One of the major steps in expanding your business is selling internationally. Selling internationally can provide a big boost to your online sales. Reports say that international sellers have a 10-15% hike in their sales on average, compared to those who only sell domestically. However, entering into the international shipping space can create massive headaches when it comes to customs duty rates. Since every country has its own laws and duty rates, eCommerce businesses face different challenges when shipping overseas. In this article, we will be discussing one such challenge, ie. who should pay the Customs Duty Fee? WooCommerce store owner or the customers? We will also discuss how the Customs Duty payment differs in Shipping as well as the Return shipping with WooCommerce FedEx International shipping.
What exactly is Customs Duty?
In simple words, Customs Duty is a tax imposed on imports and exports of goods. All countries have laws and restrictions on what items can enter their borders. Those rules often require a fee to be paid in order for the product to be admitted. These fees are called customs duties. Duties make imported products more expensive. The main intention of imposing Custom Duty is to raise revenue and to protect domestic businesses from more efficient competitors from abroad. Customs Duty is charged based on the value of goods or based on factors such as the weight, dimensions, size of the item, etc.
Importance of Customs Duty in e-Commerce
Since the eCommerce industry is growing day by day, it’s essential to think about how taxes and duties can influence your online business. Customs duties have a major influence on your revenue and even make importation or exportation economically non-profitable. Knowing how to handle Custom Duties in different countries is crucial since it is important to provide your customers with the best experience and this is directly dependent on your online store’s checkout and delivery. Determining which customs duty is applicable to a product is not an easy task. Unfortunately, store owners often commit mistakes in finding out which Customs Duty is applicable to their products. In this article, we help you understand how customs duty payment is handled when you internationally ship as well as return your products via FedEx by using the WooCommerce FedEx Shipping plugin.
Handling Customs Duty in Shipping
When you ship any product out of your country, it does not officially enter the destination country until it clears customs. This means that products are held when they first enter the destination country until they are released for delivery to the location. It is the customs office that determines whether the item can be admitted and how much customs duty needs to be paid. Depending on how the product is being shipped, the recipient, the store owner, vendors, or a third party may act as the one responsible for paying any duty or taxes. The Shipping plugins like the WooCommerce FedEx Shipping Plugin give you the option to select the Customs Duties payer.
Now that we have an idea of Customs Duty and how it is imposed on the products, let’s see how the payment is handled in shipping.
When Should the Store Owner Pay?
#1: When the Customs Duty fee is low
Low Customs Duty fee is a boon to the store owners. They can earn the trust of the customers by handling the customs duty payment. Not all customers will know the exact amount to be paid as the Custom Duty fee. So, if you manage to inform the customers that the duty and taxes are being paid all by yourself, the customers will build trust in the brand, which will make them come back to the same store when they shop again. This will lead to an increase in your sales and profit. The WooCommerce FedEx Shipping plugin allows you to do this by providing an option to choose the custom duty payer as the “Sender”.
#2: When you have a proper idea of Customs Duty Fees in the serviceable countries
Every country has a different fee for import tax, and duties, with different rules, and restrictions. Customs procedures change at each country’s border. Even in neighboring nations, the rates can look different. If you have a proper idea of which countries you are shipping to and the Customs duties for each of those countries, it will be easy for you to decide who has to pay the duties and tax fees. This means that if you are shipping to countries where the Customs Duty fees are less, then you can handle the duties and taxes payment. Also, if you are shipping to some countries where the duty fee is high and the number of orders is less, the duty fee payment can be handled by yourself so that you don’t impose an extra fee on the customers.
When Should the Customers Pay?
#1: When the Customs Duty fee is high
In cases where the Customs Duty fee is high, it is better to make the customers pay the fees. For example, it is not practical to pay the Customs Duty fee when the cost of your product is $100 and the duty fee is $200. This will end up in a huge loss as you are paying double the amount of your product as duties and taxes fee.
Other Cases
#1: Consider the case in which you have a large-scale business with multiple vendors. If each of these vendors is based in different countries, there is a problem with the Customs Duties fee. In such cases, you can either handle the duties and taxes payments by yourself or make the vendors responsible for paying the duties and taxes. #2: Consider the case in which the shipping is handled by a third party. As already explained, shipping plugins like WooCommerce FedEx Shipping Plugin, allow you to set the duties and taxpayer. You can set the Customs Duty payer as the “Third Party”.
Handling Customs Duty in Return Shipping
We have seen how to handle the Customs Duty in shipping. Now, let’s see how this works in return shipping. The point to be noted is that in return shipping, Taxes, and Duty payments cannot be handled in the same way as in shipping. Shipping carriers like FedEx don’t give the option to select the Customs Duties fee payer in return shipping. This would be set to the “Sender” and It would not be possible to generate the return label for the shipment. This is because in the case of the return shipment, the “Recipient” (customer) will be the shipper and FedEx does not allow billing recipients for return shipments. In such cases, you have to create a new order with the shipper’s address as the customer’s address and the customer’s address as Shipper’s address and then generate the shipping label. Now, the labels will be generated and the product can be returned. Here since there is no option to set the duties and taxpayer, the customer will have to pay the Customs Duties Fee and then return the shipment.
Do not make these Mistakes…
- Not Researching Regulated Products – In some countries, some of the products are categorized as “Regulated” (Any product whose issue to a user is subject to control by an appropriate authority).
- Using out-of-date Information – Rates and taxable products change all the time. So, you need to keep things updated so that no such issues occur.
- Assuming that all countries have the same tax rates – Every country has its own rates for taxes and duties. So, thorough research on the tax rates is very important.
- Doing the work yourself – One of the most common mistakes is trying to get Customs Duty and tax rates without any external expert assistance.
- Not able to calculate total landed cost – Some of the store owners calculate international Customs Duties on their shipments correctly, but fail to consider VAT or other local taxes. This can significantly impact the total cost. So, it’s important to calculate the total landed cost.
What is Landed Cost?
The cost of getting a physical product from the store in one country to the buyer in another is known as the Landed Cost. The landed cost includes the price of the item along with all other costs it takes to get a product from a store to international customers, such as shipping, insurance, taxes, all customs duty fees, etc. Calculating landed cost correctly is important to succeed in international business. Without an accurate calculation of how much it costs you to get your products to your customer, you can’t determine your profit margins on international business. Also, failing to take certain costs into consideration or not calculating them correctly can result in transactions where you end up in loss.
Conclusion
So that’s it! In this article, we have discussed one of the major concerns of the store owners who want to ship internationally; ie. who should pay the Customs Duty Fee? WooCommerce store owner or the customers? We also discussed how the Customs Duty payment differs in forward as well as the return shipping and what mistakes you should not do in Customs Duty payment. We hope that this article was able to clear all the doubts that come up in your mind regarding setting up the Customs Duties and Taxes Payer. If you have any queries regarding duties and tax payments, please do contact us. Our team will be able to help you out.
