Many DTC brands are expanding internationally, taking advantage of the appetite of global consumers. But one thing that can trip DTC brands up is accounting for international shipping duties and taxes in different markets.
A top reason consumers choose to buy direct is to get a better price, so brands need to carefully consider how to expand into new markets while still keeping their costs competitive. Knowing how to track and minimize certain expenses using best practices means you can grow your business and fulfill international orders—without all your profits getting eaten up by unexpected costs.
In this guide, we’ll tell you everything you need to know about the customs duties, tariffs, and other taxes and fees you’ll need to consider as your business goes international.
Duties, tariffs, and taxes are often clumped together, but they’re not interchangeable. The difference between duties and tariffs is that customs duties are an indirect tax applied to goods entering each country (and usually paid by the importer), while tariffs are a direct tax typically paid by the consumer.
Taxes, on the other hand, are applied to consumer goods in many countries, whether the goods are imported or not. Let’s take a closer look at these three fees and the differences between them.
Customs duties are a type of indirect tax charged to anyone importing or distributing goods from abroad. They’re fixed by the government of each country. The amount, usually a percentage of the value of the goods, depends on the characteristics of each product and where they’re coming from. Most consumer goods have a customs duty of around 5-7% of their import value.
Tariffs are a direct tax applied to imported products. The key difference between duties and tariffs is that tariff fees are usually passed onto the consumer and can result in them paying a significantly higher price.
Like duties, tariffs are often applied to products that are also available from domestic manufacturers, the idea being to encourage consumers to purchase products from their local market. But at other times, lower tariffs might be used as a way to promote international trade.
Tariffs can also change if a country wants to discourage trade with a specific country. For example, both the U.S. and EU recently imposed additional tariffs on imports from Russia. Tariffs can also change or be removed entirely if countries enter into a free trade agreement with each other. The U.S. has a free trade agreement with Australia and Canada, but not the EU. Even so, transatlantic tariffs are relatively low, with an average of just under 3%.
Import taxes are indirect taxes applied to goods imported to most countries. The name for these taxes varies depending on which country goods are being imported into, for example, Value-Added Tax (VAT) in the UK and Europe, or Goods and Services Tax (GST) in Australia and New Zealand. Usually, a flat rate is used and the tax is calculated based on product value. Certain goods are sometimes subject to reduced rates. In the UK, for instance, while the standard VAT rate is 20%, children’s clothes are subject to a 0% VAT rate.
Each country's government sets this tax, meaning VAT rates vary across Europe. The lowest rate of 17% is applied in Luxembourg, and the highest rate of 27% applies in Hungary. The average rate across Europe is 21%. You’ll need a VAT number to import into Europe, and many DTC brands choose to work with an importer of record (IOR) to achieve this.
Because the U.S. doesn’t apply VAT or GST, these taxes can confuse DTC brands expanding internationally. While international consumers often assume the retailer covers this cost, DTC brands tend to assume the reverse. If your terms don’t clarify who covers these costs, it can damage your brand reputation if additional fees are due at delivery.
Your products will be subject to specific duties depending on what you're importing. Commodity codes calculate if a customs duty needs to be paid and, if so, the amount due.
If you’re importing into (or out of) Europe, you’ll need an Economic Operator Registration and Identification (EORI) number. This unique code is required to make complete customs declarations and helps officials identify your business. Even if you’re working with a customs agent, fast parcel operator, or freight forwarder, you’ll still need an EORI number.
Some governments provide a step-by-step guide for imports, which can help you calculate how much tax and duty will be due ahead of time.
When it comes to import duties, ecommerce retailers have two choices: delivery duty unpaid (DDU) and delivery duty paid (DDP). If importing into a country with high duties and import fees, DDU shipping is more cost-effective for the retailer, but consumers must be told they’re liable for these fees—and be aware that this can put some consumers off. DDP shipping can be a better option, especially if you partner with a local warehouse. This way, the consumer isn’t liable for any duties or taxes upon delivery.
Tariffs are usually either:
Many countries use the Harmonized System (HS) for classifying which tariffs apply to specific products. Once you know the HS or HTS code, you can calculate the tariff due.
In the EU, the TARIC database can help you calculate the tariff for specific products. The Customs Union of the EU means that when importing, this area is effectively treated as a single territory. Whichever country you import into, the tariff is the same.
Other countries, like the UK, use commodity codes. For example, a women’s cotton T-shirt imported from the U.S. has a third-country duty of 12%.
Depending on the country you’re importing into, most taxes fall into these brackets:
There’s no getting around it—international shipping fees, rules, and regulations can make it difficult for DTC brands to thrive in other markets. If you don’t account for these international shipping duties and taxes, your bottom line can take a huge hit—even if you’re consistently profitable in your domestic market.
One of the first steps towards expansion is to get comfortable with the difference between customs and duties—and decide ahead of time whether you or the consumer will take these on. But you don’t have to do it alone—after all, you probably didn’t get into business to become an expert on duties and tariffs.
That’s where partnering with an international third-party logistics (3PL) provider can help. Enlisting a 3PL with an extensive global network of warehouses can help DTC brands avoid high customs duties, tariffs, and taxes by shipping international orders from warehouses within the local region. An experienced 3PL provider can also help ecommerce brands comply with local customs regulations, reducing the risk of costly delays or fines due to non-compliance.
Our network of international warehouses means you pay local shipping prices on international orders. Learn more by contacting one of our fulfillment experts today.
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