DDP and DAP simplified for the Indian businesses
Summary-
- Incoterms are commonly accepted terms of sale that are followed across the world.
- DDP and DAP are the most common incoterms, and many new sellers wonder what to pick while venturing into selling across international borders.
Are you an Indian seller who has decided to grow business by selling across borders? Are you confused by the terms DDP and DAP? If your answer is yes, here is a blog for you. In a real-life scenario, an online shopper eyes a particular product. If they like it, they add it to their basket and purchase it through checkout. That is where the buyer sees the product’s actual price, delivery fees, standard shipping charges, extra charges, if any, and tax. This is a day to day scene for everyone accustomed to selling and buying online. However, everything changes when the same scenario happens in a global context. Because if you are a seller based in India selling your products to someone based in Germany, then the tax complexities multiply.
You don’t just have to care about the tax compliance of your country but also the destination country now. Who will pay the taxes and when? Incoterms address all of these questions and bring uniformity and commonality in global commerce. Incoterms are widely used and commonly accepted terms of sale. The two most common of these incoterms are DDP and DAP. This blog is about these two incoterms. It will help you understand the differences between these models of sale.
1. DAP (Delivered at Place)
If you are a seller, you will find the DAP model the easiest to follow because it means the least compliance for you. This is because compliance in the case of DAP has to be taken care of by the buyer.In this model, the seller only has to sell a product and ship it to the buyer’s destination. The buyer has to pay the applicable duties and taxes, and then only the goods leave the customs.Here is how it happens. A buyer finds a great purse online. They instantly buy it and ask the seller to ship it. The seller sends it to the buyer’s country. When the parcel reaches that destination, the duties and taxes are calculated at customs. The buyer is supposed to pay them.
Only a few sellers inform the buyers about these taxes. This happens due to a lack of knowledge regarding that amongst the sellers. It often happens that buyers come to know about these surprise costs when the goods arrive. Then with heavy hearts, they pay the extra unexpected dues and are disappointed. These buyers look for other sellers who take care of these compliances to avoid unexpected costs. In some cases, buyers also reject shipments due to surprise costs.
2. Delivered duty paid (DDP)
In this model, compliance is complicated for the seller. The seller has to collect and report tax. And all the prices are disclosed at the step of checkout itself. There is no ambiguity in terms of shipping, and there are no hidden costs. Finally, the product reaches the buyer. Even though the prices are inclusive of the taxes to the buyer, the buyer is happy as they are disclosed initially. Many sellers choose the DAP model at first because it is much more convenient for them. But later on, switch to DDP. If you would like to know more about the DDP and DAP models, read this infographic.
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