A big part of international ecommerce is choosing how you ship your orders. Beyond the kind of packaging you’ll use, or the courier you hire, is the incoterm you’ll ship under.
Incoterms are internationally recognised legal frameworks published by the International Chamber of Commerce (ICC). A lot of people and businesses are involved in moving goods across the world. Just one of your orders will change hands multiple times on its way to your customer. Incoterms make things simpler by determining who’s legally responsible for different aspects of shipping something. They define the costs and risks for customers and sellers.
Incoterms are three-letter codes. The most common are DAP (Delivered at Place) and DDP (Delivery Duty Paid). Which you use determines who pays the import VAT and customs duties when you ship an order to your customer!
First, I need to explain the term “Importer of Record”. The Importer of Record is the person or business legally responsible for goods as they’re imported into a country. The importer of record (IOR) is accountable for customs clearance, which includes paying any import VAT and duties.
When you ship an order to a customer in another country, you’ll have to decide who you want to be the IOR. For B2C ecommerce, you do this by deciding which Incoterm you ship your orders under – DAP or DDP.
The consignee is the person or business that you’re shipping your order to. They can be the importer of record, but it’s not automatically the case. The main difference is that the term Consignee is used to identify the owner of the goods upon delivery. Importer of Record is used to ascribe legal responsibility for customs clearance.
If you ship the order DAP, the Consignee will be the importer of record.
When you ship Delivered at Place (DAP), you're saying you’re responsible for arranging delivery, but the customer handles the import VAT, duties and customs. Shipping DAP means you’re legally accountable for delivering the order and all the associated costs and risks.
DAP tells customs that your customer is responsible for import customs clearance, duties and taxes. Your customer is the importer of record for VAT purposes.
Delivery Duty Paid (DDP) is the incoterm you use when you want to assume full responsibility for a shipment. That means you’re legally accountable for:
When you ship DDP, you assume a lot of the risk involved in getting your customer’s order to them. The buyer’s only real responsibility in a DDP shipment is receiving the goods.
When you ship DDP, you, the seller, are the importer of record. You can also involve a third party to do this for you, like a freight forwarder or a customs broker. You might decide to do this if you can’t be the IOR or you want to be sure everything goes smoothly.
Which Incoterms should you be using? DDP or DAP? The answer depends on what your business is and your goals. For the average B2C ecommerce seller, though, we recommend you choose DDP as your standard shipping method.
DAP shipping adds friction at the point where a potential buyer could convert into a customer. International consumers will hesitate at checkout because:
It costs a lot of time and money to win a sale, so it doesn’t make sense to add barriers like this at checkout. This is the main reason we recommend using DDP, and it’s not just us. Using DDP has been shown to decrease cart abandonment.
Given the cost of winning a new customer, repeat buyers are important. DDP provides a better customer shipping experience, making it more likely that your customers come back to make another purchase.
Whether you send your parcels DAP or DDP, you first need to make sure your customer knows which is being used. It’s not just your customers, though; every party involved in a consignment reaching your customer needs to know how it’s being handled. So, once you’ve decided how you’re shipping your orders, you need to communicate it clearly in your shipping documentation. Make sure it’s included in things like:
You can also include it in your Packing List if you want to be extra clear.
If you decide to ship DAP, you don’t need to do much other than agree on the delivery destination with your customer. You’re probably already doing this via a delivery address form at checkout.
Shipping DDP is slightly more complicated, as you’ll have to handle the tax and duties at customs. You’ll need to plan ahead before you start shipping this way. If your customer is in the UK or an EU country, you’ll have to be registered for either VAT or IOSS. Some countries will require you to be registered before your first DDP sale and may require a fiscal representative as part of the process.
Getting registered isn’t just extra paperwork. If you register for VAT in a single country (instead of IOSS) you’ll be able to reclaim import VAT on goods you ship there.
