Electricity Breakdown at Customs: HS 8502 or HS 8504 – 0% or 10% Duty?

The commercial stakes are high: in many jurisdictions electric generating sets are duty‑free, while transformers and converters may attract customs duty (often quoted as up to 10%). This article explains where the line is drawn, why disputes arise, and how customs authorities typically analyse such cases, with a particular focus on the EU customs framework.

The Legal Framework: HS, CN and TARIC

Goods imported into the EU must be classified under the Harmonized System (HS), implemented in the EU through the Combined Nomenclature (CN) and further detailed in TARIC. Classification determines not only customs duty, but also trade policy measures and statistical reporting. [taxation-c….europa.eu], [trade.gov]

The relevant headings are located in Chapter 85 (Electrical machinery and equipment):

• HS 8502 – Electric generating sets and rotary converters
• HS 8504 – Electrical transformers, static converters (for example, rectifiers) and inductors

The wording appears clear at first glance, yet practical applications often blur the distinction.

HS 8502: Electric Generating Sets (Typically 0% Duty)

HS 8502 covers machines whose essential function is the generation of electrical energy. The heading includes generating sets driven by diesel engines, gas turbines, wind, or other prime movers, as well as rotary converters. [taricsupport.com]

In the EU, imports classified under CN 8502 are generally subject to a 0% third‑country customs duty, reflecting long‑standing EU tariff policy for power‑generation equipment. [findhs.codes]

Key characteristics of HS 8502 goods:

• Electricity is produced, not merely transformed.
• The generating function is self‑contained within the unit.
• Ancillary components (control panels, alternators) are subordinate to the generation function.

As a result, importers of power plants, gensets, or wind turbines often seek classification under HS 8502 to benefit from duty‑free treatment.

HS 8504: Transformers and Static Converters (Often Dutiable)

HS 8504, by contrast, covers equipment that does not generate electricity, but rather modifies its characteristics—such as voltage, current, or frequency. This includes transformers, inverters, rectifiers, and inductors. [taricsupport.com], [trademo.com]

Within the EU, duty rates under CN 8504 vary by subheading. Many subcategories are duty‑free, but others may carry a positive MFN duty, depending on technical parameters and tariff suspensions in force at the time of import. Outside the EU, several jurisdictions apply customs duties of up to 10% on transformers and converters, which explains the frequent commercial sensitivity around this heading. [taxation-c….europa.eu]

Typical features of HS 8504 goods:

• Electricity is received and altered, not created.
• The equipment operates downstream of generation.
• The function is limited to conversion, regulation, or distribution.

Where the Dispute Arises: Power Projects and “Functional Unity”

Disputes most commonly arise when transformers or converters are imported as part of a broader power‑generation project. Importers may argue that such equipment forms an integral element of an “electric generating set” and should therefore be classified under HS 8502.

Customs authorities, however, usually apply two core principles derived from HS interpretation rules:

1. Essential Character – Classification depends on what the product is, not how it will be used after importation. A transformer remains a transformer even if installed inside a power plant.
2. Functional Unit Doctrine – Only applies where multiple components together perform a single clearly defined function. In many rulings, authorities find that generation (8502) and transformation (8504) are distinct functions, excluding transformers from 8502. [customsclear.net]

Courts and customs bodies worldwide have repeatedly confirmed that end‑use in electricity generation does not override the intrinsic technical function of the imported article.

Practical Consequences for Importers

The classification outcome has immediate financial and compliance implications:

• Duty exposure: 0% under HS 8502 versus potentially dutiable treatment under HS 8504.
• Risk of reassessment: Misclassification can trigger retroactive duty claims and penalties.
• Project costing: Large‑scale energy projects may see material budget impacts from classification disputes.

To mitigate risk, importers often seek Binding Tariff Information (BTI) decisions in the EU, which provide legal certainty on classification prior to importation. [taxation-c….europa.eu]

Conclusion

The question “8502 or 8504 – 0% or 10% duty?” ultimately turns on a fundamental distinction in customs law: generation versus transformation of electricity.

• HS 8502 applies where electricity is produced and is generally duty‑free in the EU.
• HS 8504 applies where electricity is modified, and duty treatment depends on the specific subheading and jurisdiction.

For energy and infrastructure projects, understanding—and documenting—the technical function of imported equipment is essential. In customs classification, what the equipment does matters more than where it will be used.