Definition and context
– Delivered Duty Paid (DDP) is an Incoterm (International Commercial Term) that makes the seller responsible for virtually all costs, risks, and formalities involved in getting goods to an agreed place in the buyer’s country. That includes carriage, export and import clearance, duties and taxes, and delivery to the named place. Risk shifts to the buyer only once the goods are made available at that destination.
– Incoterms are standardized trade terms published by the International Chamber of Commerce (ICC) that allocate obligations between buyers and sellers in international sales contracts.
What the seller must do under DDP
– Supply the contracted goods and commercial invoice.
– Pack goods for export and arrange and pay for carriage to the named place.
– Arrange export clearance and pay any export duties or taxes.
– Arrange import clearance in the buyer’s country and pay import duties, taxes (e.g., VAT), and customs fees.
– Arrange and pay for any required inspections, certificates, licenses or permits.
– Provide proof of delivery and notify the buyer when goods are available at the agreed place.
– Note: the seller does not have to unload the goods unless the contract explicitly requires unloading.
Key differences: DDP versus DDU
– DDP (Delivered Duty Paid): seller bears cost and responsibility for import duties, taxes, and clearance. Highest obligation for the seller.
– DDU (Delivered Duty Unpaid): seller delivers to destination but buyer is responsible for import clearance, duties and taxes (and associated delays and payments).
Practical issues and risks to consider
– Customs complexity: import clearance procedures, documentation and requirements differ by country. In some jurisdictions local importers have advantages (e.g., faster registration, knowledge of informal practices).
– Cash flow: the seller must front duties and taxes and may wait for VAT refunds or buyer reimbursements.
– Delays and extra costs: if customs refuse clearance, hold cargo, or require additional inspections, the seller may incur storage, demurrage, or re-routing costs.
– Compliance and legal risk: local laws, anti-bribery rules, and licensing requirements can create liability for the seller if not handled correctly.
– Pricing and transparency: sellers often build a premium into price to cover these risks; buyers may have limited visibility into transport and handling if the seller controls the supply chain.
Checklist for drafting a DDP contract (what to specify explicitly)
– Named place of delivery (exact address or terminal) and whether unloading is included.
– Which party arranges and pays for insurance.
– Who obtains and pays for specific permits, licenses, certificates.
– Currency and timing of payments for duties/taxes reimbursements (if applicable).
– Allocation of responsibility for storage/demurrage if customs delays occur.
– Which party handles commercial documentation and who receives proof of delivery.
– Dispute resolution forum and law governing the contract.
– Contingency plan if local law prevents seller from completing import formalities.
Step-by-step practical sequence for a DDP shipment
1. Seller and buyer agree contract with DDP and a specific delivery point.
2. Seller prepares goods, packs for export, and obtains export clearance.
3. Seller books carriage and insures cargo (if contract requires).
4. On arrival in destination country, seller completes import clearance and pays duties/taxes.
5. Seller delivers goods to the named place and provides proof of delivery.
6. Buyer inspects and accepts (or rejects) cargo per contract terms.
Worked numeric example (illustrative; assumptions listed)
Assumptions:
– Goods price (factory cost to seller): $10,000.
– International freight: $1,200.
– Insurance: $100.
– Import duty rate: 5% of customs value.
– VAT rate at destination: 20% and applied to (goods value + freight + duty).
– Misc customs fees and handling: $150.
Calculations:
1. Customs value used for duty = $10,000 (goods) + $1,200 (freight, if included) = $11,200.
2. Import duty = 5% × $11,200 = $560.
3. VAT base = goods + freight + duty = $10,000 + $1,200 + $560 = $11,760.
4. VAT = 20% × $11,760 = $2,352.
5. Seller’s total outlays = goods $10,000 + freight $1,200 + insurance $100 + duty $560 + VAT $2,352 + fees $150 = $14,362.
Notes:
– The seller must fund the duties and VAT up front; VAT may be recoverable later depending on local rules and whether buyer registers for VAT, but refunds can be slow.
