The EAR De Minimis Rule Explained: 25% and 10% Thresholds, Calculation Method, and Worked Examples (2026)

When a company outside the United States ships a product containing U.S.-origin parts to a third country, one question decides whether the U.S. Export Administration Regulations (EAR) apply: the de minimis rule. In our export control work at TIMEWELL, we regularly meet companies convinced that U.S. rules cannot reach them because they have no direct U.S. business. That assumption is wrong. The EAR applies extraterritorially, and a shipment leaving a factory in Japan can carry U.S. licensing obligations with it.

There is a second development worth watching in 2026. The Affiliates Rule, which extends Entity List restrictions to entities owned 50% or more by listed parties, was published on September 30, 2025 (90 FR 47201), then suspended. It is scheduled to come back into force automatically on November 10, 2026. We cover the details in the second half of this article.

The Short Answer: Three Threshold Bands

Here is the conclusion up front. Whether a foreign-made product is subject to the EAR depends on the value ratio of controlled U.S.-origin content it incorporates.

Controlled U.S.-origin content	Most destinations	Country Group E:1 and E:2
10% or less	Not subject to the EAR	Not subject to the EAR (limited exceptions)
Over 10%, up to 25%	Not subject to the EAR	Subject to the EAR
Over 25%	Subject to the EAR	Subject to the EAR

Country Group E:1 consists of Iran, North Korea, and Syria; E:2 is Cuba. The legal basis is 15 CFR 734.4, with the 10% threshold in paragraph (c) and the 25% threshold in paragraph (d).

One caution before you rely on this table. Section 734.4(a) lists items for which no de minimis level applies at all: foreign-made encryption technology commingled with U.S.-origin ECCN 5E002 technology, certain 9x515 (space-related) and 600 series (military-related) items destined for specific country groups, certain high-performance computers, and more. If your product falls into one of these categories, even 1% of U.S. content makes it subject to the EAR.

If you want a quick read on whether your compliance program covers both the EAR and Japan's FEFTA, our free export compliance self-assessment takes about three minutes.

What EAR Re-Export Controls Are, and Why They Reach Non-U.S. Companies

The EAR is administered by the Bureau of Industry and Security (BIS) within the U.S. Department of Commerce and covers dual-use goods, software, and technology. Its defining feature is that it regulates not only exports from the United States but also re-exports, meaning shipments of U.S.-origin items from one foreign country to another. That is how a Japanese manufacturer shipping from Osaka to Bangkok can find itself subject to U.S. law.

The EAR typically reaches non-U.S. companies through three routes. First, re-exporting items procured from the U.S. as they are. Second, exporting a product that incorporates U.S.-origin items, which is where the de minimis rule comes in. Third, exporting a product manufactured using U.S.-origin technology or software, which is the territory of the Foreign Direct Product Rules (FDPR). De minimis and FDPR are often confused, but they test entirely different things, as we explain below.

Penalties are substantial. Criminal violations carry fines of up to USD 1 million or 20 years of imprisonment per violation. The maximum administrative penalty is USD 374,474 per violation or twice the transaction value, whichever is greater, at the level set on January 15, 2025 and carried into 2026 after the annual inflation adjustment was cancelled. BIS can also issue a Denial Order cutting a company off from all EAR-controlled transactions. For a manufacturer that depends on U.S. components, that is an existential risk regardless of whether it sells anything to the U.S.

The De Minimis Rule Under 15 CFR 734.4

The de minimis rule provides that a foreign-made item is not subject to the EAR if the controlled U.S.-origin content it incorporates is small enough. The name comes from the Latin maxim de minimis non curat lex, meaning the law does not concern itself with trifles.

The most common misunderstanding involves the numerator. You do not count every U.S.-origin part. You count only controlled U.S.-origin content, meaning items that would require a license if exported directly from the U.S. to the destination of your finished product. Items eligible for shipment with no license required (NLR), or under License Exception GBS, can be excluded. The consequence is that the de minimis ratio is not a fixed property of your product. It changes with the destination. A ratio of 12% for Thailand and 30% for Iran on the same product is perfectly normal.

The second point to check before doing any arithmetic is the exclusion list in 734.4(a). In my view, this check belongs first in the workflow, not last. There is nothing more deflating than completing a careful calculation only to discover the product was excluded from de minimis treatment from the start.

