For U.S. businesses selling to Canadian consumers, it’s crucial to understand the implications of shipping as a Non-Resident Importer (NRI). While often advertised as a convenient way to streamline customs procedures, shipping as an NRI carries its own set of challenges and obligations that warrant careful consideration. Moreover, with the changes to Canadian tax laws and customs regulations in recent years, direct-to-consumer (DTC) brands may want to reevaluate their shipping strategies. In this article, we’ll explore what it means to ship as a Canada NRI, review the potential downsides, and discuss an alternative approach for DTC brands targeting this market.
What is an NRI in Canada?
A Non-Resident Importer (NRI) is a business located in the US that assumes the role of the Importer of Record (IOR) for goods being shipped into Canada. This means the US merchant is responsible for managing customs clearance, ensuring compliance with Canadian laws and regulations, as well as paying duties, taxes, and fees for any imports. Companies registering as a Canada NRI will receive a unique import/export account number, which is separate from a GST/HST business number used for tax purposes.
It’s important to note that for DTC shipments, the Canadian consumer is the natural IOR. However, when a business chooses to ship as an NRI and designates themselves as the IOR, they assume full liability for all customs-related obligations. This shift in responsibility from the customer to the business can introduce additional complexities and risks that should be carefully considered.
The Downsides of Canada NRI Shipping for DTC Brands
US Merchants have traditionally been advised to ship as an NRI to take advantage of reduced customs brokerage fees. This strategy was particularly effective for small package deliveries facilitated by express carriers, which would waive “per-shipment fees” for US businesses registered as an NRI, when their Canadian brokerage teams handled the customs clearance. However, this fee structure is not universally applicable, as many other carriers operate differently when clearing shipments into Canada.
Additionally, Canada NRI shipments are categorized as commercial rather than “casual”, resulting in forfeiting the many advantages associated with personal imports. When the United States-Mexico-Canada Agreement (USMCA) came into effect on July 1st, 2020, it greatly impacted the shipping landscape for DTC brands. For the past three decades, the de minimis threshold for shipments to clear free of duty and taxes in Canada had been notably low, set at just $20 CAD — equivalent to less than $15 USD today. That meant nearly every shipment was assessed duties and taxes.
USMCA increased the thresholds for non-postal shipments, setting the tax de minimis at $40 CAD and duty de minimis at $150 CAD. With this significant change, DTC shipments were now better off keeping the Canadian consumer as the importer as opposed to shipping under the NRI program. When a US merchant 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.
Risks and Responsibilities of Being an NRI in Canada
When you ship DTC from the US to Canada, the default importer is the Canadian consumer. However, shipping as an NRI and naming yourself as the IOR makes you wholly liable for all fines, penalties, and fees in the eyes of the customs and tax authorities– including any civil or criminal charges. On top of this added risk, the introduction of CARM has shifted more responsibilities onto the importer, making being an NRI even less attractive.
Here are some challenges businesses should consider associated with Canada NRIs:
- You must collect and remit GST/HST if required to register.
- You may have to submit a security deposit between $5,000 - $1M CAD if your annual sales are over $100,000 CAD and annual net tax is more than $3,000 CAD.
- You will need to register for the CARM client portal and purchase your own customs surety bond, pay duties and taxes up front, or make a cash deposit with Canada Border Services Agency (CBSA) to clear shipments.
- You must maintain GST/HST books for six years.
- If you are maintaining records in the US, you must complete a letter of undertaking with the Canada Revenue Agency (CRA) promising to pay for travel and accommodation expenses incurred by a CRA officer in the event of an onsite audit.
- You must use commercial clearance instead of other more beneficial customs clearance programs like the Courier Low Value Shipment (CLVS) Program.
- Most carriers and customs brokers charge a minimum fee for commercial clearance as they are more time-consuming and complex than casual clearances.
- You cannot use the Canadian Investment Regulatory Organization (CIRO) to benefit from duty and tax de minimis levels.
- You cannot use the Casual Refund Program to help Canadian consumers recover duties and taxes paid on returns.
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.
Canada NRI Strategy for DTC Businesses
US merchants looking to ship directly to Canadian customers should avoid shipping as NRIs and instead allow the consumer to be the importer of record. This approach will help alleviate the costs and administrative burdens associated with being an NRI while still enjoying the benefits of expanding your customer base into Canada. By carefully evaluating the implications and requirements of NRI shipping, businesses can ensure compliance, minimize costs, and streamline their operations.
Here at Passport, we understand the intricacies that come with international shipping, especially regarding import regulations. With best-in-class parcel logistics and a user-friendly software platform, Passport is the shipping carrier that growth-focused brands trust to expand their business internationally. Our team of compliance experts are available to guide you through the Canadian market and answer any additional questions you have about NRIs. Simply reach out to us here to get started.