Understanding Shipping Duties and Taxes

International shipping opens up larger possibilities, but along with it comes the complexity of handling customs duties and taxes. Making sure to understand the process will help ensure that there are no delays and no further issues for the customers.

In this guide, we’ll cover every aspect related tp customs duties and taxes.

Table of Contents

What are Shipping Duties and Taxes?

Duties and Taxes are tariffs that are imposed on goods when they are shipped internationally across borders. The main intention of charging customs shipping duties and taxes on goods that are imported from other countries is to protect the country’s environment, residents, economy, etc. It is achieved by controlling the flow of goods and restricting the entry and exit of prohibited goods into and out of the country.

These charges collected by custom authorities vary depending on:

Country of Import
Product Specifications
HS Code Classification
Trade Agreements

Let’s see more in detail.

What are Duties and Taxes based on?

Several factors determine the duties and taxes that are imposed on shipments, they are:

Using the HS Code to classify the type of product. The customs authority uses this code to identify what is shipped and also to apply relevant taxes, duties, and other regulations if needed. Learn more about harmonized tariff codes
The value of the goods will include the insurance fees and freight charges, which helps the customs to determine the duties and taxes, and also to clear the shipment from customs. Hence, it is important to state the right value in the commercial invoice.
The description of goods on the commercial invoice is yet another important factor, which includes the product’s end-use and country of manufacture. Also, remember that the HS code and the description of the goods should match to ensure that the goods are classified correctly.
The International trade agreements between the countries do impact the duties and taxes imposed on the shipment. For example, the shipment might go through customs at a reduced rate, or it might be exempt from taxes and duties in case there is an international trade agreement between those nations.
Remember to be clear and specific about Incoterms on the commercial invoice, which defines the agreement between the receiver and the sender in terms of who pays the taxes, duties, and shipping costs.

Why do Customs Duties matter in International Shipping?

When shipping to other countries, businesses and even customers will be asked to pay some additional duties and taxes before the shipment arrives at the destination. Most governments tax any kind of shipments from other countries for a few reasons:

To help protect domestic companies from foreign competitors.
Increase the revenue through taxes.
Control or restrict the flow of certain goods into the country.

Duties and Taxes Basics

Firstly, let us explore the basic terms that come under taxes and duties, and what they mean.

Import Duty: It is the tax imposed by the local government on goods that are from other countries. Most often, the import duty is high on goods that are less desirable to people, as they are encouraged to support the local market rather than foreign ones. You can see that the import duty varies upon the category of goods, whereas the GST and VAT remain almost the same.

GST: Goods and Services Tax, or GST, is charged in various stages, and it is reimbursed at the end for others except for the end buyer. The GST values are different from VAT as it’s a flat-rate percentage value of a total transaction and not the percentage of value-added.

VAT: VAT, or the Value Added Tax, is charged to consumers when they purchase any goods or services.

Commercial Invoice: This is an important document when it comes to shipping. It contains the values of the items in the shipments. This document is referred to for clearing and processing the package through customs.

De minimis Value: This amount is the tax threshold, i.e., the amount from which a person begins to pay taxes for an item.

What are Incoterms?

Incoterms is the term from the phrase “International Commercial Terms” and is set every ten years by the International Chamber of Commerce (ICC). The current edition contains rules from 2010. These usually have the terms describing whether the sender or the receiver will be paying the duties and taxes.

Here are some things that make them quite beneficial for all:

Has a set of rules, which are quite straightforward about the responsibilities for each party.
Quite Standardized.
Accepted worldwide.

DDU vs DDP

DDU and DDP come into consideration for B2C companies and other traditional eCommerce sellers who are shipping small parcels.

DDP or Delivery Duty Paid Incoterms is where the seller is responsible for handling any risks and costs for the shipment. It includes import duties and other delivery charges too.

DDU incoterms, or Delivery Duty Unpaid, is where the receiver or the customer is responsible for paying and settling the charges in order to get the item released from customs.

Learn more about DDU Vs DDP.

How to Calculate Customs Tax

Now, let’s get to know how to calculate the taxes.

Valuation Methods

To calculate the import tax and the import duty amount for your shipment, all you need to do is multiply the shipment’s taxable value by your destination country’s tax duty percentage. Also, remember that the import duty percentage varies for each category of goods. Moreover, the taxable value varies with countries. Two major valuation methods are used to determine the taxable value by several countries:

FOB: “Free On Board” or FOB is the value of the product, which is considered to be the taxable value. If you are shipping via sea freight, then the charges will include both loading and transportation. If the shipment arrives by air freight, then the transportation cost is not included.

CIF: “Cost, Insurance, and Freight” or CIF is the taxable value that includes the item value, cost of insurance if applicable, and transportation to the final destination.

Taxable Value includes	FOB	CIF
Item Value	Taxable	Taxable
Insurance		Taxable
Transportation		Taxable

Who pays for import duty?

It is necessary to understand who pays the import duty so that we can avoid any surprises in the end. If you are sending the parcel with DDP, let’s see how certain shipping couriers handle the same.

