DDP, FOB, CIF… these are just some of the incoterms that you need to know when operating a growing international ecommerce business. Incoterms can take a while to wrap your head around but are important terms to know lest you be caught unprepared. Save this definitive guide to duties, taxes & e-commerce for when you encounter cross-border duties and taxes.
Duties
A duty is an indirect tax imposed on the consumer of imported products.
Taxes & Tariffs
A tax is a charge imposed by a government. Tariffs are direct taxes applied to goods imported from a different country.
Duties and taxes whilst seemingly straightforward at first glance, can wreak havoc for any ecommerce business caught unprepared.
What is DDP?
Delivery Duty Paid (DDP) is an incoterm rule where the seller assumes all responsibilities and costs associated with delivering goods to the named destination. It is the only incoterm that places responsibility for import clearance and payment of taxes and/or import duty on the seller. Sellers must pay both export and import formalities, fees, duties, and taxes.
Under DDP, buyers are free from any risk or cost until the goods are unloaded from the vehicle at the named destination.
Seller’s Obligations Under DDP
Under DDP sellers are obligated to:
- Prepare all goods, commercial invoices, and shipping documentation.
- Ensure goods are marked and packaged for export.
- Arrange the necessary export licenses and customs formalities.
- Organize pre-carriage and delivery.
- Pay for any loading charges.
- Plan and arrange the main carriage (transportation) of goods.
- Prepare proof of delivery.
- Handle all import formalities and duties.
- Cover the cost of all customs inspections.
- Arrange delivery to the named destination.
Despite the extensive number of items that ecommerce businesses will need to assume responsibility over, many opt to ship under DDP as it saves their customers time, effort, and money. As each country has its own rates, rules, and regulations, working with an experienced fulfillment partner who assumes the duties and responsibility for the business ensures that all goods successfully arrive at their intended destination on time and in compliance with jurisdictional regulations.
Duties & Tax Calculation Methods
Calculating the amount of duties imposed on a shipment will vary depending on a number of factors. There are 4 main calculation methods to determine the amount an ecommerce business shipping under DDP is liable to pay which alternate by country. Duties are calculated Ad Valorem (as a percentage based on the value of the goods).
- CIF (Cost, Insurance, Freight)
The duties are calculated on the cost of the order, plus freight costs, insurance, and seller’s commission. - FOB (Free on Board)
Fees are calculated only on the cost of the sold goods. - Weight
Duties are calculated on the weight of the goods. - No Duties Assessed (free port)
Some countries do not levy fees on imports (duty-free).
Calculation Method by Country
| CIF | FOB | Weight | No Duties |
| All other countries not named in this table. | American Samoa | Switzerland | Hong Kong |
| Australia | |||
| Botswana | |||
| Canada | Kiribati | ||
| Guam | |||
| Haiti | |||
| Lesotho | Liechtenstein | Macao | |
| Namibia | |||
| New Zealand | |||
| South Africa | Singapore | ||
| Swaziland | |||
| United States | |||
| Virgin Islands |
It is important to note that there are other fees that are included in the final landed cost calculation including taxes, carrier fees, and other government fees.
Calculation Examples
We’ve put together a handy reference that shows you how duties are calculated depending on the method being used. To do this, we have had to make the following assumptions:
- Item cost: US$ 50 Weight: 3 KG Shipping: US$ 20
| Calculation Method | Formula | Equation | Result |
| CIF (15% Ad Valorem) | Duty rate * (item cost + shipping cost) | 15% * (50+20) | $10.5 |
| FOB (10% Ad Valorem) | Duty rate * item cost | 10% * 50 | $5 |
| Weight (US$ 5 per kg) | Duty rate * item weight | 5 * 3 | $15 |
| Duty-Free | – | – | 0 |
Duties and taxes are crucial considerations for ecommerce businesses engaging in cross-border shipping. By understanding the different calculation methods and working with experienced fulfillment partners, businesses can ensure compliance with jurisdictional regulations and successfully deliver goods to customers without any unexpected costs or delays.
Floship Guaranteed Duties & Tax
If you’re an ecommerce brand that is looking for a simplified solution to help navigate duties and taxes then you should inquire about Floship Guaranteed Duties & Tax. Floship Guaranteed Duties & Tax is the most seamless duties and tax solution on the market for e-commerce brands. With guaranteed duties & tax calculations & collections, Floship Guaranteed Duties & Tax makes operating an international e-commerce brand easier than ever before. For more information, or to speak with one of our team tap below.
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