With the emergence of the internet and e-commerce, selling goods internationally has never been this easy. A customer could be sitting on his couch in Paris right now and still buy a product from Thailand instantly. This reveals itself to be a golden opportunity for e-commerce owners to grow their brand and expand their operations globally.
According to Statista, global e-commerce revenues are projected to grow from 3 535 billion dollars in 2019 to 6 542 billion dollars in 2023 with a potential market of 4 billion people.
Expanding your e-commerce globally offers the opportunity to create a worldwide presence for your brand, which will drive sales and increase your revenues.
You are at a point your sales are starting to be well established in your country and you are willing to grow outside of you frontiers, you may even have had your first orders internationally. We will put ourselves in the shoes of a European brand that wants to expand in the rest of Europe and further, though if you have questions from other countries, feel free to shoot me a message or to join our facebook community
Taking your brand worldwide comes with a little bit of apprehension, after all, you will be dealing with completely different processes. You will have to send your products to multiple countries and this implies dealing with different customs, tariffs, rules, and regulations while, at the same time, making sure that you still offer a pleasant experience for your customers.
After all, customers still expect you to deliver their orders pretty quickly and for a small shipping cost (if not for free), that’s why you’ll need to
Here are some steps we prepared to help you implement cross border shipping, meet your customers’ expectations and ensure that your global expansion is successful:
1. Choose the right service provider:
To ensure a successful global expansion, choosing the right carrier is crucial.
There are many carriers out there, so make sure to choose one that has low delivery lead times to the markets you’re targeting. Shipping cost is also another factor to take into consideration. You don’t want your customers to pay for shipping as much as they pay for your products, especially when you know that high shipping costs is actually the top reason for cart abandonment.
Double check if your carrier has an efficient tracking system, this will help you ensure a constant communication with your customers about the state of their delivery.
Choosing a carrier who covers a large network is also crucial for your global expansion, as this will help you to ship your products to almost anywhere in the world.
2. Understand international logistics and customs clearance processes:
Global expansion and cross border shipping require a minimum understanding the customs clearance processes and its legal requirements.
Customs clearance is the documentation given by customs authorities to prove that the shipper has paid custom duties and completed the examination and assessment of the goods he’s importing or exporting.
To make sure you successfully go through these processes, it is important to understand every concept of it:
The EORI Number is a European Union identification number used by customs authorities to easily identify a business. The purpose is for statistics, fiscal declarations and security.
To ship abroad, you have to declare your business to the administration to get the EORI number, because all businesses going through EU customs must have one. So make sure to declare your e-commerce before starting your expansion abroad.
Harmonized System Code (HS Code):
The Harmonized System is a global system that classifies everything (yes, literally everything) on the planet with up to 10 digits.
The Harmonized System is an indispensable tool for international shipping and trade. It is considered as a universal economic language (used by over 190 countries) that is at the core of the customs clearance processes. The system is well structured and is supported by many rules and laws to make its usage uniformized around the world.
Customs officers need to use the HS code to clear all the goods crossing international borders. It is also used by governments for internal taxes, trade deals, controlling goods and quotas, and making economic research.
Failing to put the correct code for a product will lead your shipment to be delayed and could result in higher duty and taxes. If you’re in doubt about the HS code of your product, it is more prudent to consult customs directly or experts in the customs clearance companies for advice on the correct HS codes to use.
Customs fees are fees that you need to pay to ensure that you product is cleared successfully at customs, they are divided into 3 categories: Tariffs, VAT and handling fees.
Tariffs are taxes paid on foreign goods imported into a country. It represents a percentage of the CIF Value. The CIF value is the addition of the merchandise price, the transportation cost, and the insurance fees.
Each country has a threshold for import, it means that under that amount, you won’t have to pay customs tariffs. The threshold in Europe is 150 euros, which means there’s no tariff applied to products valued less than 150 euros.
Note that there’s no tariff applied for products shipped inside the European Union.
Value Added Tax:
VAT is a consumption tax that applies to all commercial activities including services and goods selling. VAT is paid to the revenue authorities by the seller of the goods, but it is actually paid by the buyer to the seller as part of the price. It is thus borne by the final consumer.
The VAT paid by the consumer is calculated as a percentage of the CIF Value. The percentage of VAT applied to different goods and services varies from one country to another.
Inside the European Union, it is applied on business owners and goods sellers based upon their Annual Sales Income (VAT excluded) in the destination countries.
Each destination country has its own Annual Sales Income threshold. If your revenues in the destination country are under the threshold, the VAT applied will be the one from the departing country.
Knowing how complicated it can be to understand (I know the struggle), let’s illustrate that with an example. As said in the beginning, let’s suppose you’re an e-commerce based in France and you want to expand your business to Europe and more specifically to Czech Republic. The Annual Sales Income threshold in Czech republic (your destination country) is 44 873 euros and your revenues in the country are below the threshold, the VAT applied in this case is France’s one.
