What is ad valorem tax?

Ad valorem tax is a tax of which the size depends on the estimated or assessed value of an item. The term "ad valorem" comes from Latin and means "based on value."

Governments often use ad valorem taxes on real estate and personal property such as boats and cars to generate income.

Example: With an ad valorem rate of 5% and additionally a specific tax of 16 euros per tonne for a specific product, the following calculation applies. For an import of 2 tonnes of the product with a value of 700.00 euros, customs duties would be paid of; 700,000 euros x 5% = 35,000 euros ad valorem. A specific rate would consist of 2 x 16 = 32. A total of 35,032 euros in taxes would therefore be paid.