De Minimis Rules: US-Origin Content Thresholds

Your CFO asks a simple question: "Our German subsidiary makes a product and ships it to Singapore. Why does US export control even apply?"

Because the circuit board has a US-origin chip. The firmware was developed in California. The calibration equipment came from a Texas supplier. Now you're calculating percentages, arguing about fair market value, and explaining to the board why a product that never touched US soil might need a BIS license.

The de minimis rule is where global supply chains run headfirst into US export jurisdiction. Get the calculation wrong in one direction, you've blocked legitimate sales your competitors are making. Get it wrong in the other direction, you've shipped controlled items without authorization. I've seen both outcomes. The first cost a medical device company $2.3M in lost European revenue over 18 months while they sorted it out. The second cost an industrial controls manufacturer $890K in BIS penalties plus two years of enhanced compliance monitoring.

Key Takeaways

• De minimis thresholds determine whether foreign-made items containing US-origin content fall under EAR jurisdiction
• The standard threshold is 25% US-origin controlled content—but drops to 10% for certain countries and zero for some items
• "US-origin" means where the item was manufactured or substantially transformed, not where the company is headquartered
• The calculation uses fair market value in the US, not your transfer price or cost basis
• Country Group E:1 destinations (Cuba, Iran, North Korea, Syria) have a 10% threshold—and some items have no de minimis at all
• Getting the calculation wrong isn't a gray area. It's either a compliance violation or unnecessary business disruption

What This Actually Means for Your Business

De minimis isn't an exemption. It's a jurisdictional line. Cross it, and US export controls follow your foreign-made products around the world. Stay below it, and EAR doesn't apply—even though the product contains US components.

The threshold exists because pure origin is a fantasy in modern manufacturing. Your German machine tool has Japanese bearings, Taiwanese sensors, Korean displays, and US microcontrollers. If every product with any US content required export licenses, global trade would stop. De minimis draws a practical line.

The problem for executives: that line moves depending on where you're shipping and what's in the product. And nobody at your foreign subsidiary is tracking this unless corporate compliance tells them to.

The 25% Threshold (And Why It's Not That Simple)

Standard rule: if US-origin controlled content is less than 25% of fair market value, EAR doesn't apply to your foreign-made product (15 CFR 734.4). Ship anywhere. No US license needed.

Simple enough until you read the exceptions.

• The 10% problem. Ship to Cuba, Iran, North Korea, or Syria? Threshold drops to 10%. A product your European subsidiary has been shipping freely to Asia at 15% US content suddenly needs a license—which will be denied—if a customer wants to reexport it to Tehran. I worked with an industrial equipment manufacturer who learned this when a UAE customer ordered systems for an Iranian petrochemical facility. The European subsidiary had been shipping this product for six years. Same 15% US content. Legal everywhere they'd sent it. Except Iran has a 10% threshold. Suddenly they were looking at years of potential reexport violations through third-country customers they'd never tracked. The legal review alone cost $340K.
• The zero threshold. Some items have no de minimis at all. Any US-origin controlled content—0.1%—pulls the foreign product under EAR. This applies to certain missile technology, nuclear-related items, and some encryption products for restricted end-users. The 2020 Huawei rules added another zero-threshold category through the "foreign direct product rule." If your product was made using US technology or US-origin equipment, US jurisdiction can attach even with zero US components in the final product. More on that below—it's the rule that keeps general counsel awake at night.

"US-Origin" Doesn't Mean What Most People Think

Origin is where the item was manufactured or substantially transformed. Not where your company is headquartered. Not where the invoice came from. Where the thing was actually made.

This confuses multinational executives constantly. Your US company's Taiwan subsidiary makes semiconductors using local materials and local labor. Those chips are Taiwanese-origin, not US-origin. Your Japanese competitor's Arizona fab making the same chips? US-origin.

Corporate ownership doesn't determine export jurisdiction. Manufacturing location does.

The "substantial transformation" question matters when items cross borders during production. US-made component ships to Mexico for assembly, then to Germany for final integration. Where did substantial transformation occur? The answer determines origin—and whether US content enters the calculation.

A compliance VP at an aerospace company told me: "We have 14,000 SKUs. For about 3,000, we genuinely can't determine origin of every component. Supply chain is five tiers deep. Some of it is unknowable."

That's the reality. Perfect origin tracking is impossible for complex products. De minimis calculations involve documented estimates and reasonable assumptions. The key word is "documented"—because BIS will ask how you concluded a product was below threshold, and "we guessed" isn't an answer.

The Calculation That Finance Gets Wrong

De minimis divides US-origin controlled content by total fair market value. Both numbers in US fair market value—not cost, not transfer price, not what you paid.

