Understanding Shipping Duties and Taxes
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Understanding Shipping Duties and Taxes
Definitions, calculations, and how it applies in eCommerce
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Why custom duties matter in international shipping
When you ship something to another country, you or your customer may be asked to pay additional duties and taxes before the shipment is delivered.
Governments tax shipments from other countries because they want to:
1. Protect domestic companies from foreign competitors
2. Control the flow of certain products
3. Raise revenue through taxes
Duties and taxes on shipments are legal requirements that must be settled before your shipment can be delivered.
That's why we created this guide - to help you get a clear understanding of shipping duties. We'll share definitions, explain processes, and share best practices for managing this aspect of your shipping, so you can prepare your business to comply with trade regulations.
Duties and Taxes Basics
VAT, Custom Duty, and shipping tax definitions
First, let's go over the common tax terms you will come across in shipping, and what they mean.
Import Duty.
A tax imposed by a government on goods from other countries. Increased prices on imported goods make these products less "desirable" so buyers are encouraged to support the domestic market.You'll find that import duty percentages vary for each category of goods, while VAT and GST are more consistent. Learn more about import duty.
GST.
Goods & Services Tax. This tax is charged in stages, then reimbursed to everyone except the end buyer. It's different from VAT because it's a flat-rate percentage of the total transaction, instead of a percentage of value added.
VAT Tax
- Otherwise known as Value Added Tax. This tax is charged to consumers when they buy any good or service. Learn more about VAT.
Commercial invoice.
A required document in international shipping that describes the items in the shipment and their value. Commercial couriers and customs brokers refer to this document to process and clear your package through customs. Learn more about commercial invoices.
De minimis value.
The tax threshold, or the amount where a person begins paying taxes on an item.
What are Incoterms?
Incoterms come from the phrase “International Commercial Terms”, and they are set by the International Chamber of Commerce (ICC) every 10 years. The current edition of these rules are from 2010.
These terms describe whether the sender or the receiver will be paying for duties and taxes.
Incoterms are beneficial because they are:
- Straightforward about the responsibilities of each party.
- Standardized.
- Accepted worldwide.
DDU vs DDP
For B2C companies and traditional eCommerce sellers that are shipping small parcels, the following Incoterms will be applicable to you:
- DDP incoterms
- - Deliver Duty Paid. The seller is responsible for handling the risks and costs of the shipment, including import duty and any other charges related to delivery.
- DDU incoterms
- - Deliver Duty Unpaid. The receiver/customer is responsible for settling all charges in order for customs to release the shipment and have it delivered. Learn more.
Discover other Incoterms here.
How to Calculate Customs Tax
Valuation methods
To calculate the import tax and import duty amount for your shipment, multiply the taxable value of your shipment by your destination country's tax and duty percentage.
Remember, import duty percentages vary for each category of goods - find out what the percentage is for your shipment on our Countries page.
The taxable value is usually based on the value of the goods, but depending on the valuation method of a country, it can also include other amounts.
There are two main valuation methods that countries use to determine taxable value: FOB and CIF.
- FOB
- stands for “Free On Board”. In this case, the taxable value is the value of the product. While the definition also includes transportation loading, this only applies to items that are shipped by sea freight. If your shipment arrives by air freight (which most B2C eCommerce shipping does) it will not include the cost of transportation.
- CIF
- stands for “Cost, Insurance, and Freight”. In this case, the taxable value includes the item value, cost of insurance (if any), and transportation to the final receiver.
How to Calculate FOB vs CIF
| Destination Zone | Up to 250g | Up to 500g | Up to 1kg | Up to 1.5kg | Up to 2kg |
|---|---|---|---|---|---|
| New Zealand | $95.90 | $99.15 | $105.75 | $112.30 | $118.90 |
| Asia Pacific | $99.45 | $105.35 | $117.20 | $129.05 | $140.90 |
| US and Canada | $101.75 | $108.25 | $121.15 | $134.15 | $147.15 |
| UK and Europe | $106.80 | $113.55 | $127.10 | $140.60 | $154.10 |
| Rest of the World | $112.50 | $121.35 | $139.00 | $156.60 | $174.25 |
Example: Customs Tax Calculation
Calculating custom duties and taxes efficiently
With over 220 countries in the world, how is it possible to ship worldwide if each country has different valuation methods? Doing manual calculations clearly isn't a scalable solution.
