In international trade, Incoterms define the rules of the game, as well as the payment and delivery modalities in international business. Eleven different terms are defined in the currently valid Incoterms 2020. However, only two Incoterms are important for e-commerce: DDP and DAP. Read on for a definition of the terms:
DAP stands for “Delivery at Place”: What does that mean exactly?
If a delivery is sent on a DAP basis, the seller is responsible for the delivery of the goods including transport costs to the named destination on the buyer’s premises. The costs for carrying out all the necessary import formalities are expressly excluded. These costs are borne by the buyer, meaning that all duties incurred when importing to the country of destination must be paid by the buyer or the recipient.
How to make your customers happy
What are the consequences for foreign customers? If the VAT and customs duties are above a possible exemption limit, all duties must be paid on the doorstep upon receipt of the consignment. If the recipient is not present at the time of delivery or the outstanding amount cannot be paid, a collection invitation will be left for the consignment.
Please note: If you deliver your goods DAP and do not communicate this clearly when the order is placed in the online shop, the resulting customs duties may irritate your foreign customers.
DDP - Delivered Duty Paid: the seller bears the costs.
If the good are delivered on a DDP (Delivered Duty Paid ) basis, the seller must deliver the goods at their own expense and risk, to a destination in the import country, taking care of all formalities and paying all import duties in addition to all costs. DDP is essentially same as DAP with additional customs and taxation procedures.
What does this mean for customers abroad? The buyer no longer incurs any costs on receipt; the goods are delivered as if they were a national consignment. With this option, the consignor has the goods cleared by a logistics partner in the EU. Thereafter, no further customs duties or VAT must be paid.
Please note that the Incoterms clause DDP may lead to a possible VAT obligation in the country of destination. In this case, VAT registration would be necessary and the VAT must be invoiced to the customer at the time of sale. Find out more about this topic in our VAT dossier (in German).
