There is not one rule for how duties and taxes are calculated on international shipments. The rules vary depending on the destination country, as well as the type of business transaction, which can either be a B2B (business-to-business) or B2C (business-to-consumer) purchase transaction. Shipping the same item from the same origin to various destination countries can result in different legally required payments.
Not making those payments can result in financial and legal penalties. Plus, your shipment may be held or returned rather than delivered.
Fortunately, there are simple ways to ensure compliance.
Are Duties and Taxes the Same?
Duties are specific product-based taxes on imported goods. But there are other taxes, too. So, they are different, but all of them must be paid.
Duties are levied against imports. They are both a source of revenue for the government and a way to favor domestic industries by increasing the cost of foreign goods. There are exemptions from duties in some cases, as it depends on the type of product and the value. Each country has its own rules.
In addition to Duties, many countries charge a Value Added Tax (VAT). This is basically a sales tax. The cost of shipping and insurance are usually added to the product value to calculate the taxable value of the goods. Exemptions from this tax are rare.
With taxes, the important thing is to check the requirements of the specific destination country since the names of taxes and amounts charged will vary. What is consistent is that some type of tax will have to be paid.
What Are The Differences Between DDU and DDP?
DDP (Delivered Duty Paid) and DDU (Delivered Duty Unpaid) are Incoterms. They specify which party is responsible for paying the Duty. (Transportation – the Delivered – is covered by the shipper in both cases.)
With DDP, the consignor (shipper) pays. This method is preferred by many since it streamlines the clearance process. It also minimizes misunderstandings about the cost of the Duty. This is the type of misunderstanding that can result in lost sales and returned products.
With DDU, the consignee (receiver) pays. This makes the initial sale price lower, but the onus for paying the Duty rests with the receiver. If, for whatever reason, the receiver does not pay the Duty, then the goods will not be delivered.
How Do I Know What to Pay?
Good question. The answer varies by destination country, as well as the value and type of the product. It gets complicated, but help is available.
In some cases, there may be no Duty due. If the product does exceed a certain value, the De Minimis value, then no Duty is due. The De Minimis value is based on the commercial invoice, and varies by country. But nowadays an increasing number of countries have or are about to introduce D&T reforms, focusing on the elimination of the De Minimis; the UK, European Union States, Australia and Switzerland to just name a few.
However, imports to the United States remain to have no Duty, also known as Duty Free, if the value is under $800 USD. That is considered a high De Minimis and favorable for imports. Most countries, however, have much lower amounts, with some as low as $5 to $10 USD.
A general listing of the De Minimis values by country can be accessed here. These values can change with updated laws and trade agreements, though.
If the shipment exceeds the De Minimis value, then the appropriate Duty must be paid. The Duty percentage is based on the commodity. Not all commodities are charged the same percentage, and exceptions occur even within general commodity categories. Weights and quantities are among the considerations as is the origin country.
The World Customs Organization maintains the Harmonized Commodity Description and Coding System (“Harmonized System” or HS) to facilitate international trade. This standardized coding system sets a baseline for all countries to use, and individual countries can expand upon it. The coding determines the category for each commodity. The United States Harmonized Tariff Schedule is over 4,300 pages.
It goes duty first, then the other taxes with the VAT being the most common. A listing of VAT by country can be accessed here.
What If I Have Questions?
Everyone has questions. You can find the answers by following the links we have provided, or you can contact us now. We specialize in providing answers for you.
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