To start, Easyship's duties and taxes calculator is a great resource for getting estimates for your frequent shipping destinations.
Additionally, Easyship's platform automatically calculates duties and taxes for all international orders based on the category of your item and the country you're shipping to. Learn more here.
Try our duty & tax calculator!
Need to estimate your shipping duties & taxes? Our calculator can give you an idea of what to expect.
Who pays for import duty
Courier options for custom duty payments
With Easyship, you have the option of having duties and taxes pre-paid and showing these additional costs at checkout. Here's what you can expect when you opt to send parcels DDP with certain couriers.
USPS: Customs Charges Unavailable
Unfortunately, USPS does not provide DDP. The postage you pay simply covers the cost of transporting and delivering your parcel.
If you decide to move forward with using USPS for your dutiable international shipment, your customer will be responsible for handling any duties and taxes incurred, and will need to work with customs to settle any amounts owed.
DHL Express Customs Duties Process
At the time of publication, DHL Express has standard courier handling fee of $15USD* to process payments for DDP.
FedEx Customs Duties Payment
At the time of publication, FedEx has standard courier handling fee of $10USD* to process payments for DDP.
UPS Custom Tax
At the time of publication, UPS has standard courier handling fee of $15USD* to process payments for DDP.
*Please note that this fee may be different due to a variety of factors (such as shipment origin and more).
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How to Plan for Duties and Taxes
Preparing for custom duty and tax
To ensure a smooth shipping experience, it's best to know the following before you start shipping internationally.
What is the custom duty and import tax amount for your shipment?
Every country has a tax threshold, which is the amount where a person begins paying taxes on an item. Custom duty may not apply to every international shipment, so it's best to research the tax thresholds for each country you want to ship.
You can also use our import duty calculator to get a quick estimate.
Does your business need a customs broker?
A customs broker is well-versed in customs duties, rules, and regulations, and will ensure that your shipments will clear customs at both the country of origin and the destination country.
Businesses that send shipments to consumers don't need a customs broker - the same applies if you ship with Easyship! However, B2B businesses that require large freight shipments to be sent overseas is recommended to work with one.
Learn more about customs brokers.
What are your other options for handling duties and taxes?
If you don't have a customs broker, Easyship can help. When you create a shipment, our platform automatically calculates duties and taxes for international shipments. Our Rates at Checkout plugin displays the import tax amount at your store checkout so customers know exactly how much their shipment costs.
What is the best way to communicate duties and taxes payment to customers?
Business owners who sell worldwide can experience a high “cost to serve” from international customers if they are not transparent about duties and taxes.
By not being clear on how much will be paid and who will pay for it, you run the risk of:
- Spending a lot of time on inquiries from customers.
- Getting cancelled orders because customers refuse to pay at customs.
- Upset customers who were caught off-guard with unexpected fees.
It's best to be upfront with customers about how duties and taxes will be handled, especially if customers will be responsible for paying these fees.
Mention that they will be paying duties and taxes on their shipments in the following places:
- Your shipping policy page
- Product pages
- Checkout
- Order confirmation emails
What Happens in Customs?
The customs clearance process
What happens when your shipment arrives in customs, and how does duties and taxes affect the customs clearance process?
To gain a better understanding, here's what the customs clearance process looks like:
- When your shipment arrives in the destination country, the customs officer will inspect your package and look at your paperwork. All international shipments require a commercial invoice; shipments with certain restrictions may have additional paperwork attached.
- The customs officer will look at the value and category of your item on your commercial invoice. They can also check your website or crowdfunding campaign to make sure the item value matches what is on the commercial invoice - so please be honest on your paperwork! This will determine whether duties and taxes apply to your shipment.
