Delivered Duty Paid (DDP) Meaning

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Goods in transit are susceptible to damage and accidents. This can lead to the loss of goods and money invested in them. Since the liability for payment of duties and taxes falls on the seller, the buyer is free from payment obligation here. The buyer is also relieved of the responsibility of safe delivery under a DDP arrangement.

Key Takeaways

  • Delivered Duty paid is an arrangement in international trade where the seller pays all costs for goods to be delivered to the buyer’s destination. It includes taxes, duties, and other charges. The DDP arrangement places the maximum obligation on sellers.Incoterms address one of the key components of an international commercial contract involving the sale of tangible goods, namely delivery, in a uniform manner.“Delivered duty paid (DDP)” and “Delivered at Place (DAP)” are similar concepts but distinguished by the destination and buyer’s involvement after the goods reach the delivery place.

Delivered Duty Paid Explained

Delivered Duty paid is an international trade arrangement where the seller must deliver the products at their own risk and expense to a specified location in the importing country. Importation, duty payment, and transportation to the destination specified by the buyer are some tasks that fall under the purview of the seller.

The shipping costs cover the materials, labor, and other supply chain activities that deliver the product to the buyer. The fees are broken down into the costs of packaging supplies, transportation, inventory storage space in warehouses, delivery, and labor for all these processes. It shall include picking, packing, adding the correct shipping label, and loading the goods onto the shipping vessel. Then shipping costs cover transit, fuel, postage, labor expenses of the driver, and any possible incurrence of surcharges.

The total shipping costs include many factors, such as:

  • Shipping insurance: It offers protection against damages and may be a finite percentage of the product value.Shipping charges: One had to pay it for moving a good from a warehouse to the buyer. It also involves charges for parcel handling, labeling, etc. Duties and taxes: Shipping to another country usually involves fees according to where the seller is shipping goods. These include disbursement fees.Accessorial fees: A fee charged to compensate for lost time or resources during the transit period. Carrier charges: Carrier companies of cargo often fix rates on the size of the shipment.

Obligations of parties involved in a DDP include:

  • Local transportation contracts.Import and export customs clearances (payment of taxes and duties).International transportation papers.International insurance.Other related documents.

Since all these procedures and the associated charges are borne by the sellers, they will reflect in the selling price of the product.

Delivered Duty Paid Incoterm Guidelines

The International Chamber of Commerce (ICC) created a set of guidelines called Incoterms to enable the conduct of international trade. People follow the delivered duty paid incoterm guidelines worldwide for international trade.

Since the ICC is a private organization, it has no power to enact laws. Instead, it issues regulations that contracting parties voluntarily include in their agreements, making them enforceable.

Nonetheless, parties, however, should be mindful of the mandatory local laws. Incoterms are, thus, codes that specify the rights, obligations, liabilities, and responsibilities of seller and buyer regarding the movement of products and related functions. 

Examples

Check out these examples to get a better idea of DDP:

Example #1

Ann, a wooden toy manufacturer from New York, enters into a DDP deal with a seller from Africa. The contract follows the delivered duty paid shipping terms where the supplier should pay the license fee, production and procurement costs, packaging, freight and shipping costs, shipping insurance, customs duties and tariffs (import), and transportation costs from port to warehouse. At the same time, Ann is responsible for unloading charges and transportation costs from the port to the warehouse. 

Example #2

Studio Fashion (Australia) Pty Ltd (SFA) entered into a contract on DDP criteria with Shang Fa, a Chinese supplier of apparel goods with no formal written contracts. Due to the smooth working relationship, SFA did not mind it. As required by the delivered duty-paid shipping terms, SFA did not participate in Australia’s import customs clearance procedure. In addition to being completely uninvolved in the customs clearance procedure, SFA did not choose a customs broker. Neither did it let any other party represent it. 

SFA was unaware of the status of the products in transit and was only aware of the shipment when it was scheduled for delivery after it had entered the domestic market and customs clearance was finished. On one of the post-clearance compliance audits by the Australian Customs and Border Protection Service (ACBPS), there were shortfalls in duties and goods and service tax (GST). After the audit, the ACBPS issued a demand for payment. The SFA opposed it because the DDP contractual provisions were applied, and Shang Fa should be held accountable for customs-related issues.

In a DDP transaction, the foreign supplier has a legal obligation to complete all customs formalities and pay any applicable customs duty and GST. Shang Fa used multiple names to make declarations to the ACBPS to obtain customs clearance and product delivery. In addition, it did fraudulent activities through under-invoicing. However, SFA had not followed the procedure even though it followed the DDP arrangement, which got the company into trouble with the government. The example shows that clear follow-up is essential irrespective of adopting a procedure.

Delivered Duty Paid vs Delivered At Place

Delivered Duty Paid is a contractual obligation where the seller delivers the goods after meeting the lawful conditions and clearance criteria. The seller must clear the products for import and export, pay for any associated duties, and complete all necessary customs procedures. The seller also pays all costs and bears risks associated with transporting the commodities to their final destination.

In the Delivered at place agreement, the seller assumes all risks related to transporting the items to the specified location, and the buyer assumes the charges of import clearance. The goods will reach the place of destination, which may or may not be the buyer’s location where the buyer will unload the goods, and any charges thereon will be borne by the buyer. This means that once the consignment has reached the designated destination, the buyer is responsible for paying import duties and other relevant taxes, including clearance and municipal taxes.

This article has been a guide to What is Delivered Duty Paid. Here, we explain its guidelines, examples, and a comparison with delivered at place. You can also go through our recommended articles on corporate finance –

The merchant or seller is responsible for all expenses and obligations associated with delivering the goods to the specified place of destination under the DDP Incoterm guidelines. The seller must pay import and export formalities, fees, tariffs, and taxes.

Many businesses will prefer DDP. When delivering goods by air or sea freight, Buyers greatly profit from DDP, as they bear less risk, liability, and expense. However, although DDP is a wonderful bargain for the buyer, it can cause trouble for them if handled improperly.

They are similar, except that the seller in DAP has to no more bear the expenses or charges, duties, or be part of any other process after delivery and unloading by the buyer. Until that point, DAP and DDU are similar; the seller bears all.

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