When you ship internationally, you or your customers may need to pay import duties and taxes - depending on the importing country, and the item you’re shipping.
If applicable, these duties and taxes will need to be paid before the shipment can be delivered to the final destination.
In this post, we go right down to basics and explain the different terminology associated with international shipping duties and taxes, as well as how you can smartly handle them.
Import duty is the tax charged by the importing country for the item you import into the country, and it serves to encourage or safeguard domestic industry. Do note that import duty refers to the amount of money that is charged as import tax, while tariff refers to the percentage of tax that is applied. In other words, import duty is the absolute value of tax payable, while tariff is the percentage.
In addition, another type of tax that may be applicable in the importing country is the Value Added Tax (VAT) or otherwise known as Goods and Services Tax (GST). This is a consumption tax that is applied upon sale of the goods at the destination country.
Duties and taxes comes into effect when your shipment reaches the customs of the destination country. Along with the shipment, you would have been required to submit a Commercial Invoice, where you would have needed to list down each item of your shipment and its retail value. The total retail value, along with any cost of insurance and freight is collectively known as the Cost, Insurance, and Freight (CIF) value. When the shipment arrives at customs, the customs officer will check whether the total CIF value exceeds the tax threshold. If the threshold is not exceeded, the item is cleared with no additional charge. If the threshold is exceeded, import duties will apply.
When it comes to paying duties and taxes, there are different ways to pay, and this is known as incoterms (“International Commercial Terms”). Set by the International Chamber of Commerce (ICC), these terms describe whether the sender or the receiver will be paying for duties and taxes.
For e-commerce, there are typically two main incoterms that are applicable:
- DDU (Deliver Duty Unpaid): This means that the customer is responsible for paying the duties.
- DDP (Deliver Duty Paid): This means that the shipper is responsible for paying the duties.
How much are applicable duties and taxes?
The amount of duties and taxes applicable depend on several factors:
- The country of origin
- The destination country’s tariff rates and VAT/GST rates
- Trade agreement between the two countries
- Your product’s declared retail value and your shipping (and insurance) costs
- Your product’s category type / HS code
To get an idea of what duties and taxes may apply for your item, take a look at this duty calculator.
DDU or DDP - what is right for me?
There is no one option that is right for all sellers, but there are several considerations to think through.
In the case of national posts (e.g., Japan Post), there is typically no DDP option, so DDU may be your default option if you are using national posts. Interesting, customs regulations tend to be typically more laxed for national posts, so shipments above the CIF value may or may not be taxed even under the DDU option as well.
In the case of courier services (e.g., DHL, FedEx, UPS), both DDP and DDU options are available, and all shipments above the CIF value would be taxed. When placing a shipment request, you can let the courier know whether you’re opting for DDU or DDP, and you can also ask your shipping provider to pay for any duties on your behalf, and they will then bill you (in the case of DDP) or your customer (in the case of DDU) later on. This helps to minimize any delays at customs, but involves handling fees from the courier. Be sure to discuss the terms of handling fees with your courier during account setup, and try to negotiate on these fees.
DDP is a great option for the customer as it minimizes cost and delays for the customer, but most international shoppers are aware of having to pay any associated fees and taxes when buying online, so DDU ends up being the more commonly used option for now.
If you’re going with the DDU option, it’s important that you communicate very clearly to your customers that they will be paying for the associated fees and taxes.
You can do so by:
1) Having a dedicated page on tax handling. Here is an example from Bento&co.
2) Adding a line that taxes may apply, linking to your dedicated page for further information. This line can be added to your:
- Product pages
- Store checkout page
- FAQ pages
- Email to customers when you confirm the order
Ship&co is a global shipping platform designed by and for e-commerce sellers. Created by the team behind Bento&co, who have been selling on Shopify since 2008, Ship&co provides a simple and easy-to-use web dashboard and shipping API. Ship&co helps online sellers ship packages faster by automatically syncing orders and creating shipping labels and invoices in minutes. With Ship&co, you can create shipping labels for FedEx, UPS, DHL, NinjaVan, Yamato, Sagawa, and more, with just two clicks to complete the process and mark your orders as shipped. For more information on Ship&co, visit shipandco.com or reach out to us via firstname.lastname@example.org !