When it is over the threshold, the VAT applied is the one from the EU country of destination. Taking the previous example, if your revenues are above 44 873 euros in Czech Republic, you will have to pay the VAT in Czech Republic.
Outside of the European Union, VAT will be charged based on the Incoterm you chose to use.
Incoterms are a set of rules which define where a transfer of responsibility occurs between the buyer and the seller regarding merchandise, customs, insurance, and costs. Incoterms are published by the International Chamber of Commerce (ICC) every 10 years.
There are 11 incoterms but when it comes to the e-commerce and B2C shipments outside the European Union, the 2 most used ones are DDP and DAP:
- DAP: Delivery at Place
Here, end customers need to pay the customs fees upon pledge arrival before being able to collect their parcel. The selling price on your website should be free of VAT.
- DDP: Delivery duty paid
Here, the sender (you) pays the customs fees in advance to the carrier. End customers collect their parcel without paying any additional fees on arrival. In this case, you can add VAT to the selling price on your website.
To provide the best experience possible for your customers, I advise you to opt for DDP as you’ll avoid any bad surprise for your customers won’t have to worry anymore after their purchase is made and this makes life easier for them.
The handling fee is the amount charged by the carrier for the customs clearance. If the carrier has provided his help in managing and sorting all the customs related documents, it is natural that he’ll charge some fees for the service provided.
Now that we’ve gone through all the fees that you have to pay related to customs, we’ll move to the document that you’ll need, such as invoices, customs declaration, and certificate of origin.
To illustrate all the points above, let’s imagine that your brand is doing well in Europe and you want to expand further, you sold a shirt to a customer based in Brazil and here’s your context:
- Shirt value: 38€.
- Shipping fees: 8€.
- The tariff for the product to enter Brazil is: 35%
- The tariff threshold: 45€
- VAT for fashion in Brazil is: 17%
- Handling fees: 2€
Based on these data:
- Your product value is: 38€
- Your CIF value is: 46€ (38 + 8)
Knowing that your CIF value is above the 45€ threshold, so you’ll have to pay the tariffs.
- Tariffs = 46€ x 0,35 = 16,1€
- VAT= 46€ x 0,17 = 7,82€
If you chose DDP, the total amount you’ll have to pay as customs fees will be: 25,92€
(In this case, VAT should be included in your selling price and the customer should pay it during the purchase on your website)
If you chose DAP, the total amount you’ll have to pay as customs fees will be: 18,1€ and your customer will have to pay the 7,82€ for VAT.
In order to go through customs, the officers will look at the paperwork needed for your shipment to cross the borders. Here’s the list of documents you’ll need for the customs clearance process:
A commercial invoice is an important document needed to clear your package through customs when shipping internationally. It is a proof of transaction between you and the buyer. It needs to be prepared by the seller (exporter) and can be submitted in any language, however, an English version is recommended to ensure a smooth customs clearance process.
The commercial invoice contains basic information such as the name and the address of the seller and the buyer, the date of issue, the invoice number, the name and the quantity of the goods shipped, the CIF Value, the HS code, the terms of delivery according to the appropriate Incoterm, etc…
When it comes to non-commercial shipments like gifts or samples, you can use a proforma invoice. It provides an estimate for the final amount of an order and can be used in importing and exporting to declare the value of goods for customs. A proforma invoice looks almost exactly the same as a commercial invoice. However, it should clearly state that it is a proforma to show that it is only an estimate and that the amount hasn’t been paid.
Devided in 2 parts:
CN23 is a customs document used for international trade when goods (which commercial value is under 1000 euros) are being transported outside of the European Union. It contains the nature of the goods, the country of origin and the customs tariff number. The document informs customs of the contents of your shipment and helps them to check it for prohibited or restricted items. Not providing the declaration may lead to delays on your shipment or your goods to be seized by Customs.
The single administrative document (SAD) is a form used for customs declarations for shipments, in which commercial value exceeds 1000 euros. Just like the CN23 it is used for exports outside the European Union.
Certificate of Origin:
An important part of the customs clearance process is to prove the origin of items that are shipped, in order to do so there are 2 ways:
- Invoice Origin Declaration:
If the CIF value is smaller than 1000 euros, then you can use the Invoice Origin Declaration, which certifies the origin of the products easily and directly on the invoice.
- Certificate of origin:
If the CIF value exceeds 1000 euros, then you’ll have to use a Certificate of Origin. It is a document declaring in which country the good was manufactured. It contains information regarding the product, its destination, and the country of export. It represents an important form because it can help determine whether certain goods are eligible for import, or whether goods are subject to duties.
PS: The origin of your product is the last country where a transformation occurred.
Expanding your e-commerce brand to a global scale takes a lot of time and effort, you will need to ensure that you products arrive in a fast way to satisfy your customers expectations, for that it is necessary to understand and master all the cross-border processes. This might be easy to manage if your volume is low but in case you have a bigger volume, I advise you to partner with a logistics provider who will be able to automate all these processes and will generate automatically all the documents needed for customs clearance.