Expanding internationally means navigating customs duties, VAT, and shipping costs that vary by country. The difference between smooth transactions and abandoned packages comes down to understanding these costs upfront and communicating them clearly.
What's the difference between customs duties, tariffs, and taxes?
Customs duties are taxes on imported goods based on product classification and value, similar to how states classify digital products for sales tax purposes. Every product has a Harmonized System code that determines the duty rate—a cotton t-shirt faces different percentages than polyester.
Tariffs are specific duties governments impose on products from certain countries for political reasons. Unlike standard duties, tariffs change quickly based on trade negotiations.
VAT and GST are consumption taxes applied on top of duties. When you ship a $100 product to the UK with 10% duty, the 20% VAT applies to the combined value: $100 + $10 duty = $110, then 20% VAT on $110 adds $22. Your customer pays $132 total before shipping.
How do HS codes determine customs costs?
HS codes are 6-10 digit numbers that classify products for customs. The first six digits are universal, then countries add specific digits. Getting this wrong triggers penalties and incorrect duty rates.
Misclassifying products means customs can reclassify your shipment, apply higher rates, and add penalties. If you've been using the wrong code for months, you owe back duties plus fines on all shipments.
Many products qualify for preferential rates under free trade agreements, but you must prove origin correctly. USMCA products between US, Mexico, and Canada may enter duty-free—the same product from China doesn't.
Should you use DDP or DDU shipping terms?
DDP (Delivered Duty Paid) means you handle all import costs at checkout. Customers pay once and receive packages with no surprise charges. This creates better customer experience but requires accurate landed cost calculations.
DDU (Delivered Duty Unpaid) shifts costs to customers at delivery. They pay duties and taxes to the courier, which frequently causes refused deliveries and negative reviews.
DDP significantly reduces cart abandonment despite higher displayed prices. Unexpected delivery charges destroy customer trust more than operational complexity. However, DDP requires systems to calculate duties and taxes at checkout—undercollecting means you absorb costs, overcollecting requires refunds.
What are de minimis thresholds?
De minimis thresholds are shipment values below which countries waive duties. These vary dramatically: the US eliminated its $800 threshold in August 2025, the EU uses €150 for duties but collects VAT on all imports, and many countries set thresholds under $20.
De minimis doesn't mean tax-free. Canada's $20 CAD threshold exempts duties but not the 5% GST. The UK collects 20% VAT on all imports regardless of value.
The elimination of thresholds increases compliance burden. Every shipment now requires HS code classification and customs declarations, even low-value items where actual duties might be minimal.
How do you calculate landed cost?
Landed cost includes product, shipping, duties, taxes, insurance, and customs fees. Start with CIF value (Cost, Insurance, Freight)—your product cost plus shipping and insurance.
Apply customs duty based on HS code. A $100 product with 10% duty becomes $110. Then apply VAT to the combined total: 20% VAT on $110 equals $22, bringing total to $132.
Add brokerage fees and local delivery. Final landed cost often reaches 130-160% of original product cost. Build these into pricing upfront or risk international sales losing money.
What VAT obligations do US sellers have?
The EU requires VAT collection from the first sale to EU consumers, regardless of volume. The One-Stop Shop system lets you register in one EU country and file quarterly returns covering all member states, though you must calculate each country's rate (17-27%).
The UK requires 20% VAT on all sales post-Brexit. Canada's GST kicks in above $30,000 CAD in sales. Australia requires GST registration above $75,000 AUD.
Registration complexity often pushes smaller sellers toward marketplaces that handle VAT automatically rather than direct sales.
How do shipping costs affect import taxes?
"Free shipping" bundled into product price increases declared value. A $100 product with $30 embedded shipping gets declared at $130 for customs—duties on $130 versus $100 create meaningfully different costs.
Separately stated shipping sometimes receives preferential treatment if properly documented as delivery charges. Insurance adds to dutiable value since it represents replacement cost.