How to Calculate the Ratio: Supplement No. 2 to Part 734

The formula itself is simple.

De minimis ratio (%)
= Total value of controlled U.S.-origin content
  / Value of the foreign-made product x 100

The difficulty lies in what goes into the numerator and denominator, which is governed by Supplement No. 2 to Part 734, the official de minimis guidelines.

The numerator is the value of U.S.-origin items that would require a license to the destination. Purchase price is the normal measure, but if you procure at preferential intra-group prices, you must adjust to the fair market price that would be charged to unaffiliated customers. As noted above, items eligible for NLR treatment or License Exception GBS to the destination may be left out.

The denominator is the value of the foreign-made product, measured by its selling price rather than its production cost. Preferential pricing to affiliated buyers again requires adjustment to fair market value. Using production cost inflates the ratio and can push a product that is genuinely below the threshold into an incorrect positive.

Document everything. Section 734.4(g) requires you to record how you determined the U.S. content ratio, and Part 762 imposes a five-year retention obligation on export-related records. When an auditor or an agency asks how you reached a conclusion three years ago, the file has to exist.

Technology Requires a One-Time Report

For commodities and software, you may perform and rely on your own calculation. Technology is different. Before relying on the de minimis rule for foreign technology commingled with U.S.-origin technology, you must submit a one-time report to BIS describing the scope and nature of the technology and how you determined fair market value. If BIS does not respond within 30 days, you may rely on your calculations. If BIS objects within 30 days, you may not.

Software has a helpful special rule: the value of a foreign-made software product may be based on actual sales plus estimated future sales, a method not available for commodities or technology.

A Worked Example

Take a hypothetical. A Japanese manufacturer builds an industrial sensor unit and sells it to a customer in Thailand for JPY 2.4 million, its normal arm's-length price. The unit contains two U.S.-origin components: a semiconductor classified under ECCN 3A001 that would need a license from the U.S. to Thailand, purchased for JPY 300,000, and a connector classified EAR99 that ships to Thailand NLR, purchased for JPY 140,000.

Only the semiconductor enters the numerator; the connector does not count because it needs no license to Thailand. The ratio is 300,000 divided by 2,400,000, or 12.5%. Below 25%, so the export to Thailand is not subject to the EAR.

Now send the same product toward Iran. Iran sits in Country Group E:1, so the threshold drops to 10%. The semiconductor alone puts the ratio at 12.5%, already over the line, and the product is subject to the EAR. Stricter destinations also tend to pull items into the numerator that shipped NLR elsewhere, pushing the ratio higher still. The destination-dependence of the numerator does real work here.

Three Typical Scenarios for a Japanese Manufacturer

Using the example above, here is how three situations we frequently encounter play out. Same product, three destinations, three different conclusions.

Scenario 1: Shipping the Unit to Southeast Asia

At 12.5%, below 25%, with Thailand outside E:1 and E:2, the product is not subject to the EAR. That does not end the compliance work. Every export from Japan remains subject to FEFTA, so classification against Appended Table 1 of the Export Trade Control Order and catch-all screening of end use and end user are still required. We regularly see companies concentrate so hard on the EAR that the FEFTA check slips. Run both, every time.

Scenario 2: The Same Unit in an Iran-Related Deal

As calculated, 12.5% exceeds the 10% threshold for E:1, so the product is subject to the EAR and a BIS license is required in principle, with a very restrictive licensing policy. U.S. Treasury (OFAC) sanctions add another layer for Iran. Candidly, for most companies the realistic commercial decision is to decline this business rather than attempt licensing. Deals routed through trading companies where the ultimate destination is hazy are exactly the ones worth pushing on until the true end user is identified.

Scenario 3: An Inquiry From a Chinese Company on the Entity List

China is neither E:1 nor E:2, so at 12.5% the product is not subject to the EAR under the de minimis rule, and Entity List license requirements formally attach only to items subject to the EAR. Safe, then? Not quite. First, if the counterparty carries certain Entity List footnotes, the Entity List FDP rules can make the product subject to the EAR regardless of de minimis. Second, when the Affiliates Rule returns on November 10, 2026, restrictions will extend to entities majority-owned by listed parties. Third, Japan's catch-all controls require METI permission where there is concern about sensitive end use. Proceeding on the strength of a de minimis calculation alone is a decision I would talk a client out of.

