DDP explained: all you need to know
By Camille Felappi
Do you know what are the Delivered Duty Paid (DDP) rules? If you are selling your goods cross-border, you definitely should. Why? Because DDP is the best way to ship your goods if you want to make sure that your customers will return to you.
DDP is part of international rules that determine the obligations for the buyer and the seller when they conclude a distance sell. The International Chamber of Commerce created these rules to have some standards for international trade.
DDP is not only the most common of these rules but also the most appreciated by customers. You should therefore know how DDP works and consider using this rule if it’s not already the case.
What is DDP (Delivered Duty Paid)?
DDP is a shipping agreement concluded between a seller and a buyer. DDP is part of what we call Incoterms rules.
Incoterms rules are a global set of standardized rules created by the International Chamber of Commerce. Those rules are used and recognized worldwide. Therefore, we consider them a standard in international business rules settings.
The Incoterms gather a set of 11 rules into 2 main groups:
- Rules made for any transport mode
- Rules for sea and inland waterway transport
Each Incoterms rule defines the obligations of each party and the moment when the risk transfers from the seller to the buyer. The most popular Incoterms rule for cross-border trade is DDP because it provides the best customer experience.
If you agree on DDP shipping rules, as a seller you will be responsible for arranging the carriage and delivering the goods. You must also take care of import clearance and all the applicable taxes and duties like VAT. In this case, the risk transfers to the buyer only when the goods reach the buyer. DDP rule places all the obligations on the seller and is the only rule that requires the seller to take care of import clearance.
If you are a buyer, you certainly want to go for this option when you shop online. As with DDP, you don’t need to worry about hidden costs.
If you are a seller, you would probably want to go for a rule that imposes fewer obligations and risks. But here is the problem: most eCommerce sellers are using DDP rules because it brings more clients. So, if you don’t want to see your clients going to the competition, you should ship your goods using the Delivered Duty Paid rule.
If you ship under the DDP rule, you should be aware of every international trade regulation to be sure you do not lose money as you bear all the risks.
What obligations am I exposed to as a seller?
DDP assigns you the responsibility to clear customs. And calculate and pay the taxes and duties in the buyer’s country. This is where troubles start: each country has different customs regulations.
First, if you want to make sure you apply the right tax rate to your goods, you should assign them the correct HS code. The Harmonized System code (HS code) is a 6-digit code that we use worldwide. It makes sure that the goods traded internationally are uniformly classified. Based on this code, customs offices determine the rate of duty and taxes for goods that enter a country. It is risky and time-consuming to manually allocate HS codes to your products. There are in fact around 5,300 HS codes grouped into 21 sections, and they are updated regularly.
Once you get the right HS code for your goods, you need to calculate and pay duties and taxes so your goods can comply with customs clearance requirements. See the new troubles piling up?
Even if the EU has the same export rules, VAT rates are different from one country to another, but also from one product type to another. Besides, the UK VAT is managed separately since the UK left the EU customs union. If you are calculating the VAT manually on your goods, you could therefore have to deal with more than 200 different VAT rates.
Now you know that DDP transfers you all the risks before the package is ready to be collected by the buyer. Therefore, if you do not take care of these import clearance processes, you can receive fines from tax authorities. Customs officers can also block your shipments at the border. This will lead to extra costs you will have to cover yourself.
This might sound quite daunting so far. But don’t give up on offering DDP shipping to your clients! We can help you go easily through the customs clearance process.
How can Eurora help me ship my goods with DDP?
Eurora can offer you an automated Customs Clearance solution for the entire EU and UK markets.
To start with, our AI engine can automatically assign the correct HS code to all your goods. You can enable our service via a simple API integration that assigns HS codes in real-time in the shopping cart. This will save you precious time, and you won’t need to worry about mismatching HS codes. Our database counts approximately 5,300 HS 6-digit codes and we are always updating it in accordance with the new regulations coming into force.
Eurora won’t let you down after allocating the right HS code to your goods. We can also help you with VAT and duties calculation thanks to our Duty & Tax calculation engine. It gives you full visibility of VAT and duty payable before you dispatch your order. Our automated solution can assign VAT and Duty rates in any currency for more than 160 countries. We also cover de minimis thresholds and active free trade agreements, so you can be sure to comply with all the distance selling regulations.
You can easily sell your goods under DDP rules without fearing penalties. Use our Customs Clearance service!