Customs and Duties for International Ecommerce

How Customs Duties Work

When an international package arrives in the destination country, it passes through customs inspection. The customs authority reviews the declaration form to determine what is in the package, how much it is worth, and where it was manufactured. Based on this information, they apply the applicable duty rate (a percentage of the declared value) and the country's import VAT or sales tax. The total of duties plus taxes is called the landed cost in addition to the product price and shipping cost.

Duty rates vary by product category and destination country. A cotton t-shirt imported into the UK faces a 12% duty rate. The same t-shirt imported into Canada faces 18%. Electronic accessories might face 0% duty in both countries. Leather goods face higher rates than synthetic alternatives in most markets. The rate is determined by the product's HS code (Harmonized System code), a standardized international classification that identifies what the product is for customs purposes.

VAT (Value Added Tax) or GST (Goods and Services Tax) is applied on top of duties in most countries. The UK charges 20% VAT on the sum of the product value, shipping cost, and duty amount. Germany charges 19% VAT. France charges 20%. Australia charges 10% GST. Canada charges 5% GST federally plus provincial sales tax in most provinces. VAT is not a duty; it is the destination country's sales tax applied to imports the same way it is applied to domestic purchases.

Understanding HS Codes

Harmonized System codes are 6 to 10 digit product classification codes used by customs authorities in virtually every country. The first 6 digits are standardized internationally. Individual countries add additional digits for more specific classification. You need to identify the correct HS code for every product you ship internationally because the code determines the duty rate applied at customs.

To find your product's HS code, search the US International Trade Commission's Harmonized Tariff Schedule at hts.usitc.gov. Browse or search for your product category and find the most specific code that matches. For example, a cotton knit t-shirt falls under HS 6109.10 (T-shirts, singlets, and other vests of cotton, knitted or crocheted). A leather handbag falls under HS 4202.21. An electronic fitness tracker falls under HS 8517.62.

Getting the HS code wrong has real consequences. An incorrect code can result in higher duties than necessary (costing your customer money), lower duties that trigger a customs audit and penalties, package delays while customs reclassifies the product, or seizure of the shipment if the code implies a restricted product. If you are unsure about the correct code, consult a customs broker or use a classification service like those offered by Zonos, Avalara, or your international carrier.

De Minimis Thresholds

Most countries have a de minimis threshold, a value below which imports are exempt from duties, taxes, or both. If your product's declared value is below this threshold, the customer pays no duties or taxes on the shipment. De minimis thresholds vary significantly by country:

• United States: $800 (one of the highest in the world, though subject to ongoing policy changes)
• Canada: CAD $20 for taxes, CAD $40 for duties (very low, meaning most ecommerce imports incur charges)
• United Kingdom: GBP 135 (below this, the seller must register for UK VAT and collect at point of sale)
• European Union: EUR 0 for VAT (all imports are subject to VAT), EUR 150 for duties
• Australia: AUD $1,000 for GST collection requirements
• Japan: JPY 10,000 (approximately $75 USD)

The EU eliminated its EUR 22 VAT de minimis threshold in July 2021, meaning all imports into the EU are now subject to VAT regardless of value. The UK implemented a similar change with its Import One Stop Shop (IOSS) system. For sellers shipping to Europe, this means every order triggers a VAT obligation, making DDP shipping with upfront VAT collection essential for a good customer experience.

DDP vs DDU Shipping Terms

DDP (Delivered Duty Paid) means you, the seller, calculate the estimated duties and taxes at checkout, collect them from the customer as part of the order total, and pay the customs charges on the customer's behalf when the package clears customs. The customer receives their order without any additional charges or surprises. This is the recommended approach for ecommerce because it eliminates the most common complaint from international customers: unexpected charges at delivery.

DDU (Delivered Duty Unpaid) means the customer pays duties and taxes to the carrier or customs authority upon delivery or when they collect the package. The customer sees only the product price and shipping cost at checkout, then receives a bill for 15% to 35% more when the package arrives. Many customers refuse delivery rather than pay the unexpected charges, resulting in a lost sale, lost product (stuck in customs), and wasted shipping cost. DDU shipments also generate significantly more customer complaints and chargebacks.

Setting up DDP requires a way to calculate duties and taxes at checkout. Shopify Markets includes built-in duty and tax estimation. Third-party services like Zonos, GlobalE, and Avalara provide more accurate calculations with HS code databases, duty rate lookups, and carrier integrations. EasyShip includes landed cost calculation in its shipping platform. The investment in DDP setup pays for itself through higher international conversion rates, fewer refused deliveries, and fewer support tickets from confused customers.

Customs Documentation

Every international shipment requires a customs declaration attached to the outside of the package. For commercial shipments (ecommerce orders), you need a commercial invoice that includes your business name and address (shipper), the customer's name and address (consignee), a detailed description of each item in the package, the quantity of each item, the declared value of each item in USD, the total declared value, the HS code for each item, the country of origin where each item was manufactured, and the reason for export (typically "sale of merchandise").

Most shipping software generates customs documentation automatically when you print an international shipping label. The information is pulled from your product catalog (descriptions, values, HS codes, countries of origin) and the order details (quantities, customer address). Set up your product catalog with accurate HS codes and countries of origin before your first international shipment so the documentation is generated correctly every time.

Inaccurate customs declarations cause delays and can result in penalties. Undervaluing items to reduce the customer's duty bill is customs fraud and can result in package seizure, fines, and being blacklisted from shipping to that country. Always declare the actual sale price of the goods, not a reduced "gift" value. Customs authorities compare declared values against market prices for similar products and flag shipments that appear undervalued.

Landed Cost Calculation

The total cost your international customer pays is the landed cost, which includes the product price, international shipping cost, import duty (percentage of declared value based on HS code), and import VAT or GST (percentage applied to the sum of product value, shipping, and duty). For a $50 product shipped to the UK with $15 shipping and a 12% duty rate:

• Product: $50
• Shipping: $15
• Duty: $6.00 (12% of $50)
• UK VAT: $14.20 (20% of $50 + $15 + $6)
• Total landed cost: $85.20

The customer's total is 70% higher than the product price alone. If you use DDU terms and the customer only sees $65 ($50 + $15 shipping) at checkout, they receive a $20.20 surprise bill at delivery. This is why DDP is strongly recommended for international ecommerce, because customers make purchasing decisions based on the total price they see at checkout, and surprise charges destroy trust.