Proforma invoice: what customs wants to see on it and where it goes wrong

Key points

A proforma invoice is a statement of value, not a demand for payment, and it never enters your books.
You use one where there is no sale: samples, warranty shipments, repairs, temporary export and intercompany moves.
Customs reads the commodity code, the origin and the value off it, so those three always have to be on it.
A value of one euro on free goods is not accepted, the value has to be realistic.
Without a sale the transaction value cannot be used and you fall back on the alternative methods.

A shipment of spare parts is held at customs. The reason: the invoice that travelled with it reads “sample, no commercial value”. The parts were supplied free of charge under warranty, so the supplier thought that was right. Customs disagrees, because free goods still have a value on which duty is charged.

The proforma invoice is the document that should have settled this. It gets treated as a formality the sales desk runs off, while for customs it is the most important piece of paper in the shipment.

Below is what it is for, what belongs on it, and which mistakes leave a shipment standing.

What is a proforma invoice?

An invoice drawn up in advance that records the value and the contents of a shipment without any payment falling due. The word proforma means for the sake of form, and that is exactly what it is: it looks like an invoice and functions as a declaration.

What that makes it not: not an accounting document, not a basis for reclaiming VAT and not a demand for payment. It does not go into your sales ledger and your counterparty cannot recover VAT on it.

What it is: the document customs uses to work out what is in the box, where it came from and what it is worth. That makes it as binding for the import declaration as an ordinary commercial invoice.

When do you use one and when not?

The rule is simple: where there is a sale, a commercial invoice belongs with it. Where there is not, you need a proforma invoice.

Situations where it belongs:

samples, demonstration models and exhibition material
warranty replacements and parts supplied free of charge
goods travelling out and back for repair or calibration
movements between sites within the same group
advance payments and letter of credit applications

Where it does not belong: on an ordinary sale. Do it anyway and customs will ask for the commercial invoice later, and the declaration has to be corrected. That costs time, and at a broker usually a correction charge as well.

Which details have to be on it?

This is the list we run through ourselves before declaring a shipment. If anything from the first five points is missing, the declaration does not go out.

consignor and consignee with full address and EORI number
a description per item that shows what it is, so more than a part number
the commodity code per item
the country of origin per item, not the country of dispatch
quantity, unit, unit price, total amount and the currency
the Incoterm with the named place and the version year
gross and net weight and the number of packages
the reason for shipping, for example warranty, sample or repair

Where the goods are not being sold, add that the value is stated for customs purposes only. That stops the recipient thinking a bill is coming, and it makes clear to customs why there is no commercial invoice.

How does it differ from a commercial invoice?

The commercial invoice records a sale and asks for payment. It is booked, it counts in the VAT return and it is evidence of the price paid.

The proforma invoice only records what is being shipped and what it is worth. No claim attaches to it, it is not booked and it proves no price paid.

For customs the difference sits exactly there: with a commercial invoice there is a price paid or payable, and that is the basis for the transaction value. With a proforma invoice there is none, and that method may not be used.

How does customs read the value off it?

Where there is a sale, the main rule is the transaction value: the price paid plus freight and insurance up to the place of entry into the EU. How that customs value is built up is set out in that article.

Without a sale that is impossible, because there is no price. A fixed order of alternatives then applies: the transaction value of identical goods, then of similar goods, then the deductive method, then the computed value, and as a last resort the fall-back method.

In practice it comes down to putting the value on your proforma invoice that you would charge if you were selling. Put a token amount there and customs corrects it to what the goods are really worth, and you pay the difference afterwards. To see what that costs, work it out up front with an import duty calculation.

Where does it go wrong in practice?

Five mistakes account for almost all the delay we see.

It reads “no commercial value” or carries a token amount on free goods.
The commodity code is missing, so the broker has to guess or wait.
It states the country of dispatch instead of the country of origin, so a preference is claimed that does not exist. What does count as evidence is set out in our piece on the certificate of origin.
The currency is missing, or a dollar sign sits in front of an amount in Canadian dollars.
The description is an internal part code that means nothing outside the company.

What makes these mistakes expensive is not the correction itself. It is the container standing still in the meantime, ticking over by the day at the carrier.

Frequently asked questions

Q: Is a proforma invoice legally valid?

Ans: For customs it is, as a declaration of contents, origin and value. As a demand for payment it is not: no payment can be claimed on it and no VAT recovered. For that you need a commercial invoice.

Q: Should VAT be shown on a proforma invoice?

Ans: No. There is no taxable supply, so there is no VAT to state. If the shipment is sold later, a commercial invoice follows and the VAT sits on that one.

Q: What value do you put on a free shipment?

Ans: The value you would charge if you were selling, so the normal sales price or a supported cost price. Add that the value is stated for customs purposes only and that no payment follows.

Q: Can a proforma invoice be supplied digitally?

Ans: Yes, a pdf by email is enough for the declaration. Do make sure the file is legible and that the details match the waybill, because a difference between those two is one of the questions asked most often on an inspection.

Q: How long do you have to keep a proforma invoice?

Ans: Keep it as long as your declarations, so at least seven years. Customs can generally look back three years, but you also need the document to support your own figures if questions come up.

Want a template that clears in one go, or your invoices tested for completeness before a shipment leaves? We read them through and say exactly what is missing. After that we take over the customs handling and record the arrangements in the authorisation you sign once. What a shipment will cost you can work out beforehand with our calculator.