For how the Entity List relates to the MEU List and the SDN List, see our comparison of the three lists.

De Minimis Versus the FDPR

Alongside de minimis, the other pillar of the EAR's extraterritorial reach is the set of Foreign Direct Product Rules in 15 CFR 734.9.

Aspect	De minimis rule	FDPR
Legal basis	15 CFR 734.4	15 CFR 734.9
What it tests	Ratio of incorporated U.S.-origin items	Whether the product is a direct product of U.S. technology or software
Numeric threshold	10% and 25%	None; a qualifying product is covered even with zero U.S. content
Typical case	Japanese equipment containing U.S. chips	A chip produced with U.S. design tools or manufacturing technology

De minimis looks at how much U.S. hardware sits inside the box. The FDPR looks at whether the product owes its existence to U.S. technology. A product with no U.S. parts at all can be subject to the EAR through the FDPR, so a clean de minimis result never excuses skipping the FDPR check. The two run in parallel, independently.

The FDPR has been the main arena of recent tightening, with rules covering national security items, Entity List footnote entities, Russia and Belarus, advanced computing, supercomputers, semiconductor manufacturing equipment, and AI model weights (ECCN 4E091). We walk through the expansion in our FDPR deep dive, and if classification is your starting point, our practical ECCN guide will help.

The 2026 Situation: Affiliates Rule Suspended, Snapback on November 10

Here is the current state of the Affiliates Rule, from the primary sources.

On September 30, 2025, BIS published an interim final rule extending Entity List and Military End User List restrictions to any entity owned, directly or indirectly, individually or in aggregate, 50% or more by one or more listed entities (90 FR 47201). Even a company that appears on no list becomes restricted through its ownership chain, which changes the premise of counterparty screening.

On November 12, 2025, following the U.S.-China trade understanding, BIS published a final rule staying the Affiliates Rule (Federal Register document 2025-19846). The suspension took effect on November 10, 2025 and runs through November 9, 2026. The critical detail: the stay rule already contains the amendatory instructions that reinsert the suspended provisions into the EAR effective November 10, 2026. Unless BIS takes further action, the Affiliates Rule returns automatically on that date.

As of July 2026 the rule is suspended, so the blanket 50% ownership restriction is not in force. But ownership research takes time, and it cannot be conjured up the week the rule returns. The suspension window is best treated as a preparation period for mapping the capital structure of your counterparties. Our complete guide to the Affiliates Rule covers the mechanics and the practical response.

Running the Assessment: A Five-Step Flow and a Request Template

A workable internal process looks like this.

1. Extract all U.S.-origin items from the product's bill of materials, including embedded software and technology, not just hardware
2. Confirm each item's ECCN and destination licensing requirements with your suppliers
3. Fix the numerator (value of license-required U.S.-origin items) and the denominator (fair market price of the product), calculate the ratio, and document the basis
4. Apply the 25% and 10% thresholds and check the 734.4(a) exclusions
5. Even if de minimis takes the product out of scope, separately confirm the FDPR and Japanese FEFTA requirements

For step 2, a short written request to the U.S. supplier is usually all it takes.

Subject: Request for ECCN and Export Licensing Information

Dear [Supplier name],

We incorporate your product [product name / part number] into
equipment manufactured in Japan. To assess the applicability of
the U.S. Export Administration Regulations (EAR) to our finished
product, could you please confirm the following?

1. The ECCN of the product (or EAR99 designation)
2. Whether a license would be required to export the product
   from the U.S. to [destination country]
3. Any applicable license exceptions

Thank you for your support.

Where suppliers cannot answer or classification remains uncertain, BIS classification requests (CCATS) are available, and in Japan, CISTEC publishes a systematic Q&A collection on EAR re-export controls, most recently revised as Rev. 8 on February 19, 2026. For Japanese-speaking practitioners it is the single most useful reference on this topic.

Do Not Forget Dual Compliance With FEFTA

Japanese companies answer to both FEFTA and the EAR, and one transaction can fall under both.

