This clause allocates financial responsibility for duties, tariffs, taxes, and other governmental charges imposed on goods during international shipment. When goods cross borders, they typically incur customs duties (calculated as a percentage of the goods' value), value-added taxes (VAT), excise taxes, and various other levies depending on the product type and destination country. The clause specifies whether the seller or buyer bears these costs, which can be substantial—sometimes 10-40% of the goods' value or more. This is a liability issue because if the clause is ambiguous, both parties may dispute who owes these charges, and the importing party may refuse to pay duties, leaving goods stranded in customs. Additionally, the clause may address responsibility for penalties or interest if duties are miscalculated or unpaid, and whether one party must indemnify the other if tax authorities impose additional assessments. The clause intersects with Incoterms (international commercial terms like FOB, CIF, DDP) that standardize these allocations, but a contract should explicitly confirm the parties' intent rather than relying on potentially misunderstood Incoterms.
The practical impact is significant because duty and tax costs are often unknown at the time of contracting and can vary based on tariff classification disputes, country-of-origin determinations, or changes in tax law. A buyer who expects a seller to pay duties may receive an invoice for unexpected charges. A seller who assumes the buyer will pay duties may face non-payment if the buyer disputes the amount.
Explicitly state which party bears responsibility for all duties, taxes, and governmental charges, using clear language such as "Buyer shall be responsible for all import duties, VAT, and taxes" rather than relying on Incoterms alone. If using Incoterms, reference the specific version (e.g., "Incoterms 2020 DDP") and confirm that both parties understand the allocation. Consider specifying that the seller will provide accurate tariff classification and country-of-origin documentation to minimize duty disputes, and that the buyer will handle all customs clearance and tax compliance. Include a mechanism for adjusting the contract price if duties or taxes change materially after contracting (e.g., due to tariff law changes). Require the importing party to indemnify the exporting party for any penalties or interest resulting from the importer's failure to timely pay duties or comply with customs requirements. For high-value shipments, consider obtaining a duty estimate from a customs broker before finalizing the contract.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause allocates financial responsibility for duties, tariffs, taxes, and other governmental charges imposed on goods during international shipment. When goods cross borders, they typically incur customs duties (calculated as a percentage of the goods' value), value-added taxes (VAT), excise taxes, and various other levies depending on the product type and destination country.
Why should I care about this clause?
The clause specifies whether the seller or buyer bears these costs, which can be substantial—sometimes 10-40% of the goods' value or more. This is a liability issue because if the clause is ambiguous, both parties may dispute who owes these charges, and the importing party may refuse to pay duties, leaving goods stranded in customs.
What are my options?
Additionally, the clause may address responsibility for penalties or interest if duties are miscalculated or unpaid, and whether one party must indemnify the other if tax authorities impose additional assessments. The clause intersects with Incoterms (international commercial terms like FOB, CIF, DDP) that standardize these allocations, but a contract should explicitly confirm the parties' intent rather than relying on potentially misunderstood Incoterms.
How does this affect small businesses?
The practical impact is significant because duty and tax costs are often unknown at the time of contracting and can vary based on tariff classification disputes, country-of-origin determinations, or changes in tax law. A buyer who expects a seller to pay duties may receive an invoice for unexpected charges.