– If a seller wants a 10% gross margin over total outlays, they would quote at least $15,798 (1.10 × $14,362). Contract terms should make clear who ultimately bears these costs.
When DDP makes sense—and when to avoid it
– Consider DDP if: buyer wants a “delivered and cleared” service, supply-chain costs are stable and predictable, and the seller has local capability or reliable local agents to clear imports.
– Avoid DDP if: destination customs rules are opaque or hostile to foreign importers, VAT/duty regimes are high or uncertain, seller lacks local legal/financial presence, or if the seller cannot tolerate the cash-flow and compliance burden.
Sources for further reference
– International Chamber of Commerce (Incoterms rules) — https://iccwbo.org/resources-for-business/incoterms-rules/
– Investopedia, “Delivered Duty Paid (DDP)” — https://www.investopedia.com/terms/d/delivery-duty-paid.asp
– U.S. Customs and Border Protection (import procedures and responsibilities)
— U.S. Customs and Border Protection (import procedures and responsibilities) — https://www.cbp.gov/
— HM Revenue & Customs (UK) — Importing goods: https://www.gov.uk/guidance/import-goods-into-the-uk
— European Commission — Taxation and Customs Union: https://ec.europa.eu/taxation_customs/index_en.htm
Practical seller checklist when offering DDP
– Confirm the named place (exact delivery address) and cite Incoterms year (e.g., “DDP [Buyer warehouse], Incoterms 2020”). Incoterms are standardized international trade terms published by the ICC; they specify who pays and who bears risk.
– Register for any required local tax/identification numbers (e.g., EORI: Economic Operators Registration and Identification in the EU/UK). These are often needed before you can clear imports.
– Arrange a customs broker or licensed agent for import clearance. A customs broker is a licensed professional who files import declarations and pays duties on behalf of the importer.
– Estimate duties, taxes (VAT = value-added tax), and other import charges. Confirm how VAT is calculated in the destination (commonly on goods + freight + duty). Ask local authorities or a broker for the correct basis.
– Secure funds or credit to pay duties and VAT up-front if required — DDP often forces the seller to front those payments. Consider a local VAT registration so you can reclaim VAT where available.
– Buy insurance covering risk until delivery per the chosen named place (seller bears risk until delivery under DDP).
– Build contingencies: currency moves, unexpected anti-dumping duties, delayed customs clearances, or import license requirements. Spell how extra costs will be handled in the contract.
– Keep documentation tidy: commercial invoice, packing list, bill of lading/airway bill, certificates (origin, conformity), and any permits.
Practical buyer checklist when accepting DDP
– Verify the seller’s ability to clear imports and pay duties in your jurisdiction.
– Confirm the exact delivery location and whether the seller will unpack or place goods in a specific area (delivery terms can affect
delivery terms can affect who is responsible for unloading, placement, or inspection at the buyer’s premises.
Practical buyer checklist when accepting DDP (continued)
– Confirm the seller’s import authorizations and registrations (VAT, EORI, fiscal representative) in your country.
– Ask whether the seller will arrange and pay for unloading, and if unloading requires specific equipment or a dock appointment.
– Confirm who provides the arrival notice and original transport documents (bill of lading / airway bill). Timely originals are often needed to release cargo.
– Agree how the seller will document payment of duties and taxes (copies of declarations, receipts, or broker statements).
– Verify packaging, labeling, and product standards meet local rules (safety marks, language labeling, recycling marks).
– Schedule delivery windows and confirm access requirements at the delivery site (hours, weight limits, security checks).
– Agree a process for handling customs holds, inspections, or quarantines (who pays storage, demurrage, testing).
– Clarify remedies for damaged/missing goods on delivery and proof-of-delivery (POD) requirements.
Seller checklist when quoting or accepting DDP
– Obtain local import registrations or appoint a local fiscal representative if required.
– Budget for cash-flow impact: under DDP you often pay duties and VAT up front and then claim refunds if entitled.
