Duties and taxes on e-commerce shipping
Understanding duties and taxes is essential for e-commerce businesses that ship internationally. That's because these customs charges can affect your costs, your shipping process and most importantly, your customer's experience.
Common questions about e-commerce duties and taxes
1. What does 'duties and taxes' really mean?
Duties and taxes are customs charges placed on a shipment when it leaves or enters a country. And they apply to e-commerce shipments too.
Duties are a type of tax charged on goods leaving or arriving in a country, while taxes are a sales tax (such as VAT or GST) placed on purchased goods, including goods from abroad.
In this article we cover the most common duties and taxes, which are import duties (or trade tariffs) and sales tax charged on goods when they enter a country.
2. How do duties and taxes affect e-commerce shipping?
For an e-commerce company planning to ship to new countries, it's important to understand if any duties and taxes will apply to your shipments, as these extra costs can influence your business in three ways:
- Your finances – if your company is the one paying for any duties and taxes then this will impact your profit margin. It can also make the goods more expensive for your customers, which can slow your sales rate.
- Your logistics – duties and taxes that are not paid promptly can cause a customs delay and slow your delivery time.
- The customer experience – if your customer is responsible for paying any duties and taxes then it's essential they understand this in advance, through clear communication on your webshop and at the checkout.
3. Are duties and taxes different for e-commerce shipments?
No, they're not. The same rules and rates apply to e-commerce shipments as for almost all other kinds of shipment – even though e-commerce packages are most often sent to private individuals. To a customs agent, they're all just parcels leaving one country and entering another.
4. Will duties and taxes be charged on my e-commerce parcel?
It depends on four factors: the total value of the shipment, the type of goods inside, the origin country and the import rules of the destination country. Your carrier or customs broker can help you understand the rules that apply to your shipment.
Not all shipments will be charged duties and taxes: some will have no charges because they are low-value or fall under a product category that's exempt.
5. Which shipments are exempt from duties and taxes?
As mentioned above, if you want to know if your parcel is exempt from duties and taxes, you must check the import conditions that apply to your specific shipment. You can, however, get a rough indication. Parcels often exempt from import duties and taxes are usually:
Low-value shipments under the de minimus
The de minimus is a threshold for duties and taxes. If a shipment's total value (goods value plus shipping costs and insurance) is under the de minimus then no duties and taxes apply.
This low-value limit varies by country. For example, the de minimus for goods entering the US (to a private individual) is US$800, while in Canada it's CA$20 and in Chile it's US$30. If you are Shipping to the EU, keep in mind that as of July 1, 2021, there is no longer a de minimus value and taxies will be levied on all imported goods. For products valued above €150, expect to be charged both duties and taxes.
A growing number of countries have no de minimus, which means that duties and taxes always apply. These include India, Brazil, Madagascar, Lebanon, Libya, and Kenya. Other countries such as Norway, Switzerland, Australia and the EU economic zone recently changed their import legislation in response to an increased volume in e-commerce shipments. Visit our page on e-commerce-related shipping regulations to learn more.
Goods with duty or tax exemptions
Some goods may qualify for exemption or a 0% rate. This depends on the type of product and where they are shipped. For example, a parcel of novels sent from Australia to the UK will have a duty (tariff) rate of 0% and a VAT rate of 0%, because these are the UK import rates for books.
Check with your carrier or customs broker if your goods qualify for a duty or tax exemption, or both. You may need to provide proof of origin in your shipping paperwork.
6. How much duty and tax will be charged?
Duties and taxes are different for every shipment. The amount depends on the value of the goods you're sending plus the following details that you must provide on the commercial invoice:
- The total shipment value – value of goods plus shipping costs and insurance
- The goods description – for customs to understand the type of goods
- The HS code
- The country of manufacture
To calculate the duty, the total shipment value is multiplied by the import duty rate of the destination country (usually between 0-10%, depending on the goods).
To calculate the tax, the total value and duty amount are combined and then multiplied by the tax rate of the destination country (usually between 0-25%). Read more about how duties and taxes are calculated.
Correct valuation of goods
As customs uses product value to calculate duties and taxes, it's important to state the true value of your goods on the commercial invoice. Undervaluation can result in clearance delays, customs fines and extra carrier fees for the sender or receiver. At worst the goods can even be seized or destroyed.
If customs find your e-commerce shipments to be repeatedly undervalued, the fines may be increased and all your shipments carefully checked by customs authorities. Read more about how to declare the value of your goods.
7. Who pays the duties and taxes on an e-commerce shipment?
You, the e-commerce seller, can decide who is responsible for paying any duties and taxes on a shipment. You can do this by selecting and writing the Incoterms® on your commercial invoice. These 'International Commercial Terms' describe whether the sender or receiver must cover duties and taxes, and it's essential to be upfront about it with your customers.
There are different Incoterms® to choose from. The one you choose depends on what you're selling, where you're shipping and the scale of your business. The two main options for e-commerce businesses are:
DDP Incoterms®: Seller pays duties and taxes
If you use DDP (Delivered Duty Paid) Incoterms® then the seller/sender is responsible for paying any duties and taxes to customs in the destination country. You can do this in two ways: by paying out of your own pocket, or by calculating and charging any duties and taxes to your customer when they complete a purchase at checkout.
You or your carrier then pay these directly to customs. If your carrier pays on your behalf they will invoice you for them later, often with a processing fee. In such cases, remember to state your carrier account number on the air waybill.
DAP Incoterms®: Customer pays duties and taxes
If you use DAP (Delivered At Place, previously known as DDU, Delivered Duty Unpaid) Incoterms® then it's the receiver/buyer's responsibility to pay duties and taxes to customs. The seller should communicate this to customers upfront, usually at checkout with a disclaimer. It helps to state the same information on other pages of your webshop.
If your receiver is responsible for paying duties and taxes, the customs authority will contact them directly. For low-value shipments the carrier might pay the customs charges upfront, and then invoice them to the receiver, sometimes with extra fees for processing or advance payment.
If the receiver declines to pay, the sender will be notified and asked to cover the costs. If neither pays, the goods can be returned at the sender's expense or even destroyed by customs. It's therefore essential to make customers aware of any potential costs in advance.
Undefined responsibility
If there are no Incoterms® on the shipping paperwork, the duties and taxes will automatically be charged to the receiver.
Be aware of surcharges
Besides duties and taxes, senders or receivers can sometimes face extra clearance administration (ancillary) charges from the carrier or customs broker. These can be for advance payment of duties or for special clearance processing and approvals.
To avoid any surprises, ask your carrier what ancillary charges you can expect for your goods to clear customs in the destination country.
