Other Legal Requirements: Taxation and Documentation
You’ll need to pay value-added tax (VAT) and various duties on any packages you send overseas. VAT, also known as goods and services tax (GST), is a cost that retailers pay on each international transaction. It is determined by applying a set percentage to each shipment, regardless of its contents. The overall VAT varies depending on the destination.
A duty, also called a tariff, is a separate payment you may have to make when sending your products overseas. Similar to VAT, each country calculates its own duties using its own percentages you have to comply with. Countries calculate the cost of duties based on the value and quantity of the imported goods as well as the cost of shipping and any insurance, as opposed to employing a single, fixed percentage. That's the main difference between duties and VAT.
Types of duties
There are two types of duties:
- Delivery Duty Paid (DDP), in which the company is responsible for all applicable duties and fees, and
- Delivery Duty Unpaid (DDU), which mandates that the customer pays for duties.
Most businesses work under the DDP model. If you opt for DDU, ensure that’s clearly communicated to customers.
When making a decision about shipping options, it is important to know the impact that a country's taxes and VAT may have on your overall expenses. Once you gain an understanding of the financial implications, you'll be able to alter your costs to appeal to customers in those countries while managing your profits.
Documents
Your packages will not be going anywhere without the necessary documentation. You’ll need a commercial invoice, an export packing list, and a certificate of origin.
A commercial invoice must include the following information:
- The name and address of the retailer,
- The name and address of the recipient,
- The descriptions and prices of the items and their quantities,
- The terms of the sale and the method of payment, and
- The mode of transport.
It is used to determine the products’ value and to work out the customs duties and taxes you need to pay.
An export packing list details each package's weight, size, number, and type as well as the mode of transportation and carrier information.
A certificate of origin identifies the country from where the shipment's goods were made, manufactured, or acquired, authenticated by the local chamber of commerce in certain cases and signed by the retailer in others.
Also Read: Import tax, custom duties and GST on import in Australia