One of the most difficult aspects of international shipping is navigating the changes in import laws and regulations due to international trade agreements. Shifts in political power can make a big difference in import fees, customs rules, prohibited goods, and regulations that your business needs to follow.
For US brands shipping into Canada, there are many nuances to ensure smooth customs clearance. For example, labeling products is important for selling goods in some Canadian regions, and PST (provincial state tax) is key to understand which border it’s best to ship products though.
Applying for NRI (non-resident importer) is a big question for many US businesses. Some think it’s required when shipping to Canada, but it’s actually not. In fact, establishing NRI is currently not recommended for some types of brands.
Here’s more about the difficulties of establishing NRI status when selling in Canada.
What is NRI (Non-Resident Importer)?
NRI stands for non-resident importer. It serves as the tax identification for a foreign business without a Canadian permanent address or business number to import and sell goods in Canada.
A business that establishes as NRI will be the importer of record (IOR) which means they are responsible for managing the compliance of import regulations and customs clearance. They are also responsible for paying duties, taxes, and all import fees.
Why NRI Affects DTC Brands
When shipping direct-to-consumer, the importer of record (the party responsible for customs clearance and import fees) is naturally placed on the Canadian consumer. It’s typical for a Canadian customer receiving goods direct from a US ecommerce business to assume the role of IOR.
If a DTC brand chooses to establish NRI, this changes the IOR for that shipment. The business now holds the responsibility for customs clearance. For a growing ecommerce brand, this addition of responsibility and complexity can become an administrative and costly burden. It may not be necessary to establish NRI for shipping DTC from the US to Canada.
When a US business is listed as the importer, the values of multiple shipments to different consumers must be combined as if they were all part of a single shipment, making it almost certain to surpass the de minimis thresholds. As a result, duties and taxes may be incurred on imports that might otherwise have cleared under these thresholds if treated as individual shipments.
How USMCA Changes the NRI Status for US Businesses
Prior to 2020, the trade agreement between the US and Canada was known as the North American Free Trade Agreement, or NAFTA. Under this regulation it was recommended that all US businesses register as NRI. The import laws and de minimis levels under NAFTA made it more advantageous for businesses to establish NRI when importing goods into Canada.
The current trade agreement between Canada and the US, is called United States Mexico Canada Agreement, or USMCA. Established in 2020, USMCA increased the thresholds for non-postal shipments, setting the tax de minimis at $40 CAD and duty de minimis at $150 CAD. This is a significant change. Under NAFTA (effective since 1994), the de minimis threshold was notably low—only $20 CAD. This means nearly every shipment was considered for duties and taxes.
Now DTC shipments are now better off keeping the Canadian consumer as the importer as opposed to shipping under the NRI program. US merchants may see more duty and tax advantages if they don’t establish NRI under USMCA. One caveat is that this rule applies to businesses shipping via courier, not by post.
Tips for Shipping into Canada with NRI
While it’s generally advisable for DTC merchants to refrain from voluntarily becoming the IOR, there are instances where it’s necessary. For example, if you’re a merchant shipping goods to a Canadian fulfillment center like Amazon, and the receiving warehouse is unwilling to act as the importer, assuming the role of IOR may be unavoidable.
For brands who have an NRI already established, whether prior to the USMCA changes or for other reasons, can adjust their shipping strategy for maximum efficiency.
Businesses who will benefit the most from establishing NRI are those shipping small package deliveries sent through express carriers. This is because most (not all) express carriers will waive shipment fees on a “per-shipment basis” for US businesses with NRI status.
If a merchant sets up an NRI, they still must aggregate all shipments through one customs entry, which means larger shipments will likely exceed the de minimis value. When goods are over the de minimis value they will incur a duty fee. That said, since customs fees are applied per shipment, merchants will get a cost reduction if they send fewer large shipments. There are brokerage fees and surcharges attached to each shipment, so by sending fewer you’ll incur less.
Establishing NRI makes sense for brands selling high-value goods, those with very large shipments, or businesses with a large percentage of B2B shipments.
The Obligations of Being an NRI in Canada
Not all ecommerce brands will see a tax break or reduced customs fees as an NRI in Canada.
Shipping as an NRI makes your business the IOR and liable for all fines, penalties, and fees in the eyes of the customs and tax authorities– including any civil or criminal charges. There is also the consideration that the newly established CARM program (CBSA Assessment and Revenue Manageme has increased the responsibilities of the importer.
For businesses registered as the NRI, here are some of the basic responsibilities:
- Collect and remit GST/HST, and maintain accounting of this for six years at any given time.
- Submit a security deposit if your sales exceed $100,000 CAD and annual net tax is more than $3,000 CAD.
- Register for the CARM online customs portal and manage your customs surety bond, duty and tax payments.
- Communicate with the Canada Revenue Agency (CRA) with intent to pay for any expenses should they need to conduct an in-person audit.
- Shipments much be commercial clearance (which often includes additional brokerage and carrier fees).
- Cannot use the Casual Refund Program for the reclamation of duties and taxes paid on returns.