– Engage a customs broker familiar with local tariff classification, valuation, and documentary requirements.
– Specify the exact named place of delivery and whether unloading is included. Use a full postal address and site restrictions.
– Calculate full landed cost before quoting: product cost + export formalities + international freight + insurance + import duties + import VAT + local delivery + brokerage + handling. (See worked example below.)
– Verify whether you can reclaim import VAT or other indirect taxes — rules differ by jurisdiction and may require local VAT registration.
– Ensure product compliance (certificates of origin, conformity certificates, phytosanitary, etc.). Missing certificates can trigger delays and extra cost.
– Include a buffer for customs valuation adjustments, reclassification, or anti-dumping measures.
Worked numeric example — calculating a DDP landed cost (step-by-step)
Assumptions:
– Order: 1,000 units. Seller factory price (EXW) = $10.00 per unit.
– International freight (ocean) = $800 total.
– Export customs clearance = $120.
– Marine insurance = $60.
– Import duty rate = 4% (ad valorem on customs value).
– Import VAT = 19% (calculated on cost + freight + duty per destination rules).
– Local trucking from port to buyer = $400.
– Customs broker fees and handling = $200.
– Unloading at buyer site = $100.
– Assumption: seller must pay import VAT and cannot immediately reclaim it (conservative for this example).
Step A — compute customs value (example uses CIF-like basis: cost + international freight + insurance)
– Goods value = 1,000 × $10.00 = $10,000.
– Add international freight + insurance = $800 + $60 = $860.
– Customs value = $10,860.
Step B — compute import duty
Step B — compute import duty
– Formula: import duty = import duty rate × customs value.
– Calculation: 4% × $10,860 = 0.04 × 10,860 = $434.40.
Step C — compute import VAT (value‑added tax)
– Assumption (given): VAT is charged on customs value + import duty (destination rule).
– VAT base = $10,860 (customs value) + $434.40 (duty) = $11,294.40.
– VAT = 19% × $11,294.40 = 0.19 × 11,294.40 = $2,145.94.
Step D — add local handling and finish DDP landed price
– Local charges the seller must pay under DDP in this example:
– Local trucking = $400
– Customs broker & handling = $200
– Unloading at buyer site = $100
– Sum of taxes and local charges = duty + VAT + local trucking + broker + unloading
= $434.40 + $2,145.94 + $400 + $200 + $100 = $3,280.34.
Step E — total DDP price to buyer (seller’s outlay to deliver duty paid)
– You can sum either:
– Customs value + (duty + VAT + local charges), or
– Cost of goods + international freight + marine insurance + duty + VAT + local charges.
– Total DDP price = $10,860 + $3,280.34 = $14,140.34.
– Per unit price (1,000 units): $14,140.34 ÷ 1,000 = $14.14 per unit (rounded to cents).
Notes, caveats and cash‑flow point
– Rounding: amounts shown rounded to nearest cent. Slight differences can occur with different rounding rules.
– VAT reclaim: this example assumes the seller cannot immediately reclaim VAT. If the seller can reclaim VAT from the destination tax authority, the seller’s net cash cost (but not the formal DDP price) will be lower once reclaimed; however, the seller typically must front the VAT payment and follow local reclaim procedures.
– Customs value basis: we used a CIF-like customs value (goods + international freight + insurance). Different jurisdictions may require other valuation elements (e.g., additions for commissions, packaging, royalties). Always confirm the applicable customs valuation rules for the destination.
– Business implication: DDP shifts import risk, documentation and cash‑flow burden to the seller. Sellers commonly adjust price or contract terms to reflect these costs and administrative responsibilities.
Quick checklist for computing a DDP quote
1. Determine
Determine the exact Incoterm variant and delivery point (DDP — Delivered Duty Paid — to named place). Confirm who arranges the final-mile carrier and whether delivery includes unloading. Clarify whether the buyer or seller is responsible for import permits, local registration, or special handling.
