Handling Tariffs and Landed Costs in Dynamics 365 Business Central

Imagine a mid-sized manufacturing company in Ohio that imports precision-engineered components from Germany and raw materials from Southeast Asia. Every shipment comes with a maze of additional costs like freight, insurance, customs duties, and tariffs that don’t show up on the initial invoice.

The finance team struggles to track these expenses accurately, and the production manager is constantly recalculating margins to make sense of fluctuating landed costs. Meanwhile, leadership needs real-time insights to make smarter sourcing decisions and stay compliant with U.S. trade regulations.

This is where Dynamics 365 Business Central steps in as more than just an ERP; it becomes a strategic partner. With built-in tools for managing item charges, allocating landed costs, and ensuring compliance, Business Central helps U.S. manufacturers turn complexity into clarity.

Whether you're importing steel coils or microchips, the platform ensures every dollar spent is accounted for, every regulation is respected, and every decision is backed by data.

What Are Tariffs and Landed Costs, and Why Are They Important for U.S. Businesses?

Tariffs are government-imposed taxes on imported goods. In the U.S., tariffs are used to regulate trade, protect domestic industries, and generate revenue. The rate of tariff depends on the product's classification (HS code), country of origin, and current trade agreements or restrictions.

Landed costs represent the total cost of a product once it arrives at the buyer’s location, including:

• Purchase price
• Freight charges
• Insurance
• Customs duties (tariffs)
• Handling fees
• Other import-related expenses

For U.S. businesses involved in international trade, accurately calculating landed costs is critical for several reasons:

• Profitability: It ensures that pricing decisions reflect the true cost of goods.
• Inventory Valuation: Helps maintain accurate financial records and cost of goods sold (COGS).
• Compliance: Supports adherence to U.S. customs regulations and audit requirements.
• Strategic Sourcing: Enables better decisions about suppliers and shipping routes based on total cost impact.

In Dynamics 365 Business Central, managing tariffs and landed costs effectively allows businesses to maintain financial accuracy, optimize margins, and stay competitive in a global market.

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How Does Dynamics 365 Business Central Help Track and Allocate Landed Costs?

Dynamics 365 Business Central provides robust capabilities for tracking and allocating landed costs, which are the total costs of acquiring inventory, including purchase price, freight, insurance, duties, and other miscellaneous charges. Here's how it helps:

Key Capabilities for Landed Cost Management

1. Landed Cost Setup

Business Central allows you to define landed cost components such as:

• Freight
• Customs duties
• Insurance
• Handling fees

You can set these up as Landed Cost Codes and assign them to vendors or items.

2. Landed Cost Allocation Methods

You can allocate landed costs using various methods:

• Per Unit: Cost is distributed evenly per item.
• By Value: Based on the item’s purchase value.
• By Weight or Volume: Useful for bulk shipments.
• Manual Allocation: For custom distribution.

This flexibility ensures accurate cost attribution across items.

3. Purchase Order Integration

When you create a purchase order, you can:

• Add expected landed costs directly.
• Link landed cost codes to specific lines.
• Use purchase invoices to record actual landed costs once known.

4. Landed Cost Worksheet

The Landed Cost Worksheet is a central tool that helps:

• Review and adjust estimated vs. actual costs.
• Allocate costs across multiple items or shipments.
• Post adjustments to inventory and financial ledgers.

5. Impact on Inventory Valuation

Once landed costs are posted:

• They are added to the item cost.
• Inventory valuation reflects the true acquisition cost.
• This improves profit margin analysis and cost of goods sold (COGS) accuracy.

6. Reporting and Auditing

Business Central provides:

• Detailed audit trails of cost allocations.
• Reports on inventory cost breakdowns.
• Integration with financial reporting for compliance and analysis.

Example Scenario

A U.S. importer receives a shipment of electronics from Asia. The purchase invoice includes the product cost, but freight and customs duties are billed separately. Using Business Central:

• The importer creates landed cost codes for freight and duties.
• Applies these costs via item charges.
• Allocates them based on item value.

