One-line definition: Import duties are charges levied on goods crossing a border based on their type and origin; taxes are broader government charges that may apply at various points in a transaction; VAT is a consumption tax charged at each stage of a product's journey to the end customer.
What they mean
These three terms are used constantly in international e-commerce and frequently confused with each other — sometimes used interchangeably when they mean different things. Understanding each one clearly is the foundation of pricing international shipments correctly and avoiding unexpected charges that land on your customers.
Import duty A duty is a tax specifically applied to goods as they cross an international border. Import duties are charged by the destination country's customs authority and are calculated as a percentage of the declared value of the goods. The percentage varies by product type — determined by the HS (Harmonised System) tariff code — and by the country of origin of the goods. The purpose of import duties is both to generate government revenue and to protect domestic industries from foreign competition.
Tax Tax is the broadest of the three terms. In a shipping and trade context, "tax" typically refers to any government-imposed charge applied to goods or transactions — which includes import duties, VAT, excise duties, and other levies. When someone says a shipment "has taxes applied," they usually mean some combination of import duty and VAT. The term is often used loosely and needs context to be meaningful.
VAT (Value Added Tax) VAT is a consumption tax applied at each stage of a product's production and distribution chain, but ultimately borne by the end consumer. For e-commerce merchants, VAT matters in two distinct ways: domestically (you charge VAT on sales within your own country and remit it to your tax authority) and internationally (when selling to consumers in other countries, you may need to charge and remit VAT at that country's rate). VAT rates vary significantly across countries — from 17% in Luxembourg to 27% in Hungary within the EU, and 20% in the UK.
Why it matters for e-commerce merchants
The practical reason these distinctions matter is that import duties and VAT are calculated differently, charged at different points, and managed through different processes. Conflating them leads to incorrectly priced international shipments, surprised customers, and occasionally compliance gaps.
The most common merchant error is pricing international shipping without accounting for the full landed cost a customer will face — the price of the goods, plus shipping, plus import duty if applicable, plus import VAT. When a customer orders an item for €50 including shipping and then receives a customs charge notice for an additional €20, they feel misled even though the merchant did nothing wrong in their own billing. Managing customer expectations around the full landed cost — or building it in to your pricing — requires understanding what each component is.
How each one is calculated
Import duty calculation Duties are calculated as a percentage of the customs value of the goods — typically the transaction value (what the customer paid for the goods, excluding shipping). The percentage is determined by the HS tariff code and the country of origin.
Example: A pair of leather shoes (HS code 6403) shipped from Finland to the USA with a transaction value of €150. The US tariff rate for leather shoes from the EU may be 8–10%. Import duty = €150 × 10% = €15.
Duty rates vary enormously by product and by the trade relationship between the origin and destination country. Goods qualifying for preferential tariff treatment under a trade agreement (like the UK-EU Trade and Cooperation Agreement for qualifying UK-origin goods) may attract zero or reduced duty rates.
VAT calculation Import VAT is typically calculated on the customs value of the goods plus the import duty — i.e. the value after duty has been applied, not just on the goods themselves.
Example: The same €150 shoes attract €15 import duty. Import VAT is then calculated on €150 + €15 = €165. At the US equivalent consumption tax rate (which varies by state — the US uses sales tax rather than VAT) or at a standard 20% EU VAT rate on an equivalent EU import: €165 × 20% = €33.
The combined landed cost in this example: €150 goods + €15 duty + €33 VAT = €198 total, compared to the €150 the customer paid at checkout. That gap is the customer experience problem that unclear customs communication creates.
Excise duty A third category worth knowing: excise duties are levied on specific categories of goods — alcohol, tobacco, fuel, and in some countries, electronics or luxury items. Excise duties apply on top of import duty and VAT and can be very high for the relevant product categories. If you ship alcohol or tobacco internationally, excise duty is a significant additional charge at the destination.
Who pays — the merchant or the customer
This depends on the Incoterm (delivery terms) agreed between merchant and customer, and on the shipment value relative to the destination country's de minimis threshold.
Below the de minimis threshold Most countries have a minimum value threshold below which import duties and sometimes VAT are not charged. In Australia, this is $1000. In the EU (for imports from outside the EU), €150 for duty and there is no longer a VAT-free threshold — import VAT applies from the first euro. Below the relevant threshold, the customer typically faces no additional charges at delivery.
Above the de minimis threshold — DAP (Delivered at Place) The most common default for e-commerce. You ship the goods; the customer is responsible for paying any import duties and VAT at the destination. The carrier's customs brokerage typically contacts the customer for payment before releasing the parcel. This creates the "surprise charges" problem — the customer did not expect to pay additional charges after completing their order.
Above the de minimis threshold — DDP (Delivered Duty Paid) You collect the full landed cost — including estimated import duties and VAT — at checkout and remit the relevant charges on the customer's behalf. The customer receives their parcel with no additional charges. This is a significantly better customer experience but requires you to calculate and collect the correct charges at checkout, and to manage the remittance process.
For EU-based merchants selling within the EU, OSS handles VAT. For EU-based merchants selling to non-EU consumers, or non-EU merchants selling to EU consumers, the duty and VAT treatment depends on shipment value, destination country rules, and the delivery terms offered.
