Incoterms (International Commercial Terms) are a set of defined rules that countries agree to follow to reduce the uncertainty when trading internationally. Incoterms are updated to respond to advances and changes in international trade, with the current version (Incoterms 2020) being published in 2019. More information on Incoterms can be found on the iccwbo website.
DDP (Delivery Duty Paid) is an Incoterm which specifies that the seller is responsible for the shipment until the goods are unloaded at their destination, this includes customs clearance and the payment of any duty and tax. In cross-border ecommerce, DDP is often the preferred shipment method as sellers can absorb or on-charge duty and tax at the time of checkout, which results in the best consumer experience as nothing else is payable upon delivery.
DDU (Delivery Duty Unpaid) is an old Incoterm that still sees common usage, the closest current published replacement is DAP (Delivery-at-Place). Using the DDU/DAP shipping method, the seller is responsible for the shipment until it reaches the destination country at which point the buyer becomes responsible for customs clearance and the payment of any duty or taxes. In cross-border ecommerce the DDU/DAP shipment method is commonplace as it relinquishes the seller of additional responsibility. However, this method can have a negative impact on the consumer experience if the customer is not aware of the duty and tax payable on their purchase.
EOR (Exporter of Record) is the entity or person that is responsible for providing all the information and documentation required for export clearance, as well as being responsible for the goods until they arrive at their POE.
IOR (Importer of Record) is the entity or person that is responsible for providing the entry documents, classification and payment of duty and tax as well as ensuring that the product being imported is not prohibited in the import country.
MoR (Merchant of Record) is the entity or person that is legally responsible for payment processing and guaranteeing compliance with tax laws. Within the context of cross-border ecommerce business offering DDP shipping, the MoR is responsible for ensuring accurate classification and duty are declared, and prohibited or dangerous goods are not shipped.
POE (Port of entry) is a place where people and goods can lawfully enter a country. Airports, border crossings and seaports, as long as they have customs presence, are all considered POE for the import of goods.
Customs authorities are the government bodies responsible for the clearance of imports and collection of duties and taxes.
A commercial invoice is a legally binding document between a supplier and purchaser that specifies the description, quantity, CO, HS code and value of the individual goods being shipped. Customs authorities use the commercial invoice to determine the amount of duty and tax payable on the import.
CO (Certificate of Origin) is a document provided by the exporter or manufacturer that certifies a product has met the required criteria to be considered to originate from a particular country. Goods often require an accompanying CO to qualify for preferential rates.
Mode of transport
Mode of transport is the manner in which goods enter the country of import, whether by sea, air, land or a combination of more than one.
A consignment is a batch of goods sent by a supplier to the same purchaser, whether or not in multiple shipments.
A 3PL (Third-Party Logistics) provider allows an organization to outsource elements of supply chain management. For example, if your business outsources shipping to a courier, they are considered a 3PL.
The WTO (World Trade Organization) is an intergovernmental organization that regulates international trade between member countries.
The WCO (World Customs Organization) is an intergovernmental organization that maintains the Harmonized System (HS) nomenclature and manages some of the customs specific functions of the WTO.
FTAs (Free Trade Agreements) are multinational treaties that eliminate or reduce trade barriers. Unlike customs unions, members are not required to maintain identical tariffs and thus can treat third-party countries as they wish. An example FTA is the North American Free Trade Agreement (NAFTA), a trilateral agreement between Mexico, Canada and the United States.
Customs unions are a form of trade bloc that facilitate free-trade between members. Unlike FTAs, customs union members are required to share a common external tariff. An example customs union is the European Union Customs Union.
Landed cost definitions
Import duty is an amount of money payable on the import of goods from another country. The duty payable is most often determined by an ad valorem rate, but can also be calculated by unit of measurement. The amount of duty payable varies between countries and goods imported.
Sales tax is a tax levied by the country and/or state on the sale of goods or services. When importing goods, sales tax is usually payable at the POE (Port of entry).
VAT & GST
VAT (Value Added Tax) & GST (General Sales Tax) is a type of sales tax that is levied on the price of goods and services at each stage of production, distribution, and sale to the end consumer. The terms are often used interchangeably and not all goods and services attract VAT/GST.
Excise is an additional duty levied on specific commodities (generally alcohol, tobacco and fuel products).
ADD (Anti-Dumping Duty) is an additional duty that is applied to goods that are imported at a lower value than the normal market value for those goods in the country of import. ADD is usually applied to specific product types from specific countries of origin to protect domestic markets.
CVD (Countervailing Duties) or anti-subsidy duties are imposed by the WTO to offset the negative impact of importing goods of which the production was subsidised in the country of origin. Similar to ADD, CVD aims to protect domestic industry from being undercut.
Ad valorem taxes are based on the value of the imported commodity as opposed to specific taxes, which are based on units of measurement. For example a 10% ad valorem rate on a $1,000 laptop would be $100 payable, regardless of weight, size, or other determinable measurements.
CIF (Cost, Insurance & Freight) is the method for calculating duty that most countries use. Using the CIF calculation method, duty is calculated on the sum of the cost of goods, shipping and insurance.
FOB (Free On Board) is a method for calculating duty. In contrast to CIF (Cost, Insurance & Freight), very few countries use the FOB method to calculate duty. Using the FOB calculation method, duty is calculated on the cost of goods alone, and not the shipping and insurance.
CV (Customs Valuation) is the process of assigning monetary value to an import or export undertaken by customs authorities.
A minimum threshold is a defined value that an import must exceed to attract import duty and tax. Most countries have minimum thresholds, but often certain goods are exempt from minimum thresholds (such as tobacco and alcohol). Furthermore, different taxes will often have different minimum thresholds.
De minimis is a form of minimum threshold that an import or product value must exceed to attract import duty and tax. De minimis thresholds are determined against the value of the product or import itself, and if the value is less than the de minimis the import will be duty and/or sales tax free.
Minimum collected duty
Minimum collected duty is a form of minimum threshold of which the dutiable or taxable value of the product or import must exceed to attract import duty and tax, as opposed to the value of the product or import itself.
MFN rates (Most Favoured Nation) are the regular rates of duty applied between WTO member countries when no trade agreements are in place. MFN rates are used for all countries if no GEN rate is published.
GEN rates (General Rates) are most often applied by countries to goods coming from non-WTO member countries and normally apply the highest rates of duty.
GSP rates (Generalized System of Preferences) or preferential rates are rates of duty that are less than the General or MFN rates. Preferential rates are determined by trade agreements between countries and a CO is often required to apply for preferential rates.
A HS Code (Harmonized System) Code is a code that is assigned to a specific product so that customs authorities can define rates based on products. Technically, the HS code refers specifically to the first six digits of the full country specific commodity code. However, in the context of cross-border ecommerce the HS code often refers to the full commodity code.
A HTS Code is the full commodity code used when importing to the United States. Dutify provides HTS Codes as HS Codes.
A TARIC Code is the full commodity code used when importing to the European Union. Dutify provides TARIC Codes as HS Codes.
GRI (General Rules for Interpretation) are a set of rules that customs authorities follow to determine the classification of goods within the tariff. The rules are published and maintained by the WCO (World Customs Organization), and are publicly available on the World Customs Organization website.
Nomenclature is a system that names and terms within a specific field.
ECCN (Export Control Classification Number) numbers are five character alpha-numeric codes that are assigned to goods to determine whether a license is required to export the product from the United States. ECCN codes are maintained by the United States Commerce Department and are principally concerned with whether a product is “dual-use” (has both civilian and military applications). More information can be found on the trade.gov website.