Business Central updates the inventory cost and reflects it in financial reports.

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Why Is It Critical to Accurately Track Landed Costs in Dynamics 365 Business Central?

Accurately tracking landed costs in Dynamics 365 Business Central is essential for U.S. businesses that import goods, as it directly affects financial accuracy, pricing strategy, and operational efficiency.

Here’s Why It Matters:

1. True Cost Visibility

Landed costs represent the actual expense of bringing goods to your warehouse, not just the purchase price. Without tracking these costs, businesses risk underestimating expenses and overpricing or underpricing products.

2. Accurate Inventory Valuation

Business Central updates inventory values based on landed costs, ensuring that your balance sheet reflects real asset values. This is crucial for financial reporting and audits.

3. Improved Profit Margins

Knowing the full cost of goods helps businesses set profitable pricing. Misallocated or missing landed costs can lead to margin erosion and poor financial decisions.

4. Compliance and Audit Readiness

U.S. importers must comply with customs regulations and maintain detailed records of duties and fees. Business Central’s audit trail and reporting features help ensure regulatory compliance.

5. Better Supplier and Route Decisions

With accurate landed cost data, businesses can compare suppliers not just on unit price but on total cost, including shipping and tariffs leading to smarter sourcing decisions.

6. Cost Allocation Flexibility

Business Central allows allocation of landed costs by quantity, value, weight, or volume ensuring fair distribution across items and accurate cost of goods sold (COGS).

For U.S. businesses navigating global supply chains, tracking landed costs in Business Central isn’t just a best practice; it’s a strategic necessity for maintaining profitability, compliance, and competitiveness.

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What are the key features in Business Central for managing import duties and customs charges?

Microsoft Dynamics 365 Business Central offers several built-in features and best practices to help businesses manage import duties, tariffs, and customs charges effectively. Here are the key functionalities:

Core Features for Managing Import Duties & Customs Charges

1. Item Charges for Tariffs and Landed Costs

You can assign additional costs (like tariffs, freight, customs fees) to items using Item Charges.

These charges are applied after goods are received and can be distributed based on:

• Amount
• Quantity
• Weight
• Volume

This ensures accurate landed cost calculation and proper inventory valuation.

2. Harmonized System (HS) Code Classification

Business Central supports HS code tracking, which is essential for:

• Legal compliance
• Accurate duty assessments
• Avoiding customs delays and fines

HS codes determine the applicable tariff rate for each product.

3. Duty Drawback Management

• For exporters, Business Central can help track and manage duty drawbacks, which implies refunds of duties paid on imported goods that are later exported.
• Requires detailed recordkeeping and compliance with customs regulations.

4. Customs Declaration Support via Add-ons

Solutions like Tariff Management by nav2day (available on AppSource) offer:

• Automated customs declaration handling
• Charge registration on purchase documents
• Digital archiving for audits and reporting

5. Reporting Tools for Landed Cost Visibility

Business Central provides financial and inventory reports that reflect:

• Tariff impacts
• Adjusted cost of goods sold (COGS)
• Profit margin analysis

6. Supplier Diversification Strategy

You can use Business Central’s vendor management tools to:

• Evaluate suppliers based on tariff exposure
• Optimize sourcing from regions with lower duties

How does Business Central support compliance with U.S trade regulations?

Microsoft Dynamics 365 Business Central supports compliance with U.S. trade regulations through a combination of localized features, regulatory tools, and platform-level safeguards. Here is how Business Central helps U.S.-based businesses stay compliant:

Key Compliance Features for U.S. Trade Regulations

1. IRS 1099 Reporting

Business Central includes built-in support for:

• IRS 1099 forms (setup, usage, submission)
• 1096 forms
• 1099 APIs for integration with external systems

These features help businesses meet U.S. federal tax reporting requirements for vendors and contractors.

