Duties and taxes are the two separate charges that apply to most cross-border shipments, often confused as a single line item. Duty is a tariff based on the goods’ HS classification, country of origin, and applicable trade agreements. Tax is a consumption charge (VAT in the UK and EU, GST/HST in Canada, IVA in Mexico, sales tax in the US) based on where the goods are being delivered. Both can apply to the same shipment, calculated independently.
How it works in practice
A typical US-to-Canada B2C example: a US-based brand ships a $100 order to a customer in Ontario. The HS code carries a 6% duty rate, but the order qualifies for USMCA, so duty is $0. GST/HST in Ontario is 13%, so the tax owed is $13. The total landed cost to the customer is $113 if collected at the door, or $113 if pre-paid at checkout via DDP. The math reverses on Canada-to-US shipments, where USMCA can again waive duty but state-level sales tax may apply depending on the seller’s nexus.
In the EU, the IOSS (Import One-Stop Shop) lets sellers collect VAT at checkout and remit centrally, avoiding per-shipment VAT collection at the border. In the UK, the equivalent is the £135 VAT-at-checkout threshold.
Why it matters
The single biggest source of cross-border customer complaints is unexpected duty-and-tax bills at the door. A customer sees the order total at checkout, then a courier hands them a separate bill for $30 in duty and tax on delivery. The DDP (Delivered Duty Paid) model fixes this by collecting at checkout, which is now standard for brands serious about cross-border conversion rates.
Common misconceptions
- Duty and tax are not the same. Brands often quote “duty” and mean the combined total.
- Free trade agreements like USMCA waive duty, not tax. GST, HST, VAT, and IVA still apply.
- Tax obligations follow the destination, not the origin. A US seller shipping to a Canadian buyer still owes Canadian GST.