- If the value is above the de minimis threshold (the amount at which duties and taxes will be charged) then duties and taxes apply.
- Next, they will see who will take care of the payment (the sender or the recipient).
- If the shipment arrives with duties paid, it means the sender has handled payment, allowing it to be released for delivery. If the shipment arrives with duties unpaid, the recipient will need to handle it. Customs will hold the package, and the independent broker appointed by the courier will contact the recipient directly for payment.
- Once payment for duties and taxes is received, the shipment is released and delivered.
Learn more about the customs clearance process
Australia Shipping Duties Example
On the Easyship platform you can get a full breakdown of costs, including duties and taxes amounts.
Heres what shipping a shirt, valued at $100USD from the US to Australia looks like:
Tax threshold: $0 AUD
Duty threshold: $1000 AUD
Since the value of the item is $100USD, only the tax threshold will apply.
Tax (VAT/GST): 10%
In this case, Australia calculates tax based on the FOB method, which is a percentage of the product price.
$100USD item value x 10% tax = $10 import tax charge
Heres what shipping a shirt, valued at $100USD from the US to the UK looks like:
Tax threshold: 15 GBP
Duty threshold: 135 GPB
Since the value of the item is $100USD, only the tax threshold will apply.
Tax (VAT/GST): 20%
($100USD item value + $31.15 shipping cost) x 20% tax = 26.23 import tax charge
This also means the tax amount may vary, as it's dependent on which courier you use.
Duties and Taxes FAQ
How can I avoid charging taxes so I can remain competitive?
Not paying taxes is tax evasion, which we don't encourage. It's not worth risking your business getting fined. It's best to know any import tax and custom duty amount that is applicable to your shipment, and being upfront with customers on pricing.
Can I declare my item as a gift to avoid custom duty?
No. Shipments are cleared through customs based on where it's coming from, the item category, and value - not its purpose.
What happens if I under declare the value of my item?
Customs officers can easily check your business website and other sources to verify if the value listed matches the actual value of the item. Listing a lower value in order to avoid taxes is tax evasion and against the law.
When does the receiver pay for duties and taxes?
The courier used to ship the parcel (or an independent broker that the courier appoints) will contact the receiver directly to collect any applicable duties and taxes. These amounts need to be paid before delivery. The parcel will be held at customs until payment is received.
Is it better to use DDP incoterms or have the customer pay post-sale?
In our experience, we recommend pre-paying duties. It's very common for customers to be unaware that import duty even needs to be paid. If you ship DDU and the customer gets contacted by customs, it's normally an unwanted surprise and at worse, they can choose to not pay and return the item.
Using DDP incoterms, and paying the small additional processing fees for this service by the courier, ensures that your shipment will clear customs and get delivered without having to bother your customer.
What is a courier handling fee? If you ship DDU, does it apply?
A courier handling fee is what a courier charges when they process a duties payment to customs on your behalf. These fees are fixed and can be 3-4 times cheaper than DDU brokerage fees.
When you ship DDU, this handling fee doesn't apply. However, if duties are not pre-paid, your parcel will be sent to an independent broker that can charge whatever fee structure they want. With DDU, you can't estimate what the import duty, custom duty, and shipping taxes will be as it can really vary, making it difficult to provide fully landed costs to your customers.
Why are the tax thresholds different for every destination?
Every country has their own method for calculating duties and taxes. You can use a duties and taxes calculator to help you determine the amounts for your most popular shipping destinations. It's also recommended to use a platform that can automatically incorporate import tax and custom duty into your shipping costs.
Is Easyship's duties and taxes page up to date?
Yes - we stay updated on any changes that occur with each country, and maintain the pages accordingly!
How do I know Easyship's categories are set with the correct HS code?
The categories on our platform incorporate a broad range of HS codes, ensuring that your item will be covered correctly.
Try our duty & tax calculator!
Need to estimate your shipping duties & taxes? Our calculator can give you an idea of what to expect.
