What Is Duty Drawback? A Definition

What Is Duty Drawback?

A duty drawback is a refund of tariffs, fees, and taxes levied on imported goods that are later exported or destroyed. These goods can be unused and in their original state, or they may have gone through a manufacturing process.

Duty Drawbacks Explained

Duty drawbacks allow companies that pay tariffs or other duties on imported goods to recuperate those payments if the imported goods are subsequently destroyed or exported from the country that charged those duties. An example of a duty drawback is when an aircraft manufacturer pays duties on the jet engines it imports and then gets reimbursed for those fees when it exports the finished airplanes to airlines based overseas. Another example is when a sporting goods retailer pays duties on the baseball helmets it imports and later gets reimbursed for those fees when it has to destroy the helmets or send them back to the overseas manufacturer because they’re defective.

The US, Canada, Mexico, and most European countries are among the many nations that offer duty drawbacks. In the US, duty drawbacks have been available since 1789, but have become more prevalent since the passage of the Trade Facilitation and Enforcement Act of 2015, which modernized and broadened the scope of items eligible for drawbacks, notes KPMG.

Duty drawbacks are one means for governments to encourage exports and help domestic companies price their products more competitively in global markets. In most cases, the timeframe for a company to claim a duty drawback is five years.