DDP: Delivered Duty Paid! It sounds like a dream come true for so many Amazon sellers importing products from China! Isn’t it great that you can pay a slightly higher price for the product and get it delivered to you with all taxes already paid for? Perfect! Or… is it?
I’m afraid that when it comes to offers like these, we always come back to the age-old truth that if it looks too good to be true, it probably is. And DDP is no exception.
If you’re importing goods from China using Alibaba.com to sell on Amazon, eBay or anywhere else, you should read this article very carefully, because the chances are you’re currently breaching the law and could be facing severe problems due to tax evasion.
Sounds terrifying? I agree. So, let’s clear the air once and for all and learn about DDP Incoterms and how you CAN and CAN’T use it in your importing business.
As I have already said, DDP stands for Delivered Duty Paid, and in simple terms, it means that the SELLER covers ALL the costs associated with the goods and the shipment of your order from their door to yours, which includes:
- Cost of goods
- Exporting duties/fees
- Import duties/fees/VAT/Customs clearance
- Delivery to the specified address
Sounds great, right? Yes, it does! It’s a great, hassle-free way to import goods from abroad and not have to worry about any of the problems usually associated with importing from China.
Another huge advantage is that you eliminate all the guesswork from the landed cost of the items you buy. The price you pay the supplier is the final price and will be the cost of your landed goods.
This makes it super easy to make P/L calculations, especially for Amazon FBA sellers who have to take into account Amazon seller fees and FBA fees to get their numbers right.
So far, so good—and no signs of any scams! Yes, DDP terms are perfectly legit and used a lot in B2B transactions around the world. The problem is that many Chinese suppliers have a different understanding of what DDP stands for, so they use it illegally. Here’s how…
How DDP Becomes a Tax Evasion Scheme When Importing Goods From China!
Here’s how it works: Your supplier will tell you that they can send you the goods via DDP terms for X amount of money, but in reality, they DON’T clear the goods through Customs for your shipment! What happens is your goods are smuggled into the EU without paying all the proper taxes (import duty and VAT).
And they achieve this in various ways:
1) If it’s a tiny package, they will try to pass it through Customs by putting a deficient value on the Customs declaration. If you get caught by Customs and asked to pay taxes, the supplier will come up with some stupid excuse about why it happened, but you will still have to cover those taxes.
2) They will send your goods via ship or train as part of a more significant shipment, allowing them to clear the goods through Customs while paying minimal taxes due to the incorrect classification.
3) They somehow manage to smuggle your goods into the EU without declaring anything. I have heard that the new train shipping method is used extensively for this. I don’t know the exact mechanics behind how they do it, but again, it doesn’t matter. If the appropriate taxes are not paid, you’re essentially taking part in a tax evasion crime and it will come back to bite you.
I hope that this information opens your eyes to the potential legal trouble that comes with accepting DDP terms when importing from China.
In my opinion, it is not the smartest move to make. In most cases, you will still receive your goods, but you won’t have any documents or proof to show that the correct taxes have been paid on them. This means you can’t even correctly document these orders/stock on your books! And if HMRC does check your books, you will certainly be in trouble.
There’s a small chance that some Chinese suppliers use legit DDP shipping terms. Perhaps they have a contract in place with the courier/shipping company to make this happen. It is possible, yes, but in those cases, they won’t have any problem showing you the proof/documents that the correct taxes have been paid for the goods you are importing (and you will need these for accounting anyways).
However, it will be rare that you will find genuine DDP terms on Alibaba.com. A super simple way to tell that supplier is NOT offering genuine DDP terms is to look at the price. For example:
If the cost of goods with the “normal” shipping is £3000, but they offer you DDP terms for an additional £200 (total £3200), it’s 100% a clear sign that it is a scam!
The VAT alone on a £3000 order will be £600 (at 20%), PLUS there’s import duty, Customs clearance fees, etc. The additional cost should be a minimum of 25% of the total (£750 in this example).
It’s just common sense; you can’t waive the VAT on imported goods because you use DDP terms, that’s not how it works.
Sometimes suppliers are smart and will add a premium of say 25% or 30% if you choose DDP terms—but they still won’t pay the taxes with it! They still try to smuggle the goods in and keep the difference for themselves.
So, what can you do? What is the solution to this problem? In which cases can we still use DPP terms to make importing life easier? Let’s find out…
My advice is to completely stay away from using DDP terms when dealing with suppliers on Alibaba.com.
It’s not worth the risk when you know that 99%+ of suppliers will scam you this way. I’m sure that Chinese suppliers don’t even see this as a scam—they think that they’re helping us! Just like they do when they continuously undervalue smaller shipments so that they get them through Customs without fees.
The ONLY time that DDP terms should be used is with US-based suppliers and legit companies who have contracts in place with the courier companies. These people will be happy to provide you with all the appropriate paperwork for all the taxes paid on your goods.
For example, Amazon offers DDP terms when you buy from Europe on the Amazon.com website. eBay also provides a very similar feature via their Global Shipping program (which also has plenty of weaknesses when used across the EU).
If you plan on importing goods from China, Alibaba.com, or any other website, stick with simple shipping terms where you are in control of how your products are processed through Customs:
1) With small shipments, it will usually be a courier company.
2) With larger purchases, you will want to use sea freight or air freight handled by a freight-forwarding company (such as Woodland Group).
As long as you ask the supplier to write down the correct VALUE on the Customs declaration and get a proper invoice from them showing all the goods, the amount paid, etc., you will have no problems clearing your goods through Customs, paying the taxes and getting the relevant documents that prove those payments were made.
Have you been using DDP terms and been scammed? I would like to hear your story! Leave your comment or question below the post, and I will personally get back to you within 24h, Monday to Friday.