Incoterms are eleven sales and purchase terms used worldwide. One of them is DDP, which Chinese suppliers often push. Unfortunately, using this term has some risks, especially in Europe. Not all importers know what problems and serious consequences are associated with importing under DDP, and buyers with experience with DDP regret it. What are the issues when you import on DDP?
DDP in a nutshell
Incoterms are international standardized delivery terms identifying the party (Buyer/Seller) responsible for insurance, shipping costs, customs clearance, etc. You can choose one Incoterm per order. Some of them can only be used with a specific transport method.
The terms are divided into four groups: C, D, E, and F. In groups C and D, the seller has the most responsibilities. DDP is in group D.
DDP means delivered, duty paid (to the named place of destination)”. The buyer on DDP bears the following costs:
- order costs
- fees related to the goods after their delivery
- unloading costs
- additional costs in some instances.
At first, it seems like DDP delivery is very advantageous and convenient for the importer, especially since they don’t have many responsibilities, such as clearing customs. In reality, DDP causes many problems for importers in the destination country, as the buyers have no role in the import process.
You can find more information about Incoterms DDP and other Incoterms on ShipHub.
Shipping under DDP term Incoterms
Under the DDP condition, the seller (supplier) is obliged to conclude a transport contract. The importer only has to accept the cargo.
Customs and VAT and DDP
The main problem with importing under DDP is that Chinese suppliers are usually unable to pay customs and VAT (especially in the European Union), which is why the goods come undeclared (without required documents). Non-declared goods cannot be sold legally in the EU. It is smuggling (unlawful entry), which is punishable by law.
If the seller is VAT registered in the destination country, they will pay all the import charges. In other words, the seller acts as the “importer of record” in the destination country.
How to pay unpaid duties under DDP? DDP customs declaration
In order to introduce goods imported under DDP into the market, they must be “legalized” using the so-called retrospective clearance or make corrections.
You must apply to your local customs office to make DDP goods sellable. You can also contact a customs agency to handle this matter for you. However, not every customs agency handles the legalization of goods imported under the DDP Incoterms.
Documents legalizing a DDP order
The following documents must be submitted with the application:
- invoice for the goods
- confirmation of payment based on a proforma invoice
- waybill.
Of course, to clear goods, importers need to pay due duties.
Bear in mind that each customs office approaches such matters individually.
What about the customs status of goods under DDP?
Goods introduced into the European Union have a “Union status.” The problem is that even when goods imported under DDP aren’t declared properly, they can be considered Union goods since the shipment was handled by courier services. This presumes that the products are customs-cleared and do not need to undergo further procedures. The truth is, however, that these goods may still be considered illegal, and importers may face legal consequences.
Clearance and importing under DDP – courier services
If a courier company handles clearance, the importer pays certain costs and taxes (based on a debit note). They can get their VAT return at a later date. This is the simplest option to get out of the situation, but unfortunately, it is probably the most expensive, considering additional courier fees.
DDP is not DPD!
Although it is unlikely that experienced importers will make this mistake, many importers confuse DDP with DPD. They agree upon DDP terms, thinking it is DPD. However, this is not a typo. The truth is that shipping under DDP terms is different from that of DPD couriers. If you have any doubts, raise this issue with your supplier.
Which Incoterm is the best?
In summary, even though DDP is an Incoterm where the seller must fulfill all formalities for the most part, importers should avoid DDP. Performing imports from China under DDP Incoterms has many unnecessary complications in the process. Make sure to communicate your requirements regarding shipping terms with your supplier. Check our tips on business negotiations with Chinese partners.
Which of the eleven Incoterms is the best for you? Find out in a free e-book here.