Correctly applying the First Sale Rule for U.S. imports

What Is the First Sale Rule?

The First Sale for Export (FSFE) rule lets importers declare the customs value of goods in multi-tiered (chain) transactions based on the price paid in the first sale in the supply chain — usually from the manufacturer to a middle company — instead of the final sale to the U.S. buyer / importer. If all the rules are followed, this means companies can use a lower price to calculate customs duties, which can lead to significant savings. The main benefits are:

• You can use the lowest possible value for duty calculation, reducing costs.
• It helps keep duty costs predictable, even if tariffs change.
• Lower overall costs can improve profit margins or allow for more competitive pricing in the U.S.

Key Requirements—What You Need to Do

• Goods Must Be Clearly Destined for the U.S.
  The products must be clearly marked or documented as intended for export to the United States at the time of the first sale transaction. If the goods pass through other countries or are stored in a warehouse along the way, you may need a customs expert to review your process to make sure it still qualifies.
• There Must Be Two Real, Documented Sales
  There must be two genuine (bona fide) sales between independent companies. For example, the manufacturer sells to a middle company, and then the middle company sells to the U.S. importer (two purchase orders, two invoices, two payments). Sales to yourself or through agents do not count.
• Prices Must Reflect Real Market Value
  The price declared for customs must be a fair market price (at arm’s length from a customs perspective), based on real costs or what similar goods would sell for. Customs authorities want to see that the price is not artificially low.

Why Is Using the First Sale Rule Complicated?

While the FSFE rule can save money, it is not easy to implement. Here are some of the main challenges:

• Extra Attention from U.S. Customs:
  Using the First Sale Rule may lead to more questions or audits from U.S. Customs. While you don’t have to get official approval in advance, it is strongly recommended to prepare a detailed “Reasonable Care Memorandum” to show you are following the rules.
• Possible Changes to How You Do Business:
  You may need to adjust your contracts, shipping processes, or even where certain business activities take place to make sure the first sale qualifies.
• Detailed Tracking Needed:
  You must be able to prove, for each item, that it was always meant for the U.S. from the start. This requires careful recordkeeping and tracking.
• Limits on Inventory Flexibility:
  Once goods are marked for the U.S., you cannot easily redirect them to other countries. This can make inventory management more rigid.
• Both Sales Must Be Tested:
  Customs will look at both the first and second sales to make sure they are real, independent transactions. This may require sharing information about profit margins and how prices are set, especially if the companies are related.

What Is a Reasonable Care File?

U.S. Customs expects importers to show “reasonable care” in how they value and document their imports. This means:

• Prepare a Reasonable Care Memorandum:
  Importers should prepare a Reasonable Care Memo that outlines the steps taken to ensure compliance with customs regulations, including a detailed explanation of the FSFE structure with roles and responsibilities, supporting documentation, and a summary of the customs arm’s length analysis.
• Keep Good Records:
  You must keep all documents that prove the sales and pricing are real — such as contracts, invoices, proof of payment, and shipping documents.
• Review and Update Regularly:
  Your process should be reviewed regularly to make sure it stays compliant as your business or the rules change.

How Long Does It Take?

Setting up the First Sale Rule for one supply chain usually takes about 4–5 months. It involves reviewing your supply chain, designing new processes, preparing documentation, and making sure everything is in line with customs requirements.

 

DISCLAIMER

The information in this report were gathered and researched from sources believed to be reliable and are written in good faith. Switzerland Global Enterprise and its network partners cannot be held liable for data, which might not be complete, ac-curate or up-to-date; nor for data which are from internet pages/sources on which Switzerland Global Enterprise or its network partners do not have any influence. The information in this report do not have a legal or juridical character, unless specifically noted.

 

AUTHORS

Christina Haas Bruni, Senior Manager Customs & International Trade; Zollexpertin/Customs expert, PwC, christina.haas.bruni@pwc.ch
Simeon Probst, Partner, Customs & International Trade, PwC, simeon.probst@pwc.ch