What the customs value includes
In the EU, the customs value of imported goods is normally based on the price paid for them, plus transport and related costs up to the point where the goods enter the EU customs territory. Transport after that point, import duties and interest are left out. According to the European Commission, this transaction-value method is used for about 95% of EU imports.
The UK works the same way: delivery costs and insurance up to the place where the goods are brought into the UK belong in the customs value, and transport inside the UK can be deducted if it is charged separately and can be identified.
What this means for the rule you choose: under EXW, FCA or FOB the price does not cover the main carriage, so the importer has to add freight and insurance up to the border. Under the C and D rules the price may also cover transport beyond the border, which can only be deducted when it is shown separately.
Import VAT in the EU
VAT on goods imported into the EU is usually charged when they are cleared through customs, in the same way as customs duties. The amount it is charged on is the customs value plus customs duties and other import taxes, plus incidental costs up to the place of destination.
DDP makes the seller the importer
Under DDP the seller clears the goods for import and pays the import duties, so it acts as importer in the destination country. Where that country charges import VAT, the seller has to register there for VAT or use a local tax representative.
Parties sometimes agree DDP with VAT and other local taxes excluded, and must then say so in the contract. Some countries still require the importer, which under DDP is the seller, to pay those taxes. If that is a problem, DAP leaves import clearance, duties and import VAT with the buyer.
EXW and proof of export
The Netherlands Chamber of Commerce points out a VAT trap in EXW sales to buyers outside the EU: the seller may only invoice 0% VAT if it can show the goods left the EU, but under EXW the buyer files the export declaration. Without proof of exit, Dutch customs treat the sale as domestic and the seller owes Dutch VAT. The exporter on an EU export declaration must also be established in the EU, so a buyer outside the EU needs a representative. FCA at the seller's premises avoids this, because the seller then files the export declaration.
Questions to ask your customs broker or tax adviser
- Who will be the importer (the party named on the import declaration), and is that consistent with the rule you chose?
- If the seller is to handle import clearance, can it legally do so in the destination country, and does it need a local registration or representative?
- Who pays import VAT or similar taxes, and who is able to recover it?
- Which costs (freight, insurance, loading) are included in the value declared to customs in the destination country?
- Does the export declaration in the seller's country name the right exporter for the rule you chose?
Use the cost matrix to see which side our data shows as responsible for export clearance, import clearance and duties under each rule, then check the answers above against it.
See the cost matrix for every rule at a glance.