Import duty is a tax levied by customs authorities on goods brought into a country or customs union, calculated from the product’s tariff classification, its customs value and its country of origin. In cross-border commerce within e-commerce, it is a key part of the landed cost, the total price a customer actually pays to receive an order from abroad.
Import duty is separate from import VAT or sales tax, although both are often collected at the same moment. Whether the seller or the buyer pays it, and when, has a direct effect on conversion, delivery speed and the rate of refused parcels.
How import duty is calculated
Customs determines duty from three inputs: what the product is, what it is worth and where it was made. Each input is defined by formal rules, and errors in any of them lead to wrong charges, delays or penalties.
| Input | What it means | Main reference |
|---|---|---|
| Tariff classification | Product category code that sets the duty rate | Harmonized System (HS) code |
| Customs value | Value on which duty is charged | Transaction value of the goods |
| Country of origin | Where the goods were made or substantially transformed | Rules of origin |
The Harmonized System, maintained by the World Customs Organization, uses a six-digit code shared by most countries, and national tariffs extend it to eight or ten digits. The customs value base also differs: the European Union generally uses the CIF value, including transport and insurance to the border, while the United States generally uses the FOB value, excluding international freight.
Import VAT is then usually calculated on a base that includes the duty itself. A product worth 100 with 8% duty and 20% VAT therefore incurs 8 in duty and 21.60 in VAT, not 20.
The data reaches customs through shipping documents. Postal shipments carry CN22 or CN23 customs declarations, while courier shipments use a commercial invoice listing each item’s description, HS code, quantity, value, currency and origin. Express carriers and postal operators submit this data electronically, often before arrival, so that duty can be assessed in advance and the parcel released without delay.
When classification is uncertain, importers in many jurisdictions can request a binding tariff ruling from customs. Such a ruling fixes the code for a specific product and protects the business from later reclassification, which is valuable for high-volume product lines.
Types of duty and rate structures
Most duties are ad valorem, expressed as a percentage of the customs value, but tariffs also use fixed amounts per unit and combinations of both. Trade remedies can add extra duties on top of the standard rate.
| Duty type | How it is expressed | Typical use |
|---|---|---|
| Ad valorem duty | Percentage of customs value, often 0-25% | Most manufactured goods |
| Specific duty | Fixed amount per unit, weight or volume | Agricultural products, alcohol |
| Compound duty | Percentage plus a fixed amount | Selected food and textile items |
| Anti-dumping duty | Additional rate on goods from named exporters | Imports sold below fair value |
| Retaliatory or additional tariff | Extra rate from trade policy measures | Goods from specific countries |
Preferential rates under free trade agreements can reduce duty to zero, but only when the goods meet the rules of origin and the exporter provides a valid origin statement. Simply shipping from a partner country does not qualify a product.
De minimis thresholds and low-value parcels
Many countries apply a de minimis threshold, a value below which duty, and sometimes tax, is not collected. These thresholds have a large effect on cross-border e-commerce, and they have been changing rapidly as governments respond to the growth of low-value parcel imports.
The European Union removed its VAT exemption for low-value goods in 2021 and has decided to phase out the duty exemption for consignments up to 150 euros. The United States ended its long-standing exemption for most low-value parcels in 2025. Merchants should therefore verify current thresholds for every destination market rather than rely on older rules.
Who pays: DDP and DAP shipping
The Incoterms rules define who bears duties and taxes in an international sale. In cross-border e-commerce, the practical choice is between shipping delivered duty paid (DDP) and delivered at place (DAP), which is often called delivered duty unpaid in everyday use.
| Aspect | DDP | DAP |
|---|---|---|
| Who pays duty | Seller, usually collected at checkout | Buyer, on delivery |
| Customer experience | Price known in advance | Surprise charges at the door |
| Refused parcels | Rare | More frequent |
| Seller effort | Duty calculation and registration needed | Lower administrative effort |
| Typical fit | Brands focused on international growth | Occasional foreign orders |
DDP requires a landed cost calculator at checkout that applies HS codes, origin and destination rules, often provided by a carrier, a cross-border platform or a tax service. It works together with multi-currency checkout and localization, so the customer sees one final price in the local currency.
Common mistakes with import duty
Most problems stem from incorrect product data. A vague description such as “accessories” or a wrong HS code can trigger inspections, reclassification and back payments with penalties.
- Undervaluing goods or marking sales as gifts, which is customs fraud in most jurisdictions.
- Assuming a free trade agreement applies without proof of origin.
- Ignoring duty when pricing products for foreign markets, which erodes margin under DDP.
- Using one HS code for a whole catalog instead of classifying each product line.
- Forgetting that returns may not recover duty automatically and often require a separate drawback or refund claim.
In simple terms
Import duty is a fee a country charges on goods that arrive from abroad. It works like an entrance ticket for products, and the price of the ticket depends on what the product is, how much it costs and where it was made.
When you order something from another country, someone has to pay that fee. Either the shop includes it in the price you pay online, or the delivery company asks you for it when the parcel arrives.
A practical example
A small leather goods brand based outside the European Union starts selling handbags to customers in several EU countries. At first it ships without collecting duty, and customers receive unexpected charges from the courier, so many refuse the parcels and the brand pays for return shipping.
The brand classifies each product under the correct HS code, checks whether its goods qualify for a preferential rate and switches to DDP shipping with duty and VAT collected at checkout. The product price shown to customers rises slightly, but refused deliveries almost disappear, and repeat orders from those markets increase because customers know the final cost in advance.