July 1, 2020 is an important date for US small and medium-sized businesses. As of this date, the United States–Mexico–Canada Agreement (USMCA) has entered into force.
USMCA is a modernization of NAFTA into an agreement that the State Parties believe will lead to freer markets, fairer trade, and robust economic growth in North America. A fact sheet on the agreement can be found on the website of the Office of the US Trade Representative. Regarding small and medium-sized businesses, the document states:
“Increasing the de minimis level with key trading partners like Mexico and Canada is a significant outcome for United States small- and medium-sized enterprises (SMEs). These SMEs often lack resources to pay customs duties and taxes, and bear the increased compliance costs that low, trade-restrictive de minimis levels place on lower-value shipments, which SMEs often have due to their smaller trade volumes.”
The de minimus rule states that if a discount is less than 0.25% of the face value for each full year from the date of purchase to maturity, then it is too small (that is, de minimis) to be considered a market discount for tax purposes. Instead, the accretion should be treated as a capital gain.
The document goes on to state:
“Canada will raise its de minimis level for the first time in decades, from C$20 to C$40 for taxes. Canada will also provide for duty free shipments up to C$150. Mexico will continue to provide USD $50 tax free de minimis and also provide duty free shipments up to the equivalent level of USD $117. Shipment values up to these levels would enter with minimal formal entry procedures, making it easier for more businesses, especially small- and medium-sized ones, to be a part of cross-border trade.”
We’re very pleased to share this good news with our clients and the public, and we encourage those interested in cross-border trade to look into the new agreement and its benefits:
“New traders, just entering Mexico’s and Canada’s markets, will also benefit from lower costs to reach consumers. United States express delivery carriers, who carry many low-value shipments for these traders, also stand to benefit through lower costs and improved efficiency.”