• The numerator mistake. Only controlled content counts. Your product has 30% US-origin content, but 22 points of that is EAR99 stuff—commodity chips, standard connectors, things that don't need licenses. Your actual controlled content is 8%. The 30% number is irrelevant. I see companies block sales because someone calculated total US content instead of controlled US content. "We can't ship to Asia—we're at 28%." No, you're at 6% controlled. You've been losing sales for two years because finance measured the wrong thing.
• The denominator mistake. Transfer prices aren't fair market value. Intercompany cost isn't fair market value. For items sold in the US, use the selling price. For items never sold in the US, estimate based on comparables. I audited a calculation where the company used intercompany cost as the denominator. Their number came out 18%. Actual ratio using fair market value: 31%. They'd been shipping to Country Group B destinations for three years without required licenses. That audit triggered a voluntary self-disclosure covering 400+ shipments.
• The documentation mistake. Your calculation methodology, component origin determinations, value assumptions—all of it needs to be in a file somewhere. BIS can ask in 2028 about a shipment from 2024. If you can't reconstruct the analysis, you can't prove you had a legal basis to ship.

The Rule That Changed Everything (Foreign Direct Product)

The 2020 Entity List changes created a parallel jurisdictional hook that ignores de minimis entirely.

Traditional de minimis: chip made in Taiwan with Taiwanese materials and Japanese equipment = 0% US content = not subject to EAR.

Foreign direct product rule: same chip, but designed using US-origin software or made on equipment that incorporates US technology = subject to EAR for certain destinations, even with zero US components.

This started with Huawei. The 2022 semiconductor controls expanded it to advanced chips bound for China. The 2024 updates went further.

A European semiconductor equipment company I work with learned this painfully. Their product: 12% US content, well below 25%. Not subject to EAR under de minimis. Except the product was manufactured using US-origin lithography systems. Foreign direct product rule applied. EAR jurisdiction attached. Three years of shipments to Chinese customers suddenly looked like potential violations.

The board meeting where that came out was not pleasant. The COO's question: "How did we not know this?" The answer: because de minimis was the only analysis anyone ran. Nobody checked whether the production equipment created a separate jurisdictional hook.

The Five Mistakes That Cost Money

• Counting EAR99 content. Your BOM shows 30% US-origin. But 22 points is EAR99. Controlled content is 8%. If you're blocking sales based on 30%, you're giving revenue to competitors who did the math correctly.
• Using transfer prices. Your intercompany cost isn't fair market value. For multinationals with tax-optimized structures, the gap can be 30-50%. A product that looks like 19% on your books might be 28% at fair market value.
• One threshold for all destinations. Product at 15% controlled content ships freely to Germany. Same product to Iran? Above the 10% threshold. If you have customers in or near restricted countries, you need destination-specific analysis.
• Forgetting software. US-origin firmware, embedded code, algorithms—all count toward the numerator if controlled. I've seen calculations that meticulously tracked hardware components and completely ignored the California-developed software running on them.
• One-time calculations. BOMs change. Suppliers change. The product that was 18% US content last year might be 28% this year because you switched a component supplier. De minimis isn't a one-time certification. It's ongoing analysis.

FAQ

• Who owns de minimis analysis—the US parent or the foreign subsidiary? Legally, the reexporter is responsible. For your German subsidiary shipping to Singapore, that's the German entity. Practically, the US parent has the BOM data, the classification expertise, and the regulatory exposure. Most multinationals centralize de minimis in corporate compliance. The subsidiary doesn't have the information to do it correctly, and the penalty for getting it wrong lands on the consolidated P&L anyway.
• Our supplier says the component is "foreign-origin." Can we rely on that? You can use it as input to your calculation. You can't use it as a defense if it's wrong. "Supplier told us" doesn't insulate you from reexport violations. For components that could swing your calculation above threshold, verify the claim. Ask for manufacturing location, not just invoice origin.
• What does a de minimis violation actually cost? Depends on volume and pattern. Single-shipment violations after good-faith calculation errors might settle for $50-100K with voluntary self-disclosure. Systematic failures—years of shipments under wrong assumptions—can run $500K-2M plus enhanced compliance monitoring. The real cost is often the business disruption: pausing shipments to investigate, legal fees for disclosure preparation, and the 12-24 months it takes to close an investigation.
• How do I know if our calculations are right? Ask your compliance team to walk you through the last five de minimis determinations. Can they show you the controlled content calculation? The fair market value basis? The documentation supporting origin determinations? If they can produce that in an hour, you're probably fine. If they start explaining why "we've always done it this way," schedule an audit.

De minimis looks like simple math. Divide controlled content by total value, compare to threshold. The complexity is in the inputs: what counts as controlled, what value basis applies, which threshold governs for which destination, and whether the foreign direct product rule creates a parallel hook that ignores the calculation entirely.

Trade compliance platforms—SAP GTS, Descartes, Lenzo—can flag items for de minimis review based on BOM content and destination. But the calculation still requires human judgment on origin and value. The software surfaces the question. Your people have to answer it.

The companies that get this right treat de minimis as living analysis. BOMs change. Suppliers change. Customer bases expand into new markets. A product comfortably below 25% in 2023 might need a hard look in 2025.

The CFO's original question—"Why does US export control apply to a product made in Germany?"—has a frustrating answer: because global supply chains and US regulatory reach don't respect manufacturing borders. That's not going to change. The only question is whether your calculations are keeping up.