Ecommerce businesses face a variety of duties and taxes when operating internationally.
When products or goods are shipped to another part of the world either you or your customer may be asked to pay additional duties and taxes before the shipment is delivered. These are legal requirements that must be settled before your shipment can be delivered.
There are two main factors which help you to work out whether you have to pay import duties: which country you are shipping to and what products you are shipping.
Country of import
The specific import duties international shippers must pay depend largely on the country to which the products are being shipped. Each country has its own set of customs, rules, and import duties.
For example, the import duties that you owe when shipping to countries that have a free trade deal with your home country (like Canada and the US) will likely be lower than if the destination country is strongly protectionist.
The other most important factor determining import duties and fees is the product being imported. Some goods are taxed heavily and others very little, so the type of product can make a big difference.
Below are the most common types of tax terms you will come across in shipping:
Import Duty (Custom Duty)
This is a tax imposed by a government on goods from other countries. Increased prices on imported goods make the products less "attractive" so buyers are encouraged to support the domestic market. Import duty percentages vary depending on what category the goods sit in, while VAT and GST regularly stay the same.
Goods and Services Tax (GST)
The goods and services tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. It’s charged in stages and then reimbursed to everyone throughout the process except the end buyer.
Value Added Tax (VAT)
This tax is charged to consumers when they buy most goods or services.
A commercial invoice is an important document needed in international shipping that describes the items in the shipment and their value. Commercial couriers refer to this document to process and clear a package through customs.
De minimis value
This is the tax threshold, or the amount where a person starts to pay taxes on an item.
DDP (Deliver Duty Paid)
DDP means the sender is responsible for paying the duties. In ecommerce, many sellers include these duties at checkout and directly collect payment from the customer.
DDU (Deliver Duty Unpaid)
DDU means the receiver of the shipment is responsible for paying the duties. They will get contacted directly by customs, and the package isn’t delivered until the charges are settled.