Key thresholds by destination
| Destination | Duty-free threshold | VAT-free threshold | Standard VAT rate |
|---|---|---|---|
| EU (imports from outside EU) | €150 | None (VAT from €0.01) | 17–27% (varies by country) |
| United Kingdom | £135 | £135 | 20% |
| USA | $0 | N/A (sales tax, not VAT) | Varies by state (0–13%) |
| Norway | NOK 350 | NOK 350 | 25% |
| Switzerland | CHF 65 | CHF 65 | 8.1% |
| Australia | AUD 1,000 | AUD 75 | 10% (GST) |
These thresholds are correct as of end of 2025 but are subject to change. Always verify current thresholds for your specific destination markets.
Common misconceptions and mistakes
"Duty and VAT are the same thing." They are not. Import duty is a border charge based on the type and origin of goods. VAT is a consumption tax applied to the transaction value. Both may apply to the same shipment — and VAT is typically calculated on the duty-inclusive value, meaning duty is effectively taxed again through the VAT calculation.
"If there's no duty, there's no VAT." Incorrect for most markets. VAT on imports typically applies independently of whether import duty applies. A shipment below the duty threshold may still attract import VAT. This is particularly important for EU imports — the EU removed its VAT-free de minimis threshold in 2021, meaning even very low-value imports from outside the EU attract VAT.
"My customer will know there are additional charges." Unless you tell them explicitly at checkout, many customers assume the price they pay is the total they will pay. The surprise duty or VAT notice at delivery — especially for higher-value orders — is one of the most common triggers for e-commerce disputes, chargebacks, and returns. Transparency at checkout about potential import charges is the simplest way to prevent this.
"Free trade agreements eliminate all charges." Trade agreements may reduce or eliminate import duties on qualifying goods — but they typically do not eliminate import VAT. A UK merchant shipping qualifying UK-origin goods to the EU may benefit from zero tariff rates under the UK-EU TCA, but the EU customer still pays EU import VAT on the shipment.
How this connects to your Shopify store
Duties and VAT affect your Shopify store at two points: checkout pricing and customs documentation.
At checkout, if you want to offer a DDP experience — where the customer pays the full landed cost with no surprise charges at delivery — your Shopify store needs to calculate and collect the correct duty and VAT for each destination market. This requires integration with a duty calculation tool or a carrier that offers DDP services. Packrooster supports DDP shipping through carriers that provide it as a service option, and manages the customs documentation that underpins the duty and VAT assessment.
At the customs documentation level, the declared value on the CN22 or CN23 customs form — generated automatically by Packrooster for international shipments — is what customs authorities use to calculate import duty and VAT. Accurate declared values, correct HS codes, and the correct description of goods are what ensure the right charges are applied — not too high (overcharging the customer) and not too low (a compliance risk).
Packrooster also supports assignment of IOSS numbers for EU B2C imports under €150 — which allows VAT to be collected at checkout and pre-declared to EU customs, eliminating the import VAT charge at delivery. For merchants selling into the EU from outside, IOSS registration is the mechanism that prevents the "surprise VAT" problem for sub-€150 orders.
Learn more about Packrooster →
Frequently asked questions
Is VAT charged on shipping costs as well as goods? This depends on the destination country's rules. In the EU, shipping costs are generally included in the customs value of imported goods and therefore subject to import VAT. In the UK, VAT applies to shipping charges at the same rate as the goods being shipped. For customs declaration purposes, some carriers require the declared value to include shipping and insurance (CIF value — Cost, Insurance, Freight) rather than just the goods value. Check the requirements for each specific destination market.
What is the difference between import duty and customs duty? They mean the same thing. Import duty and customs duty are two terms for the same charge — a tariff applied to goods crossing an international border into the destination country. Some contexts use "import duty" specifically for the inbound charge and "export duty" for charges applied on the outbound side (less common), while "customs duty" is used as a general term covering both.
What is excise duty and when does it apply? Excise duty is a category-specific tax applied to goods like alcohol, tobacco, fuel, and in some countries, electronics, vehicles, or luxury goods. It applies on top of import duty and VAT and can be very high — alcohol excise duties in Nordic countries, for example, are among the highest in the world. If you ship any excise goods internationally, research the excise duty regime in each destination market before quoting prices or shipping terms to customers.
How do I know what duty rate applies to my products? Import duty rates are determined by HS tariff code and the origin country of the goods. Most countries publish their tariff schedules publicly — the EU's TARIC database, the UK's Trade Tariff, and the US International Trade Commission all provide searchable tariff tools. Enter your HS code and the origin country to find the applicable duty rate for a specific destination. For complex product ranges or high-volume international shipments, a customs broker can advise on correct classification and applicable rates.
Does the customer always pay import duty and VAT, or can I pay it on their behalf? You can pay it on their behalf by shipping DDP (Delivered Duty Paid). Under DDP terms, you collect the estimated duty and VAT from the customer at checkout — building it into the price or showing it as a separate line — and remit it through your carrier's DDP service or customs broker. The customer receives the parcel with no additional charges. DDP improves the customer experience significantly for high-value cross-border orders but requires you to accurately estimate and collect the correct charges, which varies by destination and product type.
What happens if the customs authority disagrees with my declared value? If a customs authority believes the declared value understates the actual value of the goods — based on reference prices, the nature of the goods, or intelligence from the carrier — they can assess the shipment at a higher value and charge duty and VAT on that higher figure. This can result in a larger-than-expected charge for the customer, a dispute with you, and in serious cases, a penalty for undervaluation. Always declare the actual transaction value — the price the customer paid for the goods.
