duties and taxes calculator

A beginner’s guide to duty and tax calculation

By Camille Felappi

When you have an online shop, there is nothing worse for your customers than facing additional costs they didn’t see in their shopping cart. If you are selling abroad, missing or miscalculated duties and taxes are usually the cause. Do you want to avoid high return rates and angry customers? Keep reading! 

 

Even if you are not compelled to collect taxes, it is a smart move to show the total costs to your customers at checkout, including duties and taxes. This ensures cost transparency, and your clients won’t have unpleasant surprises when their package reaches customs. In some cases, you may even be required to collect duties and taxes from your clients. 

To help you with duties and taxes matters, we compiled all the questions you might have in one place. In this article we’ll answer the most important questions about duties and taxes. Including: 

What are duties and taxes? 

Are duties and taxes the same everywhere? 

What is delivered duty paid (DDP)? 

Why use a duties and taxes calculator? 

 

You don’t want to handle duties and taxes yourself and you are searching for an automated duties and taxes calculator? Check out our Duty&Tax Calculation service! 

 

What are duties and taxes?

Duties and taxes are often confused, so first things first, let’s shed some light on what each term means. Duties and taxes are both imposed by governments. However, they have different purposes and applications.  

Duties refer to customs duties. It is a tax imposed on specific goods imported from other countries and collected by customs. This tax is meant to protect domestic markets, so it is an import duty that applies to goods entering a country. This tax usually must be paid by the importer, thus in your case, your customers.  

Taxes refer to government fees placed on purchased goods and services. It is what we call a consumption tax because it is not a charge for businesses but for the final customer. This tax is imposed on local and imported goods. If you ship goods to clients in a different country, they will still be liable to pay taxes. These taxes are usually known as Value Added Tax (VAT). Almost every country has this tax in place, however, the name and rate vary by country. For example, it is referred to as GST in Australia, New Zealand, or Canada. In the EU or the UK, it is referred to as VAT.  

 

Are duties and taxes the same everywhere?

Duty is not necessarily applied to all goods. It can vary depending on the type of good, quantity, and the price of the goods. For example, if you ship clothing to Canada, there will be 16-18% imposed. However, if you ship computers there is 0% duty. Duty will also be different depending on where you ship from. As the EU is a single market, if you ship goods from Germany to France, no duty will be imposed. Furthermore, many countries have trade agreements in place to reduce or completely remove duties. For example, the EU and UK concluded the EU-UK Trade and Cooperation Agreement after Brexit. This agreement provides for zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin. 

The same applies to taxes, they are different everywhere. Their percentage varies in all countries and depends on the type of goods. If we look at the number of different rates that circulate in the EU, you will get it well. Even if the EU sets guidelines for VAT, each member state is free to apply its own rates. Countries can apply reduced or standard rates depending on the type of goods. Therefore, there are about 200 different VAT rates in the EU only. For example, at the moment Hungary has a VAT standard rate of 27% while in Germany standard VAT rate is 19%. Austria has 10% and 13% reduced rates, while Italy has 4%, 5%, 10%, and 0% reduced rates. To make matters worse, these rates are updated regularly.  

Since duties and taxes rates depend on multiple elements, customs authorities need various information to assess the duties and taxes. Duties and taxes will be assessed by customs based on the commodity code that you allocated to the goods. They will also consider the value of the goods, including freight and insurance fees. Customs will mostly check these elements on the commercial invoice you provide them.

 

What is delivered duty paid (DDP)?

Delivered Duty Paid (DDP) is what we call an Incoterm. Incoterms, also known as International Commercial Terms, are standardized pre-defined commercial terms set by the International Chamber of Commerce (ICC). These Incoterms are international rules that determine the obligations of the buyer and the seller when they conclude a distance sale. These rules are updated regularly, and there are currently 11 different Incoterms.  

If you agree to DDP shipping rules with your buyer, you will be responsible for delivering the goods. You must also take care of import clearance and all the applicable duties and taxes. In this case, the risk transfers to the buyer only when the goods reach the buyer. The DDP rule places all the obligations on the seller and is the only rule that requires you to take care of import clearance. This means you will have to calculate and charge duties and taxes to your customers at the moment of sales. Then, you will have to pay it to the relevant authorities. 

In that sense, DDP is the riskiest Incoterm for the seller. Yet, it offers the best shopping experience to clients who usually prefer it. They do not have to worry about the duties, clearances, transportation, or customs fees. If you choose to offer this option to your clients, you will need to make sure you are able to calculate and charge duties and taxes to your customers. Otherwise, you will be responsible for any mistake.  

 

Why use a duties and taxes calculator?

As we saw, duties and taxes rates depend on many elements, and each country has its own rules and rates. For that reason, calculating duties and taxes manually can be challenging. If you do not have knowledge of the destination country’s regulations, it may lead to delays at customs.  

If you sell several types of goods in several countries, you will drown under the hundreds of different rates. In addition, if you ship under DDP rules, you will be held responsible if your calculations are wrong. If you ship under a different rule, you will lose customers anyway because they won’t agree to pay fees, they were not aware of. To make sure you show the correct amount of duties and taxes to your buyers, using an automated tax calculation service is the most reliable option.  

Eurora’s Duty & Tax Calculation engine allows you to calculate VAT and duty rates for most countries in the world. That enables full visibility of the VAT and duty payable to the destination country in any currency before the order is dispatched. More precisely, our duties and taxes calculator is able to assign VAT and duty rates in any currency in less than 100ms for more than 160 countries. It also covers de minimis thresholds and active free trade agreements, so you can be sure to comply with all the distance selling regulations. 

Using our Duty & Tax calculation service, you make sure your store is compliant with global trade regulations and tax rates. You also avoid the hassle of calculating all fees manually, which reduces your workload and the risk of errors. This way, your goods will clear customs faster by avoiding delays due to bureaucracy. All of that will contribute to your customers’ satisfaction.  

  

Key takeaways

Calculating and collecting duties and taxes is not an obligation you have to fulfill. However, with the boom of eCommerce worldwide that reshapes consumers’ behavior, doing so can be a significant added value to your online shop and help you outrank your competitors. Nowadays online customers have high standards and want a seamless shopping experience. If they are asked by the postman to pay additional fees they had no clue about to get their package, they will certainly send it back and won’t order on your shop again.  

If you have a customer-centric approach and customer experience your priority, then calculating and showing duties and taxes in your customers’ shopping cart is a must. As we saw, if you decide to proceed this way, you need to make sure taxes are not miscalculated, or it will have the same consequences as not showing them at all. Since duties and taxes vary depending on a multitude of factors, using an automated duties and taxes calculator is the safest move. 

 

Do you want an easy and reliable solution to calculate duties and taxes in your clients’ shopping carts? Check out our Duty & Tax calculation service or get in touch with us!