2. Classify the goods: obtain the HS code (Harmonized System) used by the destination customs authority. The HS code drives duty rates and may trigger additional controls (quotas, licenses, anti‑dumping).
3. Calculate the customs value basis: confirm the valuation method required by the destination (we used a CIF-like basis earlier: goods value + international freight + insurance). Add any required valuation additions (commissions, royalties, packing, assist items) if applicable.
4. Compute import duty:
– Duty = customs value × duty rate (ad valorem).
– If duties are specific (per unit), convert to a currency amount using declared quantities.
– Check whether preferential rates (free trade agreements) apply and whether you can prove origin.
5. Compute VAT / sales tax and other indirect taxes:
– VAT base usually = customs value + duty + certain import costs (e.g., handling).
– VAT = VAT base × VAT rate.
– Confirm whether excise taxes apply (e.g., alcohol, tobacco) and how they’re calculated.
6. Add customs brokerage, handling, port/terminal charges and local transport:
– Get quotes from local customs brokers, terminal operators and carriers for the named delivery point.
– Include any mandatory inspection or quarantine fees.
7. Consider compliance and administrative costs:
– Importer registration, VAT registration (if required for reclaiming VAT), power of attorney for broker, document translation, labeling, and packaging modifications.
8. Factor cash‑flow and financing costs:
– Seller typically must pay duties and VAT at import time; if VAT can be reclaimed later, include financing cost for the VAT amount for the expected reclaim period.
– Consider currency conversion spread and timing differences.
9. Calculate insurance and risk margin:
– Under DDP the seller bears risk until delivery. Ensure insurance covers goods in transit and final-mile risks.
– Add a margin for uncertain or variable costs (customs reclassification, additional inspections).
10. Prepare documentation required for import clearance and proof of delivery:
– Commercial invoice (accurate values and HS codes), packing list, bill of lading/air waybill, certificate of origin (if claiming preferential duty), insurance certificate, import declaration, and any permits.
11. Draft contract terms and invoice wording:
– Explicitly state DDP and the named delivery place per Incoterms 2020.
– Define responsibility for returns, non‑conforming goods, and who pays for inspections or rework.
12. Run scenario sensitivity tests:
– Recalculate quotes under different duty rates, VAT rates, freight modes, and delays to see impact on price and cash flow.
Worked numeric example (step-by-step)
Assumptions:
– Seller sells goods at ex‑works cost to seller = $10,000.
– International freight (to destination port/airport) = $800.
– Insurance = $50.
– Other import handling at destination (port charges, broker fee) = $100.
– Customs valuation uses CIF-like basis = goods + freight + insurance.
– Duty rate = 5% (ad valorem).
– VAT rate = 20% (applied on customs value + duty + handling).
– Seller will be able to reclaim VAT later, but must pay it at import.
Step A — Customs value
Customs value = goods + freight + insurance = 10,000 + 800 + 50 = 10,850
Step B — Duty
Duty = customs value × duty rate = 10,850 × 0.05 = 542.50
Step C — VAT base
VAT base = customs value + duty + handling = 10,850 + 542.50 + 100 = 11,492.50
Step D — VAT
VAT = VAT base × VAT rate = 11,492.50 × 0.20 = 2,298.50
Step E — Total import cash outflows at import
Total import taxes & fees = duty + VAT + handling = 542.50 + 2,298.50 + 100 = 2,941.00
Step F — Seller’s DDP cost before margin
Seller total cash cost = goods cost + freight + insurance + import taxes & fees = 10,000 + 800 + 50 + 2,941 = 13,791
Step G — If seller reclaims VAT later
Net tax cost after reclaim (excluding time value) = duty + handling = 542.50 + 100 = 642.50
(Reason: VAT 2,298.50 is assumed reclaimable; seller fronts it but gets it back later subject to local rules and timing.)
Step H — Quoted DDP price
If seller wants a 10% margin on total cost before margin:
Margin = 0.10 × 13,791 = 1,379.10
Quoted DDP price = 13,791 + 1,379.10 = 15,170.10
This DDP price