This is a guest post by Michelle Mondonedo from Easyship.
Selling and shipping internationally is a great business move for online sellers, and there are numbers to prove it:
However, it’s normal to feel intimidated by international shipping. The shipping industry is very complex, and unfortunately it hasn’t been very transparent in terms of pricing.
The good news is that with some basic understanding and a little bit of planning, you can open your small business to the world with confidence.
Here are the following costs you can come across if you’re a B2C business that will be shipping your products via air.
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.
So, what exactly is an import duty?
An import duty is a tax on a good from another country. Import duty percentages vary per country, depending on the category of an item (for example, fashion, watches, toys).
There are 2 types of import tax: VAT (Value Added Tax) and GST (Goods and Services Tax).
VAT is a tax charged to consumers when they buy any good or service. VAT taxes the value added to the item at each stage of production, from raw materials to manufacturing to wholesale to final sale.
GST is a tax charged in stages and then reimbursed to everyone except the end buyer, and is a flat-rate percentage of the total transaction.
Duties and taxes will apply if the value of your shipment is over the tax threshold set by the country you’re shipping to.
For example, the United States has a tax threshold of $800USD, which means if you import something that is valued at over $800USD, you will need to pay additional duty and tax.
On the other hand, Argentina has a tax threshold of $0USD, which means that anything of value that you send will automatically be taxed 21%.
To find the tax threshold for any country in the world, refer to Easyship’s Countries page for more information.
Courier handling fees (DDU/DDP)
You have two options: Deliver Duty Paid (DDP) or Delivery Duty Unpaid (DDU).
If you choose DDP, you can collect payment from your customer at your store checkout. Usually, express couriers like UPS and DHL will have a service that will pay all duty and tax, clearing the shipment for you at customs for a fixed fee. This is called a “courier handling fee”.
Worth noting is that postal couriers (such as the US Postal Service and Hong Kong Post) do not offer these services so you will have to send the shipment with duties unpaid (DDU).
This means the receiver/customer will get contacted by customs once their shipment arrives, and they will be responsible for settling any charges in order for customs to release the shipment and have it delivered.
To collect these duties, customs will forward the package to an independent customs broker.
This is where it can get very expensive, as brokerage, storage, and late payment fees may apply. As all brokers are independent and each charge a different fee structure, it’s impossible to tell the customer what their final amount will be.
The reason DDP shipments are a little more expensive upfront is that express couriers will process the payment to customs on your behalf, but for an additional fee. Some can also charge "disbursement fees", which is a percentage of the amount of duty they will advance on your behalf.
Still, these fees are fixed and can be 3-4 times cheaper than DDU fees from an independent customs broker.
Paying these additional fees upfront to your 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.
B2C businesses who are looking to ship internationally can best prepare for cross-border eCommerce by being familiar with the countries they plan on shipping to and whether additional duties and taxes will apply to what they ship.
By knowing this in advance, businesses will have more visibility on their shipping costs and can provide a better customer experience by being upfront with the total cost of their shipment.
Learn more about duties and taxes in eCommerce by visiting Easyship’s free duty and tax guide.