7.4 eCommerce - IncotermsIncoterms
- When the goods you export arrive at their destination, the importing country requires that all applicable tariffs (import taxes levied by the destination country) and local taxes, including value-added tax (VAT), be paid. Many companies require the buyer to pay these tariffs and taxes.
- Buyers typically want to know the final price, with shipping and taxes included (known as the “landed cost”), before they agree to buy, but you might not be able to provide it—tariffs and taxes vary widely throughout the world, so determining those rates before you ship can be difficult. Be clear about your policy on tariffs—specifically, who pays and when payment will be due.
- The shipping companies you select often act as freight forwarders, helping you complete shipping documents, helping you estimate duties and taxes, pre-paying them for you, and then invoicing you. If you use the U.S. Postal Service for lighter weight shipments, its local partner in the buyer’s country will collect duties and taxes.
IncotermsShippers worldwide use standard trade definitions (called Incoterms) to spell out who’s responsible for the shipping, insurance, and tariffs on an item; they’re commonly used in international contracts and are protected by International Chamber of Commerce copyright. Familiarize yourself with Incoterms so you can choose terms that will enable you to provide excellent customer service and clearly define who is responsible for which charges. You can find a list of Incoterms at export.gov/logistics, or with help from your local U.S. Commercial Service International Trade Specialist.
The most common Incoterms are:
- EXW (Ex Works);
- FOB (Free On Board);
- CIF (Cost, Insurance, and Freight);
- CPT (Carriage Paid To);
- DDU (Delivered Duty Unpaid);
- DDP (Delivered Duty Paid).
Most B2B ecommerce agreements will use EXW, CPT, or CIF; most business-to-consumer (B2C) transactions will use CPT or CIF (and sometimes DDP). With the exception of DDP, the Incoterms mentioned above require the buyer to pay all tariffs and taxes upon arrival. To make sense of all these terms, you should take the time to understand their usage.
For sample language you can use on your website, check out the “eCommerce Terms & Conditions” article. Also, keep in mind that some (maybe even most) customers are unfamiliar with Incoterms; whenever you use one, be sure to spell out in plain language what it means.
eCommerce Industry eCommerce Customs Incoterms