DDP vs DDU
Weighing the Pros and Cons for International Sales
Navigating the complexities of sales to the EU and UK post-BREXIT demands a blend of common sense and practical expertise. Within the intricate realm of customs and logistics, hidden risks and opportunities abound. This article aims to shed light on the contrasting features of two common delivery terms: DDU (Delivered Duty Unpaid) and DDP (Delivered Duty Paid), and their implications for international commerce.
Understanding the Terms
DDU, or Delivered Duty Unpaid, which has been officially replaced by DAP (Delivered at Place), signifies that as a merchant, you do not collect taxes and duties at the time of sale. Instead, the end customer is responsible for settling customs duties, VAT, and handling customs formalities in the destination country.
In contrast, DDP (Delivered Duty Paid) entails the merchant collecting VAT and customs duties, and subsequently arranging for their payment at the destination country’s customs. Typically, this involves enlisting the services of a customs broker or a courier company to handle these matters on behalf of the buyer.
While not a delivery term per se, the IOSS (Import One-Stop Shop) represents a specialised VAT scheme that can be thought of as a simplified form of DDP, particularly suitable for low-value consignments below the 150 EUR threshold. A similar system, UK VAT, is applicable to parcels under 135 GBP. Unlike DDP, both IOSS and UK VAT necessitate merchants to collect and remit VAT directly to the respective tax authorities. The key similarity to DDP lies in the fact that end customers do not face additional payments beyond what they’ve paid at checkout.
On a practical level, it’s possible to combine IOSS/UK VAT for orders below the specified thresholds with either DDP or DDU for orders exceeding those thresholds. For the purposes of this article, we assume that you’ve opted for the IOSS/UK VAT scheme and will focus solely on DDU vs. DDP for orders over the threshold.
DDU (Delivered Duty Unpaid)
- Logistics: No special courier requirements; all postal operators suffice. The end customer will be contacted either by the local postal service or customs to cover duties and taxes.
- Shop Settings: Your online store should be configured to collect VAT for orders below 150 EUR/135 GBP and not to levy taxes for orders surpassing this threshold.
- Customers may be dissatisfied with the realisation that they must shoulder tax payments and additional customs procedure fees (varying from 3 to 15 EUR for postal handling, and 7 to 40 EUR for courier handling).
- Merchants do not incur tax losses on returns; instead, all tax-related costs are borne by customers who undergo the customs process.
DDU (Delivered Duty Unpaid)
- Logistics: You must have an account with a courier or last-mile service provider such as DHL, FedEx, or DPD, as postal operators usually cannot provide DDP services. The courier charges taxes, duties, delivery fees and customs handling fees from the seller.
- Shop Settings: Your online store should be configured to collect VAT for orders below 150 EUR/135 GBP and also collect customs duties and taxes for orders exceeding this threshold. Some e-commerce platforms may have limitations in providing full DDP landed cost, but EAS can assist depending on the platform.
- Customers are aware from the outset of the precise amount they need to pay, generally resulting in higher satisfaction with their purchase.
- Merchants bear the risk of tax losses. Once items have entered the destination country, they are typically not eligible for reimbursement or return. Customers, on the other hand, face no risk of losing taxes and duties.
IOSS and UK VAT Schemes
These schemes offer a blend of advantages from both DDU and DDP but are applicable solely to low-value consignments (under 150€ excluding taxes and delivery). They can be managed by most logistics operators, including postal services, with no risk of tax losses on returns. They provide a DDP-level customer experience, as no additional payments are required upon receipt.
These schemes are a no-brainer for all deliveries under the 150€ threshold.
Choosing Between DDP and DDU
Choosing between DDP (Delivered Duty Paid) and DDU (Delivered Duty Unpaid) deliveries involves considering various factors related to your business model, target market, and operational capabilities.
Here are steps to help you make an informed decision:
- Understand the Basics:
Familiarise yourself with the definitions of DDP and DDU, as explained in your initial request. DDP involves the seller paying duties and taxes, while in DDU, the buyer is responsible for these costs upon delivery.
- Customer Expectations:
Assess your customers’ preferences. Do they expect all costs to be included upfront (DDP), or are they accustomed to paying taxes and duties upon delivery (DDU)? Customer satisfaction can be a significant factor in your decision.
- Product Value and Volume:
Evaluate the average value and volume of your products. For high-value items, absorbing duties and taxes (DDP) might be more financially feasible, while for lower-value items, customers may not mind paying these costs (DDU).
- Logistics and Infrastructure:
Determine if you have the necessary logistics and infrastructure in place for DDP deliveries. You’ll need the capability to calculate, collect, and remit taxes and duties. If you lack this capability, talk with EAS, we are most probably able to help you.
- Competitive Positioning:
Analyze your competitors’ practices. If they predominantly offer DDP or DDU, consider aligning with the market norm to remain competitive.
- Cost-Benefit Analysis:
Calculate the additional costs associated with DDP, including customs brokerage fees, tax collection costs, and the potential for higher shipping fees due to added complexity. Weigh these costs against the benefits of customer satisfaction and ease of purchase.
- Consider Hybrid Approaches:
In some cases, you can offer both DDP and DDU options to your customers. This allows them to choose their preferred method during checkout. Be sure to communicate clearly about the associated costs and responsibilities.
- Testing and Evaluation:
If you’re unsure which approach is best, consider testing both DDP and DDU for a period to gather data on customer preferences, conversion rates, and overall profitability. Use this information to make an informed decision.
- Consult with Experts:
If you’re still uncertain, consult with EAS, we can provide valuable insights and guidance based on your specific circumstances.
Ultimately, the choice between DDP and DDU should align with your business goals, customer expectations, and logistical capabilities. It’s not a one-size-fits-all decision, so take the time to evaluate your unique situation and make an informed choice that benefits both your business and your customers.