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To business-to-consumer (B2C) merchants who are starting to ship cross-border, import duties and taxes may appear overwhelming. With different rates for every country and every type of item, it is not surprising for many new merchants to feel daunted. However, when shipping overseas, it’s important to make sure that import duties and taxes are accounted for so that your shipments can go through customs and enter the country.
Fortunately, we’re here to guide you through how customs clearance can be made smoother with delivered-duties paid (DDP) so that you can expand into the Southeast Asian market with a peace of mind. But before that, let’s look at what exactly import duties and taxes are, how they are calculated, and who pays for them.
Import duties and taxes are government-imposed fees to import goods into their country. These fees have to be paid to clear customs upon arrival at the destination country before your shipments can begin their fulfilment and distribution phase.
For some countries, harmonised system codes (HS Codes) are used to calculate the tax for your goods at the customs office. HS codes are internationally recognised identification codes to help countries identify the contents of a shipment or parcel without needing to open them. These codes are attached to respective duty rates. In Southeast Asia, the countries that make use of this system of calculation include Thailand and Malaysia.
Even though only business-to-business (B2B) shipments require the HS codes of their goods stated on their label, as a B2C merchant, knowing the HS code of your product can still help estimate your import duties and taxes beforehand.
On the other hand, some countries in Southeast Asia also charge fixed import duty and tax rates for all types of goods entering their country as long as they are considered eCommerce shipments. The countries in Southeast Asia who adopt this method of calculating import duties and taxes include Indonesia and Singapore.
With variability in this aspect of customs clearance, it would be good to check with your LSP how the country you’re looking to ship to charges import duties and taxes.
If the value of your shipments are below the de minimis rate of the country you’re looking to import to, your shipments may not incur additional import duties and taxes. De minimis is the price threshold below which fewer or no taxes are charged on shipments. When cross-border shipping, your shipment value is usually the value used for calculating import taxes and duties at the customs office. It will include the monetary value of your goods plus the cost of shipping.
This suggests that if a country has a higher de minimis threshold, your goods can have higher shipment values before incurring more taxes. Hence, a higher threshold allows your shipment to contain more goods, or higher priced goods, before going over the limit and incurring additional customs duties and taxes. This is good news for merchants looking to ship cross-border.
If you’d like to find out more about the de minimis values for different countries in SEA, check out our infographic.
Now that we know the basics of import duties and taxes, let’s find out who pays for them.
Looking to start shipping internationally to and throughout Southeast Asia? We provide customs clearance solutions and can help you navigate through the process.
Depending on whether you’ve chosen delivered-duties paid (DDP) or delivered-duties unpaid (DDU), customs duties and taxes would have either been settled beforehand, or by your customers when the shipment arrives at the customs office.
With some LSPs who offer DDP services, the import duties and taxes of your shipments can be paid by your shipping partner first at the customs office. This gives you and your customers the benefit of not having to get involved in the customs clearance process when shipments arrive at their destination customs. Usually, it is only at the end of the month that your shipping partner will send you an invoice of the total charges including an administrative fee for the DDP service that they provide.
Despite the DDP fee, this method of payment can be helpful in customs clearance as it ensures that the import duties and taxes of your shipments will always be accounted for, without making you or your customers pay for them at short notice. In some DDP arrangements, your LSP can offer you predictability in terms of how much customs you pay by charging you a flat rate for all types of goods at a given destination.
In contrast, as Southeast Asian import duties and tax rates are subject to volatility, choosing DDU is risky as it requires either you or your end-consumers to pay for the customs fees before the shipments can be released. The standard practice in the industry is for end-consumers to pay for the release of their own parcels, which may get complicated if they are surprised by the amount of customs fees they need to pay and refuse to pay for them altogether.
Besides, in addition to having to face the variability of the import duty and tax rates, your customers are also required to pay for them within three days of the goods arriving at the customs office. This may displease those who might not expect to foot these additional charges in such a short span of time.
Even though different arrangements can be made for you to be billed instead, the DDU option still has other risks. For example, shipments might risk getting stuck at customs because they need to be set aside until import duties and taxes have been paid. This could lead to an unnecessary delay in clearing customs and cause inconvenience to the entire delivery process.
As a whole, it’s usually safer to choose DDP, especially when shipping to Southeast Asia because your shipping partner can help you bring much-needed predictability to import duty and tax rates in the region. In the case that you’re feeling unsure of the various import duty and tax rates across different types of goods, some LSPs can help you take the additional fees on and absorb this uncertainty for you.
Hence, DDP helps you to ensure that the import taxes and duties are fully accounted for when your shipments arrive at their destination country. This is so that the goods can clear customs at a much faster rate to reach your customers and would have lower chances of getting stuck at customs. It would be helpful to look for LSPs who offer DDP services, so that your shipping partners can move your shipments without hassling you or your end-consumer.
Finally, import duties and taxes should not be a reason to not start cross-border shipping. With knowledge on DDP and how import duties and taxes are calculated, you’ll be well-prepared for customs clearance. To find out more about how to ship to Southeast Asia, it would be good to work with an LSP who has experience shipping in the region. They would be updated with the latest changes to the system and can advise you accordingly.
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