As COVID-19 is gradually getting under control in some countries, it is time to understand the basics of logistics for your eCommerce startup. Doing so will help you be prepared when consumer demand and freight pick up again.
Every time you ship goods across borders, there will be clearing customs involved, which you’ll need to pay for your shipment’s taxes and duties to let your products enter the country.
Here are three necessary logistics terms you should know about: de minimis value, delivery duties paid (DDP) and delivery duties unpaid (DDU).
De minimis value
De minimis value is a price threshold for import-export. If the good’s value is below this threshold, the destination will charge lower or even no taxes for the shipment. The overall amount depends on the total amount of the goods shipped, including shipping fees.
In a legal sense, goods with a value under de minimis value are seen as too trivial for any action taken. Collecting duties from shipments with such a low value doesn’t justify the administrative costs and human resources. Therefore governments prefer not to take any action.
De minimis value has some essential influences on eCommerce shipping and related costs. If a country has a high de minimis threshold, your shipments can have higher customs value before incurring higher taxes.
You can ship more goods or ship goods that are more expensive before needing to pay higher tax if the destination has a higher de minimis value. On the other hand, if the destination has a low de minimis value, you may be prone to higher tax with the same shipment as compared to shipping to other countries.
Since eCommerce merchants don’t usually ship in bulk, a higher de minimis value could save a lot of money and trouble. If the destination country’s de minimis threshold is too low to reasonably ship anything, we would suggest using B2B bulk shipping instead. If your business needs to perform B2B bulk shipping, remember to source a reliable warehouse, or consult your logistics partner for guidance.
As you ship your goods, you should be clear on who is paying the taxes. If you’re paying, shipping below the de minimis rates can help you enjoy cost-savings as you’ll have lower or no taxes to pay when clearing customs. If your customers are paying the taxes, then shipping below de minimis rates would reduce the chances of delaying additional charges.
By knowing the prices and details, you’ll be in a position to accurately calculate the total delivery costs, minimise expenses and be clear to your customers or other parties.
The bottom line is to avoid extra costs while ensuring delivery is fast and secure; whenever possible, the value should be minimal and far away from the end-user.
Delivery duty: paid vs unpaid
Whenever merchants ship goods to another customs destination, there will be import duties and taxes payable. There are two types of duty payment arrangements: delivery duty unpaid (DDU) and delivery duty paid (DDP).
DDU means that the import duties and taxes aren’t paid before arriving at the destination. Either the merchant or the end-user will need to pay for the import duties and taxes when the item comes. Customs will hold the item until either party takes care of the tax duty. If the destination has a high de minimis value, chances are the value of the goods won’t meet the threshold, so there will be no duty to pay.
DDP means the merchant arranges to pay for the imported duties and taxes before shipping the goods to the destination. They will also pay for the shipping expenses. As an eCommerce merchant, this may sound like extra expenses, but it is beneficial to you in two ways. Firstly, your end-user doesn’t need to pay extra before receiving the goods. Secondly, by paying the duties in advance, you’ll be better guaranteed for faster customs clearance. These aspects can help you enhance the end user’s customer experience.
Since every country has different de minimis rates, you need to study each destination’s duties and tax before formulating your import-export plan. Having said that, DDP is a better choice for eCommerce startups because it mitigates risks and prevents surprises. By paying extra tax, you could ensure timely delivery and keep your customers satisfied. If you aren’t in a position to take on this additional cost, you can also consider offering DDP as an add-on service.
When developing your import-export strategy, it is vital to consider the destination import tax and work out a way that is satisfactory to you and your customers. Speak with us today and see how we can help.