as their own IOR have the highest recovery success rates. IOR status gives the merchant control over import data, legal standing to file claims, and direct alignment between financial interest and claims authority.
Can a third-party provider act as importer of record on my behalf?
Yes. For merchants who are not established in a foreign market and cannot act as IOR directly, some cross-border providers — including Passport — can arrange IOR services through an established local entity or fiscal representative. This closes the structural gap described above: rather than the consumer holding standing to claim and being unable to exercise it, the IOR arrangement puts a capable, commercially aligned party on the import entry from the start.
Can I recover VAT on returned goods?
Yes, in markets like the UK and EU. For low-value shipments, VAT is typically adjusted through VAT returns or IOSS filings, depending on how the original sale was structured. For high-value shipments, recovery flows through the customs entry process and requires the importer of record to have the appropriate registrations and standing.
Authored by Thomas Taggart
Head of Global Trade | Passport
Thomas Taggart is a cross-border commerce leader with more than 20 years of experience in international shipping and regulatory affairs. As the Head of Global Trade, Thomas helps ecommerce brands go global by simplifying international trade, tax, and product compliance issues. Prior to Passport, he brought international shipping solutions to market through multiple roles in UPS’s product development organization.