What mistakes do sellers make with international costs?
Underestimating landed costs: Sellers forget duties, taxes, brokerage fees, and currency conversion. Total costs often exceed projections, eliminating margins.
Using incorrect HS codes: Misclassification creates liability that compounds. When discovered during audits, you owe back duties on all shipments plus penalties.
Poor cost communication: Not warning DDU customers about delivery charges causes refused packages and angry reviews.
Ignoring free trade agreements: Products qualifying for preferential treatment under USMCA or other agreements can enter duty-free, but you must file proper certificates of origin.
Not tracking tariff changes: Rates change based on trade negotiations. Products shipping duty-free six months ago might now face 25% tariffs.
How Yonda helps with international tax compliance
Managing VAT, GST, and cross-border tax obligations across multiple countries creates administrative complexity that scales poorly as your international business grows. Yonda's platform handles international tax compliance alongside your US sales tax obligations.
For sellers expanding into European markets, Yonda manages OSS registration and filing, calculating country-specific VAT rates for each EU member state automatically. Our system tracks your sales volume against registration thresholds in countries like Canada and Australia, alerting you before you cross into compliance territory.
International tax rates update automatically as countries adjust VAT and GST percentages. You don't need to monitor rate changes or manually update your systems—Yonda ensures you're always collecting the correct amount based on the destination country's current requirements.
Multi-currency filing and payment becomes straightforward with Yonda handling conversions and remittances in local currencies. Our reporting shows your international tax obligations clearly, breaking out collections by country for filing purposes.
Shipping internationally and struggling to keep up with duties, VAT, and GST across every destination? Talk to Yonda to see how we simplify cross-border tax compliance, so you can expand globally without the compliance headaches.
FAQ
What's the difference between customs duties and VAT?
Customs duties are import taxes based on your product's classification and value, while VAT is a consumption tax applied on top of the product value plus duties. Duties calculate first based on the product's HS code and CIF value, then VAT applies to the combined total of product value plus duties. For example, a $100 product with 10% duty ($10) and 20% VAT would pay $22 in VAT (20% of $110), not $20.
Should I use DDP or DDU for international shipping?
DDP (Delivered Duty Paid) creates a better customer experience because you collect all costs at checkout and customers receive packages with no surprise charges. DDU (Delivered Duty Unpaid) requires customers to pay duties and taxes at delivery, which frequently causes refused packages. While DDP requires more sophisticated systems to calculate landed costs accurately, it significantly reduces cart abandonment and customer service issues compared to DDU.
How do I find the correct HS code for my product?
Use the destination country's customs tariff schedule to look up your product's classification based on its material, construction, and intended use. The first six digits are standardized internationally, but countries add 2-4 more digits for specific classification. Misclassification carries penalties, so many sellers use customs brokers or classification services. Check multiple sources since similar products can have different codes based on subtle specifications.
Do I need to register for VAT to sell to EU customers?
Yes, non-EU sellers must collect VAT on sales to EU consumers from the first sale, regardless of sales volume. The One-Stop Shop (OSS) system lets you register in one EU member state and file quarterly returns covering all EU countries rather than registering in each individually. You must calculate and collect the destination country's VAT rate, which ranges from 17-27% across EU member states.
What happens if I undervalue products to reduce duties?
Undervaluing products on customs declarations is fraud that carries severe penalties including fines, back duties on all previous shipments, and potential criminal charges. Customs authorities cross-reference declared values against commercial databases and flag suspicious declarations. The duty savings from undervaluation are trivial compared to the penalties and reputational damage when caught. Always declare accurate values.
How do free trade agreements affect import costs?
Free trade agreements like USMCA can eliminate or reduce duties on qualifying products, but you must prove the product originates in a member country through certificates of origin. A product manufactured in Mexico might enter the US duty-free under USMCA, while the same product from China faces standard duties. Many sellers pay unnecessary duties by not filing proper origin documentation for qualifying shipments.