2. Sales and Use Tax Management

You can configure:

• Basic tax setup
• Sales tax reporting
• Use tax and purchase tax
• Unrealized sales tax

These tools ensure accurate tax calculation and reporting across states and jurisdictions.

3. Sarbanes-Oxley (SOX) Compliance Support

Business Central supports internal controls and audit trails required under SOX:

• Role-based security
• Change logs
• Drill-down audit capabilities
• Configurable application controls to prevent invalid data entry.

4. Export Control Compliance (via Supply Chain Management)

While more advanced export control features are in Dynamics 365 Supply Chain Management, Business Central can integrate with these via Dataverse and Power Platform:

• Define export rules
• Validate compliance before shipping
• Automate restrictions based on U.S. export laws.

5. E-Invoicing and Digital Vouchers

• Business Central automates the creation of digital vouchers for transactions, ensuring traceability and audit readiness.
• U.S. version supports e-invoicing for domestic compliance, with retention policies for document storage.

6. Data Privacy and Security

Built on Microsoft’s Trusted Cloud, Business Central ensures:

• Data ownership
• Transparent data handling
• Compliance with U.S. privacy laws (e.g., CCPA)
• Shared responsibility model for cloud compliance.

How do U.S. manufacturers use Business Central to manage landed costs for imported raw materials?

U.S. manufacturers use Microsoft Dynamics 365 Business Central to manage landed costs for imported raw materials by leveraging several integrated features that ensure accurate cost tracking, inventory valuation, and financial reporting. Here's how it works in practice:

1. Item Charges for Landed Cost Allocation

Item Charges allow manufacturers to assign costs like:

• Freight
• Customs duties
• Insurance
• Handling fees

These charges are applied after goods are received, ensuring that the true cost of imported materials is reflected in inventory and COGS.

Example: Steel coils from Germany cost $1,000/ton. Add $100 shipping, $50 duties, and $10 insurance → Landed cost = $1,160/ton.

2. Landed Cost Codes

• Business Central supports custom landed cost codes for different types of charges.
• These codes help automate cost distribution across items in a purchase order, improving accuracy and reducing manual errors.

3. Inventory Valuation and Costing

Once raw materials are received and item charges applied:

• Inventory reflects the actual landed cost
• When materials are consumed in production, Business Central relieves inventory and updates production costs accordingly
• This ensures real-time costing and accurate margin analysis.

4. Reporting and Visibility

Business Central provides financial reports that show:

• Adjusted inventory values
• True cost of goods sold (COGS)
• Profit margins after accounting for import-related expenses.

5. Integration with Production Orders

• Landed costs flow into production orders, ensuring that finished goods reflect the full cost of raw materials.
• This is critical for pricing, profitability analysis, and compliance with U.S. accounting standards.

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Take Complexity Out of Tariffs and Landed Costs with Dynamics Square USA

Managing tariffs, duties, freight, insurance, and other landed cost components manually can result in costly errors, delayed shipments, and inaccurate product pricing. With Microsoft Dynamics 365 Business Central, you can gain full visibility and control over your landed costs but implementation and configuration matter.

At Dynamics Square USA, we specialize in helping businesses like yours unlock the full potential of Business Central. Our team will work with you to:

• Automate landed cost calculations based on your unique cost structures
• Integrate tariff data seamlessly into your purchasing and inventory processes
• Improve cost accuracy for smarter pricing, budgeting, and forecasting
• Ensure compliance with changing trade regulations and customs duties
• Customize workflows for multi-currency and multi-location operations

Whether you're a distributor, manufacturer, or importer, our consultants bring deep industry experience and hands-on knowledge to every project ensuring your ERP investment delivers measurable ROI.

If you need any help, don't hesitate to reach out to us. You can give us a call at +1 281 899 0865 or send us an email at arish.siddiqui@dynamicssquare.com.