Aspect	FEFTA (Japan)	EAR (United States)
Authority	METI	U.S. Dept. of Commerce (BIS)
Trigger	Exports and technology transfers from Japan	Export and re-export of U.S.-origin items
Classification	Export Trade Control Order, Appended Table 1	Commerce Control List (ECCN)
Minimal-content exemption	None	De minimis rule (10% and 25%)
Record keeping	Classification records retained	Export records retained five years (Part 762)

The line that surprises people is the third from the bottom. FEFTA has no de minimis equivalent. A product outside EAR scope can still require a METI license if it is listed in Appended Table 1, and the reverse also happens. In practice, a transaction that can be cleared by checking only one regime essentially does not exist.

Reducing the Workload of the Assessment

As this article shows, the calculation is the easy part. The hours go into identifying U.S.-origin items, pinning down ECCNs, and screening counterparties. TIMEWELL's TRAFEED (formerly ZEROCK ExCHECK) is an AI agent for export control that supports classification and transaction screening in line with METI standards, with AI classification accuracy above 95% (joint validation with Okayama University, company research), patent no. 7862062, and adoption by more than 20 organizations. It handles multiple jurisdictions including the EAR and supports multilingual operation, which also makes it a practical base for the counterparty ownership checks the Affiliates Rule snapback will demand.

Frequently Asked Questions

Do all U.S.-origin parts count toward the de minimis numerator?

No. Only controlled U.S.-origin content counts, meaning items that would need a license from the U.S. to your product's destination. Items eligible for NLR shipment or License Exception GBS are excluded, which is why the same product can show different ratios for different destinations.

If the ratio is 25% or less, can we ship anywhere?

No. For Iran, North Korea, and Syria (E:1) and Cuba (E:2) the threshold drops to 10%. Certain items, including commingled 5E002 encryption technology and various 9x515 and 600 series items, have no de minimis level at all. And a de minimis pass says nothing about the FDPR or Japanese law.

Which should we check first, de minimis or the FDPR?

Neither comes first; check both independently. De minimis tests the ratio of incorporated U.S. items, the FDPR tests whether the product derives from U.S. technology, and one result never determines the other. Products with zero U.S. parts can be caught by the FDPR.

Does the Affiliates Rule suspension change the de minimis calculation?

The formula is unchanged. What changes is the counterparty screening that follows the calculation. When the rule returns on November 10, 2026, license requirements will extend to entities majority-owned by Entity List parties, so the suspension period is the time to research the ownership structures of your key counterparties.

Summary

Memorizing 25% and 10% is not the same as being able to apply the de minimis rule. The judgment only holds together when you narrow the numerator correctly, clear the exclusion list, and run the FDPR and FEFTA checks alongside. A concrete next step: pick one flagship product, pull the U.S.-origin items from its BOM, and run the five-step flow above once, end to end. You will learn exactly where your information gaps are. And put November 10, 2026 on the calendar. The Affiliates Rule is scheduled to come back, and the companies that used the quiet period to prepare will feel the difference.

References (Primary Sources)

1. 15 CFR § 734.4 - De minimis U.S. content (eCFR): https://www.ecfr.gov/current/title-15/subtitle-B/chapter-VII/subchapter-C/part-734/section-734.4
2. Supplement No. 2 to Part 734 - Guidelines for De Minimis Rules (eCFR): https://www.ecfr.gov/current/title-15/subtitle-B/chapter-VII/subchapter-C/part-734
3. 15 CFR § 734.9 - Foreign-Direct Product (FDP) Rules (eCFR): https://www.ecfr.gov/current/title-15/subtitle-B/chapter-VII/subchapter-C/part-734/section-734.9
4. BIS, Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities, 90 FR 47201 (published September 30, 2025)
5. BIS, One Year Suspension of Expansion of End-User Controls for Affiliates of Certain Listed Entities (Federal Register, published November 12, 2025): https://www.federalregister.gov/documents/2025/11/12/2025-19846/one-year-suspension-of-expansion-of-end-user-controls-for-affiliates-of-certain-listed-entities
6. BIS, Enforcement - Penalties: https://www.bis.gov/enforcement/penalties
7. CISTEC, Q&A Collection on EAR Re-Export Controls, Rev. 8 (February 19, 2026): https://www.cistec.or.jp/service/uschina/12-ear_qa.pdf