Working with Tariffs in Microsoft Dynamics 365 Business Central: Best Practices for Global Trade

Businesses engaged in international trade face mounting complexity around tariffs and trade regulations. Tariffs—government-imposed duties on imported goods—can drastically affect product pricing, margins, and operational planning. For organizations using Microsoft Dynamics 365 Business Central, integrating tariff management into supply chain and financial workflows is essential.

Why Tariff Management Matters

Recent U.S. trade policy developments have led to tariff increases ranging from 25% to as high as 100%, with some already in effect as of late 2024 and others slated for 2025 and 2026.¹ In fiscal year 2024 alone, U.S. companies paid $88 billion in duties, taxes, and trade-related fees, underscoring the substantial financial impact of international trade.²

Failing to manage tariffs properly can result in:

• Inaccurate landed costs and inventory valuation
• Compliance violations and financial penalties
• Eroded profit margins and poor vendor cost analysis
• Delayed customs clearance and shipment disruptions
• Fragmented trade data across systems
• Overpayment of duties or missed refund opportunities

Let’s avoid that. Here’s how Business Central can directly support tariff management:

• Apply Item Charges for Tariff Costs: Use Item Charges to assign tariffs as additional costs on purchases or imported goods. This approach ensures accurate landed cost calculations and better visibility into the true cost of goods, supporting more informed pricing and profitability decisions. Here’s a streamlined guide to setting up Item Charges, but feel free to reach out if you need assistance.
  1. Go to Item Charges and create codes for each type of charge (e.g., Freight).
  2. Open a purchase or sales document where charges need to be assigned.
  3. Add a new line of type Charge (Item) and select the appropriate code.
  4. Link the charge to the received or shipped items.
  5. Distribute charges manually or automatically based on amount, quantity, weight, or volume.
  6. Post the invoice or credit memo; item ledger and value entries will reflect the updated costs.

• Ensure Accurate Harmonized System (HS) Classification: HS codes are commonly used to classify goods throughout the import and export process.³ Products must be categorized using HS codes, which dictate the applicable tariff rates. Precise classification is essential for legal compliance and accurate duty assessments, reducing the risk of fines or delays.

• Diversify Your Supplier Base: Evaluate sourcing options from regions or suppliers with lower tariff rates. Diversifying your supply chain can reduce exposure to high-duty imports and improve cost efficiency and profitability.

• Stay Informed on Tariff Policy Changes: Tariff regulations can shift rapidly due to geopolitical or trade policy changes. Regularly monitoring these updates helps ensure compliance and allows you to promptly adjust procurement strategies and pricing models.

• Leverage Duty Drawback Programs: If your business re-exports imported goods, investigate eligibility for Duty Drawbacks. This is a refund of duties, fees, and taxes paid on certain categories of goods imported into the U.S. that are then exported from the U.S.⁴ These programs can provide refunds on previously paid tariffs, resulting in significant savings and enhanced cash flow.

• Allocate Costs Accurately in Inventory Valuation: Incorporate tariff and duty expenses into inventory valuation to ensure your financial reports accurately reflect the full cost of goods sold. This is the calculation:⁵

Ending Inventory = Beginning Inventory + Net Purchases – Cost of Goods Sold (COGS)

Inventory valuation calculates the value of items you still have in stock using actual recorded costs. To incorporate tariff and duty expenses into inventory valuation in Business Central, you use Item Charges. This approach ensures that additional costs like tariffs and duties are capitalized into the cost of inventory to support better financial decision-making.

• Explore Independent Software Vendors (ISVs): ISVs offer advanced add-ons and tools tailored to complex tariff management needs. These integrations can extend the functionality of Business Central, offering features like automated classification, real-time duty calculation, and compliance checks.

Turn Tariff Complexity into a Competitive Edge

When approached with the right systems and support, tariff management can provide insight and strategic advantage. Microsoft Dynamics 365 Business Central offers tools to help businesses track, allocate, and respond to the financial impact of duties and tariffs. But you must go beyond default settings to maximize these capabilities.

At Custom Systems, we help businesses configure Business Central to handle the nuances of global trade, from accurate item charges to strategic sourcing insights. When standard functionality needs to go further, we work with trusted ISVs to unlock added value.

Let’s make your ERP system work smarter so you can spend less time reacting to tariffs and more time growing your business. Contact Custom Systems to explore how we can tailor Business Central for your international operations.  

References:

1. 1.

   https://www.cov.com/en/news-and-insights/insights/2024/12/section-301-tariffs-and-proceedings-recent-and-potential-developments

2. 2.

   https://www.cbp.gov/newsroom/stats/trade

3. 3.

   https://www.trade.gov/harmonized-system-hs-codes

4. 4.

   https://www.ups.com/us/en/supplychain/logistics-solutions/customs-brokerage/duty-drawback-guide

5. 5.

   https://learn.microsoft.com/en-us/dynamics365/business-central/design-details-inventory-valuation