The highest and lowest tax thresholds
Countries with high tax thresholds make it easier to ship to as taxes will not be applied to low value items. On the other hand, countries with low tax thresholds are more difficult to ship to, as tax will apply to anything that is shipped to these destinations.
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Articles & Guides
- International shipping guide. This resource explains everything you need to know to start shipping internationally with confidence!
- Warehousing and fulfillment guide. This resource will prepare you for finding the right logistics company for your business.
- Hidden fees to be aware of when shipping internationally. In addition to duties and taxes, learn what other fees can apply to your international shipments.
Shipping Glossary
What is CIF?
CIF stands for “Cost Insurance and Freight”, and is an Incoterm that's only applicable to sea freight. The seller is responsible for paying the costs and freight necessary to bring the goods to the destination port, in addition to buying insurance against the risk of loss or damage of the goods.
What does a Customs Broker do?
The job of a customs broker is to fully understand customs duties, rules, and regulations, and will know the processes and paperwork needed to ensure your shipments clear customs at both the country of origin and the destination country.
What is a Commercial Invoice?
A commercial invoice is a required document in international shipping that describes the items in the shipment and their value. Commercial couriers and customs brokers refer to this document to process and clear your package through customs.
What is DDP:
DDP stands for Deliver Duty Paid. The sender is responsible for paying the duties. In eCommerce, many sellers include these duties at checkout and directly collect payment from the customer.
What is DDU:
DDU stands for Deliver Duty Unpaid. The receiver of the shipment is responsible for paying the duties. They will get contacted directly by customs, and the package won't get delivered until the charges are settled.
What is De minimis value:
The tax threshold, or the amount where a person begins paying taxes on an item.
What is FOB:
FOB stands for Free On Board. Applicable to sea freight, the seller is responsible for getting product on the ship and clearing the product for export. The buyer is then responsible for insuring the shipment and handling the importation process, including paying for any import duties.
What is GST:
GST stands for Goods & Services Tax. This tax is charged in stages, then reimbursed to everyone except the end buyer. It's different from VAT in that it's a flat-rate percentage of the total transaction, instead of a percentage of value added.
What is Import Duty:
Import duty is a tax imposed by a government on goods from other countries. This increased price on imported goods is meant to make these products less "desirable" so buyers are encouraged to support the domestic market.
What is Incoterms:
Incoterms stand for “International Commercial Terms”. These terms clearly lay out what the buyer and seller is responsible for when handling, transporting, and delivering goods.
What is VAT:
VAT stands for Value Added Tax, which is charged to consumers when they buy any good or service.
Author's Note: This blog post is not meant to be a static piece, but rather a piece that will be updated regularly as fulfillment changes from time to time! For any comments or suggestions, please email us at marketing@easyship.com .
Additional Resources
JUMP TO SECTION
Why custom duties matter in international shipping Duties and Taxes Basics VAT, Custom Duty, and shipping tax definitions What are Incoterms? DDU vs DDP How to Calculate Customs Tax Valuation methods How to Calculate FOB vs CIF Example: Customs Tax Calculation Calculating custom duties and taxes efficiently Who pays for import duty Courier options for custom duty payments How to Plan for Duties and Taxes Preparing for custom duty and tax What Happens in Customs? The customs clearance process Australia Shipping Duties Example Duties and Taxes FAQ How can I avoid charging taxes so I can remain competitive? Can I declare my item as a gift to avoid custom duty? What happens if I under declare the value of my item? When does the receiver pay for duties and taxes? Is it better to use DDP incoterms or have the customer pay post-sale? What is a courier handling fee? If you ship DDU, does it apply? Why are the tax thresholds different for every destination? Is Easyship's duties and taxes page up to date? How do I know Easyship's categories are set with the correct HS code? The highest and lowest tax thresholds What is CIF? What does a Customs Broker do? What is a Commercial Invoice? What is DDP: What is DDU: What is De minimis value: What is FOB: What is GST: What is Import Duty: What is Incoterms: What is VAT:
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