DDU – Delivery Duties Unpaid
When an online sales take place, the merchant does not charge VAT at the time of the transaction. The consumer will have to pay import VAT as well as custom duties if payable and handling fees in the receiving country. The duty and taxes due clearly refer to the country of importation.
The charges depend on the country you are sending to, the value and the nature of the item. It means that the transaction does not include VAT. How does it work?
- a French merchant sells a t-shirt worth 100 euros to a buyer in Switzerland. Tax and duties of Switzerland apply
- the merchant captures 80 euros (VAT is 20% in France = 20 euros) and ships the t-shirt
- the Swiss customs charge 7.7% VAT on 80 Swiss Francs (equivalent of 80 euros) and a handling fee of 3 CHF: 10.38 CHF + 3 CHF = 13.38 CHF
- the post man hands over the parcel to the consumer after he/she has paid the customs fees
- the consumer’s price for the t-shirt is 93.38 CHF, which is 6% cheaper due to the tax difference of 20% vs 7.7% in Switzerland
It is fair to say that if you buy a 100 euros t-shirt in France at 20% and receive it in Denmark with a VAT rate of 25%, your will pay more than 100 euros in total.
The big downside of DDU for consumers is that it is a surprise how much VAT, custom duties and any additional handling feed. It is an easy way for merchants for not dealing with VAT while selling cross-border. It is, however, not considered as a “white glove” approach.
DDP – Delivery Duties Paid
When an online sales take place, the merchant calculates and collects VAT, if applicable, custom duties from the consumer at the checkout. VAT rates used are the one of the place of destination = the country where the consumer ships the goods. The merchant then pays the VAT amount and applicable taxes to tax authorities. How does it work?
- a French merchant sells a t-shirt worth 100 euros to a buyer in Switzerland
- the merchant captures 93.38 euros (80 euros is the equivalent of 80 CHF for the goods, 7.7 CHF for the VAT in Switzerland and 3 CHF handling fee of the Swiss customes) and ships the t-shirt
- the post man hands over the parcel to the consumer
- the consumer’s price for the t-shirt is 93.38 CHF, which is 6% cheaper due to the tax difference of 20% vs 7.7% in Switzerland
The upside for consumers is that the price you see is the price you pay. No surprise at your door when the post man rings the bell. The downside of merchants is that they have to calculate the sometimes complex rates to apply (that’s why companies like Avalara exist). The consumer experience is far greater with DDP than DDU. It has become a customer satisfaction standard lately.
Verdict
It is advised to go down the path of delivery duties paid (DDP) to increase customer satisfaction by showing all costs upfront at the time of transacting.
For marketplace orders, the EUR have setup the Import One Stop Shop (IOSS) that allows marketplace sellers to register once and file your own VAT returns all across Europe and the UK.
Local post organisations like the UK Royal Mail, software solutions like Taxamo Assure or consulting firms like Deloitte have solutions in the market to ease the IOSS process.
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