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Improved Global Shipping: Easy Duties & Taxes at Checkout

Phuc Le
October 16, 2023

In the realm of global shipping and navigating the intricacies of duties and taxes, accurately determining the landed cost is of utmost importance. This ensures that all pertinent expenses are considered in the overall logistics of moving products worldwide. While freight expenses loom large in the context of cross-border trade for most businesses, it's essential to recognize that numerous multinational corporations annually allocate significant budgets to duties and taxes as their products journey across international boundaries. In today's interconnected world, characterized by the perpetual emergence of new markets and the expansion of companies' global supply chain networks across various continents, it becomes imperative to actively seek out opportunities for optimizing the management of duties and taxes in cross-border operations.

Regrettably, many companies do not harness the potential customs savings that are available, leading them to overpay customs duties. In this article, we aim to spotlight a range of duty and tax relief and exemption programs that can effectively reduce duty and tax expenditures.

ENHANCE CUSTOMER EXPERIENCE WITH DDP GLOBAL SHIPPING TERMS

1. Understanding DDP Shipping

When it comes to international e-commerce, global shipping terms play a critical role in shaping customer experiences. DDP, or "Delivered Duty Paid," represents a commitment by the merchant to provide a seamless purchasing experience by shouldering the responsibilities for duties, import clearance, and applicable taxes. This means that when a customer checks out, the full landed cost is calculated, and any associated fees are collected upfront, leaving no room for unexpected charges down the road.

2. The Alternative: DDU and DAP

In contrast, DDU (Delivered Duty Unpaid) or DAP (Delivered At Place) place the responsibility for handling these expenses on the customer. While these terms may seem appealing to merchants due to lower upfront costs, they introduce several challenges for both buyers and sellers.

ENHANCE CUSTOMER EXPERIENCE WITH DDP GLOBAL SHIPPING TERMS

3. Customer Experience and Business Impact
  • Delivery Experience: Parcels shipped with DDU or DAP may not be delivered directly to the customer's doorstep. Instead, they may be redirected to a post office or a designated pickup location. This less convenient delivery experience can diminish customer satisfaction and loyalty.
  • Surprise Charges: Many buyers are not aware of potential duties or import taxes, let alone their precise amounts. This lack of transparency can result in surprise charges for customers, leading to a negative buying experience and even parcel rejection.
  • Return and Refund Costs: When parcels are rejected or returned due to unanticipated charges, merchants face significant costs. They not only have to refund the original order but also cover expenses related to the return shipment.
  • Customs Documentation: Dealing with return shipments incurred due to DDU or DAP can be complex, requiring special customs documentation to prevent the reapplication of duties and import taxes on returned items.
4. Getting Started with DDP Shipping
  • Consult Your Shipping Partners: Initiate a conversation with your 3PL representative, chosen carrier, or shipping application provider to explore their DDP (Delivered Duty Paid) shipping options. It's important to note that while most express carriers offer DDP services, many postal carriers may not offer DDP methods or limit them to specific countries. If you're seeking a global shipping or fulfillment application, consider consulting our "Works with Shopify Markets" app list for suitable alternatives.
  • Ensure Accurate Order Information: Orders where duties and import taxes are collected should be clearly labeled as DDP within the Shopify admin and APIs. Verify that your 3PL or shipping app shares this parameter with your chosen global shipping carrier. Additionally, provide the necessary product information, such as HS codes, country of origin, and product prices, which are crucial for the accurate calculation of duties and import taxes.
  • Adjust Your Shipping Rates: Global Shipping carriers may impose a disbursement fee for processing your DDP parcels. The fees are often negotiable, so it's advisable to discuss this aspect with your carriers or 3PL sales representative. If you prefer to pass this fee on to your customers, you can easily include it in your shipping rates for the markets where you offer DDP services.
  • Reconcile Duties and Taxes: Once you commence DDP shipping, your chosen shipping carriers will include duties, import taxes, and brokerage fees in their invoices to your business. It's essential to reconcile the duties collected from customers with the duties paid to customs. This process should involve a careful review of the first few invoices received from your carriers. Pay close attention to the accuracy of HS codes in your product catalog and identify any potential issues in the shipping label and commercial invoice printing processes.