USPS: Customs Charges Unavailable

In the case of shipping with USPS, they do not provide DDP. The postage charge covers the cost of transporting and then delivering your parcels. And if you are planning to ship your item for a dutiable international shipment, then your customer will be the one who has to pay the duties and taxes incurred, and also needs to work with the customs if any amount is owed.

DHL Express Customs Clearance Process

The customs clearance process starts as DHL receives information on the shipment. The documents will include a commercial invoice or a proforma invoice, which will have details on the value shipped, origin, etc.

The Pre-Clearance Process is started to speed up the clearance process once the shipment arrives. Submission of the necessary documents is done by the customs handling team from DHL.

Once the shipment arrives, the customs department reviews the documentation, and DHL often pays the charges to expedite the process.

If the documents are in order and the charges are paid, the shipment is cleared for delivery.

FedEx Customs Duties Clearance Process

The process is similar to that of DHL. The customs clearance process includes:

Required documents have to be submitted. An Airway Bill and a Commercial Invoice are a must. There is a FedEx tool called Global Trade Manager, which helps with getting the necessary documents.
Upload documents electronically, and once the review of FedEx, the documents are successfully submitted to the authorities.
Payment is made by the designated party. By default, this is the payer. If FedEx makes the payment, additional charges, such as a disbursement fee, advancement fee, or duty handling fee, may apply.

UPS Custom Tax

Document preparation and accurate completion of documents is a must.
Digital submission of documents to UPS.
Inspection by the Customs Department
Assessment of Fees and Payment, and Clearance

How to Plan for Duties and Taxes

It is important to know all about duties and taxes before you start shipping to ensure you have a better and smoother shipping experience.

What is the customs duty and import tax amount for your shipment?

Tax threshold varies with country. The tax threshold is the amount at which a person begins to pay taxes on an item. It should be noted that the customs duty does not apply to all international shipments.

A shipment’s duty and the tax amount are based on the following:

Product value
Trade agreements
Country of manufacture
Description and end-use of the product
The product’s Harmonized System (HS) code
Country-specific regulations

When do I need to pay the duties and taxes on a shipment?

It is important to pay the duties and taxes for your shipment. And it must be done before the goods are released from customs to the destination address in the country. Sometimes your carrier might be able to pay the charges on your behalf to get the shipments free from customs. There are several things you need to keep in mind to avoid the shipment being stuck at customs. Luckily, several ways will help to make the customs and duties a hassle-free process.

Other costs to keep in mind

To know about the actual charges, it is important to have complete knowledge of the shipments landed costs or total costs. Other charges that come into the picture are:

Carrier charges: They cover the charges that are incurred for shipping the package from the origin to the destination. Some carriers also include the charges along with the carrier cost so that duties, taxes, etc., are charged together.

Surcharges and ancillary fees: These charges apply when you are shipping items that fall under special categories like dangerous goods, prohibited ones, and temporary imports etc.

Broker Fees: The broker fee is the charge that is incurred by using a customs broker to help clear goods from customs. They often pay the duties and taxes on behalf of the customer.

Insurance: It is important to ensure your goods are insured while they are being shipped to the recipient to protect yourself from any damages caused by unforeseen incidents or loss or damage during transit.

Does your business need a customs broker?

A customs broker works as a middleman to ensure shipments will easily clear customs at both the country of origin and the destination country. They are quite good with the customs duties, rules, and regulations of countries.

You need to choose whether you need a customs broker, depending on the type of business you do. Most businesses that send their shipments to customers internationally do not need a customs broker.

What is the best way to communicate duties and taxes paid to customers?

In the case of businesses that are selling worldwide, they can encounter a high “cost to serve” from international customers if they do not clearly define duties and taxes.

Not being clear in terms of how much to be paid and who is paying when shipping, you are truly running into trouble, like:

Wasting a lot of time on queries from customers.
Getting cancelled orders because customers decline to pay any customs charges.
Upset customers who were caught unprepared with unforeseen fees.

It is always ideal to be upfront with your customers when it comes to duties and taxes to be paid. Also, keep them informed if they need to pay for these. To simplify the process, you can mention that the customers are paying the duties and taxes on their shipments in the following places:

In the Checkout Page on your store.
Product pages.
Your shipping policy page.
Order Confirmation emails.

What are the common documents required for your package when you are shipping internationally?

Incomplete documents for your package is one important factor that might cause the package to be stuck at customs. Hence, it is important to attach the necessary documents for your shipment. The necessary documents vary from country to country and also for different products.

The important transportation documents include:

Airway Bill – Any shipments shipped via Air Freight require airway bills. The airway bill can be obtained from your shipper. If you are using their online APIs, you can easily archive air waybills directly from your shipping plugin.

Bill of Lading – This is an agreement between the shipper or the owner and the shipping carrier of the shipment. It should include details such as the Content description, the Address of the shipper, and the recipient, etc.

