Is DDP the best solution for your shipping process? Under the Incoterms® framework, many US. importers and exporters opt for Delivered Duty Paid (DDP) to simplify logistics for the buyer. But while DDP can be attractive, it also shifts significant responsibility—and risk—onto the seller. Both parties must fully understand their obligations under this term to avoid costly surprises.
Below are several critical considerations when using DDP—and reasons why it might not be the right choice for your business.
For US Exporters
Value Added Tax (VAT)
DDP may require the seller to pay the destination country’s VAT or similar tax. This can be a major expense—often 15–20 percent of the goods’ value plus duty. While this responsibility can be negotiated with the buyer, the bottom line is that the VAT is your burden under standard DDP terms. Adding to the complexity, the buyer may be eligible for a VAT refund, meaning you could absorb the cost while your customer reaps the benefit.
Foreign Customs Compliance
DDP also makes the seller responsible for clearing goods through foreign Customs. This includes adhering to that country’s import regulations and recordkeeping requirements. Do you understand the import procedures in Brazil or Germany? Would you be comfortable being held accountable if something goes wrong? If not, DDP might not be for you.
Storage and Demurrage
All Customs clearance costs—including storage and demurrage due to delays—fall on the seller under DDP. These unanticipated costs, which can result from issues with Customs, carriers, or port congestion, can quickly erode or eliminate your profit margins.
For US Importers
Customs Exams
When DDP is done correctly, the seller arranges clearance and serves as the Importer of Record. While this removes liability from the buyer, it introduces a new challenge: increased scrutiny. US Customs assigns higher risk scores to shipments where the importer of record is a foreign entity—raising the likelihood of a Customs exam. When that happens, delays and disruptions are usually felt most by the buyer.
Delivery Delays
Even if a seller includes clearance and delivery in their DDP pricing, there’s no guarantee they’ve chosen the most efficient or reliable service. Many opt for low-cost providers to keep their own expenses down. The result? Missed delivery windows and limited visibility—ultimately impacting your operations.
DAP as an Alternative
A better option in some cases may be Delivered at Place (DAP), which allows the buyer to manage import formalities and reimburse the seller after the transaction. This gives the buyer greater control while still offering flexibility.
Know Your Supply Chain
When operating under DDP, convenience can come at a cost. That’s why it’s essential to know your supply chain—from the manufacturer and freight forwarder to the customs broker and importer of record. Due diligence isn’t just a best practice—it’s a risk mitigation strategy.
Even if the buyer isn’t the importer of record, the business relationship must go beyond a simple financial transaction. If it seems too good to be true, it probably is. Lack of visibility into logistics, valuation, or compliance can lead to real-world consequences: penalties, cargo seizures, and in severe cases, civil or criminal enforcement.
As US Customs and Border Protection (CBP) intensifies its focus on transactions involving DDP, their goal is to create consequences that deter non-compliance. Enforcement actions are no longer limited to penalties and seizures—they now include civil and criminal investigations when warranted. Accountability increasingly extends beyond the Importer of Record, putting all parties under the compliance microscope.
Red Flags in DDP: When Low Cost Comes at a High Risk
While not all DDP arrangements are problematic, unusually low pricing or overly simplified offers often rely on questionable practices that violate US Customs laws—and expose buyers to significant risk. Importers should be on alert for:
- Undervalued Invoices: Some suppliers deliberately understate the value of goods to reduce duties. If discovered, this can trigger penalties, retroactive assessments, or even seizure.
- Improper Use of the “First Sale” Rule: Inserting sham intermediaries to artificially lower dutiable value can be grounds for revaluation and enforcement if the transaction lacks commercial substance.
- Shell Importers of Record: Use of front companies or paper importers to shield liability is a known tactic. CBP can and will trace liability back to the actual beneficiary.
- Misclassification and Transshipment: Using false HTS codes or origin manipulation (e.g., rerouting through third countries to avoid Section 301 tariffs) is considered fraud, not strategy.
- “Duty-Free” Guarantees: Some sellers claim they’ll handle duties but use hidden or illegal methods to do so—including invoice manipulation, de minimis abuse, or outright smuggling.
Even if your business isn’t the one committing the fraud, benefiting from these schemes—knowingly or not—can make you liable.
Not Sure if DDP is Right for You?
Choosing the right Incoterm® can have a major impact on your supply chain, costs, and compliance obligations. If you’re unsure whether DDP—or an alternative like DAP—is the right fit for your business, reach out to Mohawk Global. Our team is here to help you make informed, strategic decisions that align with your business goals.