ENHANCE PRECISION IN CALCULATIONS USING HS CODES

Harmonized System codes (HS codes) are a globally accepted system for categorizing traded products. Customs authorities worldwide rely on HS codes to determine the duty rates applicable to specific imported products and to enforce any relevant restrictions.

The significance of HS codes lies in their ability to streamline the automation of duty and import tax estimations, expediting the customs clearance process. To ensure the utmost accuracy in calculating duties and import taxes, it is advisable to include Harmonized System codes and the country of origin for all your products. This practice not only simplifies the process but also optimizes the precision of these critical calculations.

ENHANCE PRECISION IN CALCULATIONS USING HS CODES

HS codes vs. HTS codes 

HS codes are used to define the duties rate for a specific product being imported to a given country, and HTS codes (Harmonized Tariff Schedule codes) are product classification codes consisting of eight to 13 digits. Regardless of the number of digits in a code, the first six will always be the same—whereas codes beyond six digits simply provide additional information for that specific country.

MAXIMIZING DUTY AND TAX SAVINGS IN GLOBAL SHIPPING

Managing customs duties and import taxes has never been more critical. This guide provides valuable insights and strategies to help businesses maximize their savings in these areas. Whether you're an experienced global trader or just starting out, this resource offers actionable advice for optimizing your supply chain, reducing costs, and succeeding in the world of international trade.

1. Leveraging Free Trade Agreements (FTAs):

Free Trade Agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union Vietnam Free Trade Agreement (EVFTA), have a substantial impact on businesses. Research indicates that companies actively leveraging FTAs report an average reduction of 15% in customs duties and a 10% increase in cross border sales. By staying informed about these agreements and optimizing your supply chain accordingly, you can unlock significant financial advantages.

2. Tax Rebates through Local Incentive Schemes:

Emerging markets are increasingly adopting local incentive schemes to attract foreign investment. These schemes encompass fiscal and non-fiscal incentives, including corporate tax holidays, duty exemptions, and VAT/GST exemptions. Studies have shown that companies that strategically incorporate local incentive schemes into their supply chain can achieve up to a 20% reduction in overall import-related costs. By capitalizing on these incentives, you can simultaneously reduce expenses and contribute to local economic growth.

MAXIMIZING DUTY AND TAX SAVINGS IN GLOBAL SHIPPING

3. Duty Savings via Tariff Concession:

Certain countries introduce Tariff Concession Systems, eliminating import duties on specific goods used for social, humanitarian, or industry assistance purposes. Recent data reveals that companies effectively utilizing these concessions have realized cost savings of up to 25% on select imported items for which there are no local alternatives. Understanding and capitalizing on these concessions can significantly impact your bottom line.

4. Tariff Savings through Duty Drawback:

Data-driven insights indicate that businesses effectively applying for duty drawbacks when using imported goods for manufacturing final products for export can achieve an average refund of 8% of their import duties. Additionally, companies that re-export unused imported goods under duty drawback schemes have reported an average reduction of 12% in their overall import-related costs. Meeting the specified requirements is crucial to benefit from this duty-saving strategy.

5. Additional Cost Reduction Opportunities:

Beyond the elimination of customs duties, local governments often provide additional measures to reduce business costs. Duty deferment schemes, for instance, allow businesses to defer duty and tax payments upon import, improving cash flow. Businesses adopting these schemes have reported a 30% increase in operational flexibility and a 15% reduction in cash flow constraints. However, these provisions are typically granted to traders in good standing, such as those who hold Authorized Economic Operator (AEO) certifications or provide surety bonds to cover potential duty and tax liabilities.

Understanding and implementing these duty savings strategies can make a significant difference in your international trade operations. By leveraging Free Trade Agreements, exploring local incentives, capitalizing on tariff concessions, and navigating duty drawbacks and cost reduction opportunities, you can enhance efficiency, reduce expenses, and thrive in the global marketplace. Stay tuned for more in-depth insights on each of these strategies in the upcoming posts.

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