How to handle tax and duty for your international shipments

 If you’re thinking of expanding your business internationally, you have the right mindset.

International sellers are boosting their sales by 10-15% on average, compared to those who only sell domestically. Cross-border sales have continued to grow 25% year-on-year, outpacing domestic sales.

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However, opening your store to the world sounds like it’s easier said than done. A common logistics concern is how to handle international taxes and duties for your overseas shipments. 

This article will go over what taxes and duties are, and what you should do if they apply to your shipment.

What are taxes and duties?

Sales Taxes are required financial obligations levied by a government on income, goods, and activities.

Duties are a tax payable to the government, charged on goods and financial transactions.

Taxes and duties make the price of imported goods more expensive for consumers. Governments tax imports because they want to:

1. Protect domestic companies from foreign competitors

2. Control the flow of certain products

3. Raise revenue through taxes

Every country has a tax threshold: the amount where a person begins paying taxes on an imported item. Taxes and duties vary for every item in every country. Since there is a chance they may apply to your products, it’s best to research the tax thresholds for each country you plan on shipping to, so you can communicate this to your customers effectively.  

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Types of international tax & duty

When shipping internationally, you may come across the following:

Import duty. This is a government-imposed tax on goods from other countries. 

Value Added Tax (VAT). This is a consumption tax that taxes the value added to an item at each stage of production: from raw materials, to manufacturing, to wholesale, to final sale. The VAT model exists throughout the EU and many other countries around the world.

Paying tax & duty

If you’re using a commercial courier to ship your packages, you will need to include a commercial invoice as part of the paperwork for your shipment. Commercial invoices contain important information that will help clear your package through customs.

You will need to list the retail value of each item of your shipment. When your shipment arrives in customs, the officer will look at this value and determine whether it is above the tax threshold.

If it is below the threshold, your shipment will be cleared and delivered to your customer.

If it is above the threshold, import duties will apply. The customs officer will check whether these duties have already been paid, or if they still need to be collected from the customer.

null Understanding the differences between DDU and DDP

There are two ways you can choose to pay duty: DDU (Deliver Duty Unpaid) and DDP (Deliver Duty Paid).

For DDU shipments, the customer gets contacted by customs once their shipment arrives, and will have to settle any charges in order for customs to release the shipment for delivery.

For DDP shipments, the sender is responsible for paying the duties. In many eCommerce cases, the seller includes these duties at checkout and directly collects payment from the customer.

If you decide to go the DDU route, there are a lot of risks involved. First, you have to make sure that the customer fully understands that duties will apply to their shipment and that they should expect to be contacted by customs to collect them accordingly. If the customer overlooks this, it can be an unwanted surprise and will negatively impact the customer experience.

DDU can also get very expensive, as customs will forward the package to an independent customs broker. On top of brokerage fees, if the duties payment isn’t handled in a timely manner, it can be subjected to storage and late fees. As all brokers charge a different fee structure, it’s impossible to tell what the final costs will be.

DDP is a lot safer option. At first, they will appear more expensive upfront, as express couriers will process the payment to customs for an additional fee. They may also charge “disbursement fees”, which is a percentage of the amount of duty they will advance for the shipment. Still, these fees are fixed and can be 3-4 times cheaper than a customs broker.

Paying these additional fees upfront to the courier ensures that your shipment will clear customs and get delivered, and customs wouldn't have to contact your customer directly to collect additional fees.

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Communication is key

Whether your business decides to ship DDU or DDP, it’s best to always communicate to the customer that taxes and duties may apply to their shipment, and that they should expect to handle these charges accordingly.

It’s best to mention that tax & duty and will apply:

  • On product pages
  • At your store checkout
  • In email confirmations
  • Within your shipping policy
  • On your store's FAQ page

Installing Easyship’s Rates at Checkout for your online store is an easy way to display any taxes and duties that will apply to your shipment. Providing this visibility to your customer not only ensures that they are aware of the full shipping costs, but also builds their trust in your business. 

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About the author:

Easyship is an all-in-one shipping tool for eCommerce sellers looking to sell worldwide. Sign up for free to get access to 100+ solutions with rates discounted up to 70%!

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