Electronic Export Information Filing (formerly known as the Shipper’s Export Declaration) – This form needs to be filled online if the package is valued at more than $2,500 and if the product requires any export certificate for shipping.

Destination Control Statement – It is a legal statement for exports from the US for products listed in the Commerce Control List that are outside of EAR99 (Export Administration Regulations) or controlled under the International Traffic in Arms Regulations (ITAR). The Destination Control Statement must be printed on the commercial invoice, airway bill, or the ocean bill of lading, indicating that the item can be exported to certain countries only.

Generic Certificate of Origin – This contains all the information of the manufacturer and is certified by a government body or the chamber of commerce.

The rest of the certificates include export certificate, halal certificate, dangerous goods and radiation certificate, insurance papers, and dock certificate.

You can check for an updated list of products that are in the prohibited and restricted lists in all countries around the world on the page Export.gov.

How can you print and obtain customs-compliant documents for your shipments?

You need to ensure that you are sending your packages across locations, with the right documents along. To print the customs-compliant document right from your WooCommerce dashboard, you can make use of the ELEX WooCommerce DHL Shipping Plugin. The plugin lets you enter all the requisite information to get the customs clearance documents in the initial setup. Always remember to enter proper addresses while shipping, as an incorrect address can make it impossible for a delivery. So it is good to use address validation.

Also in the plugin, you get a commercial invoice printed for each package, which is important for international deliveries. So if you enter the requisite amount of information, then you get the invoice printed correctly.

You can set who does the duty payment with the help of the plugin under the option Labels & Tracking.

Under Duty Payment, you have four options: None, Shipper, Recipient, or Third-Party:

If you are choosing Shipper, there are no options under the duty payment type.

If you are choosing the Recipient (customer):

And if you are choosing Third-Party, you will need to add the duty billing account number.

Here’s how the invoice looks:

What happens in the Customs Clearance Process?

Let’s get to know what exactly your shipment undergoes when it arrives at customs and how the duties and taxes affect the customs clearance process.

Here is a brief understanding of what happens to your shipment when it arrives at customs.

The first thing that the customs officer will be looking into when your shipment arrives at customs is the package and the paperwork. Remember to attach a commercial invoice for all the international shipments. Also, if the shipment has certain restricted or prohibited items, then it needs to contain additional documents for the same.
Now the customs officer takes a look at the value and category of your item on your commercial invoice. They might also cross-check the prices and the category of the items on your website to know whether the price mentioned on the commercial invoice and the website are the same or not. Hence, it is ideal to be honest when you are doing your paperwork. This will decide the duties and taxes you need to pay for your shipment.

Now, if the value is above the de minimis threshold value, then duties and taxes apply for the shipment.
Next, they will check who will take care of the taxes and duties payment (the sender or the recipient). If the item arrived with the duties paid, then the item is released for delivery, because the sender already paid the duties. However, if the duties aren’t paid, then the recipient has to handle it. In such cases, customs will hold the package, and the recipient is contacted by the independent broker who is appointed by the seller to get the payment done to release the shipment.
Once all the taxes and duties payments are cleared and approved, the item is out for delivery.

If you are shipping internationally, then you need to be sure about certain documents you are providing while shipping. Then the next important step is to choose the right shipping carrier for shipping.USPS. Stamps.com, DHL, etc., are a few of the prominent options for shipping internationally. For example, when you are shipping from the UK to the US locations, you can make use of the EasyPost shipping options, wherein you can get UPS, FedEx, and USPS services.

To integrate shipping carriers to your WooCommerce store, you can make use of several shipping plugins, like:

How to include Tax information on your WooCommerce store?

When you are running a WooCommerce store, you can easily include the tax-specific information on your WooCommerce Tax section by enabling the WooCommerce Tax in WooCommerce.

Once the Tax is enabled, you can enter the requisite data in the fields concerning the country you are shipping from and to. You can also enter user-defined data to charge the taxes as per your shipping rules.

Learn more about WooCommerce Tax settings.

Conclusion

It is important to know that not paying the tax is indeed tax evasion. Not paying your taxes can cause your business to get fined, and hence it is important to be regular and upfront with the customers and customs in terms of paying taxes.

Following the right steps in the customs clearance process can ensure a smooth flow of the business. Make sure to follow the step-by-step guidelines and to decide in prior as to who’s responsible for the payment of customs to avoid unnecessary confusion.

FAQs

What are customs duties?
Customs duties are taxes imposed on imported goods based on their value, type, and origin.
Who pays the import tax—buyer or seller?
It depends on the shipping method. In DDP, the seller pays. In DDU, the buyer pays at delivery.
How is customs tax calculated?
It’s usually based on the CIF value (Cost + Insurance + Freight), then multiplied by duty and tax rates.
What happens if customs taxes are not paid?
The shipment may be held, returned, or destroyed by customs authorities.
Can WooCommerce calculate duties at checkout?
Not by default, but you can use shipping plugins like ELEX FedEx, DHL, or UPS to show estimated duties and generate customs forms.