Shipping internationally opens up your Shopify store to a world of new customers, but it also introduces a range of new and complex challenges, including tariffs, import duties, and taxes. These are fees charged by governments on cross-border shipments. If they're not handled properly, your customers may face surprise charges upon delivery, often leaving them with a negative impression of your business.  

The uncertainty of the past year has made international shipping much more challenging for merchants to manage. The rules seem to change every week, making it complicated for business owners, especially those with smaller operations, to stay current with.  

Thankfully, Shopify provides tools to help merchants calculate and collect duties and import taxes at checkout, giving international customers a clear total cost before purchase with no hidden fees. 

In this guide, we’ll break down how Shopify helps its users manage tariffs and duties, enabling them to continue shipping internationally with fewer unexpected costs for their customers. 

Understanding the Complexities of Tariffs, Duties, and Import Taxes in Ecommerce

In casual conversation, “duties” and “tariffs” are often used interchangeably, as both refer to import taxes. Technically, tariffs usually refer to taxes on imports defined by trade policy (often varying by product category or country of origin). In contrast, import duties are a broader term that includes tariffs and any other import fees.

These fees are imposed by a country’s government on goods brought in from abroad. These charges can include tariffs (special taxes on certain categories of imports or imports from specific countries), value-added tax (VAT), and other customs fees. Being aware of these costs is essential for pricing your products correctly and complying with regulations in international trade. 

While expanding your business internationally can bring many benefits, it’s important to note that tariffs and duties can significantly increase the total cost of an item for the end customer. If a merchant doesn’t account for them, an overseas buyer might be hit with an unexpected bill when the package arrives. This surprise can lead to unhappy customers, refused deliveries, or even chargebacks.

Every country has its own import tax rates and trade agreements in place. For example, some trade agreements exempt certain imports from tariffs, while others impose very high tariffs on all imports. Many regions also have de minimis thresholds: if an order’s value is below a certain amount, it might enter without duties or with simplified taxes. As a merchant, you must stay up-to-date with these evolving tariff rules, as they directly impact your costs and pricing strategy.

Adding the ability for shoppers to prepay these tariffs and duties provides total cost clarity for the customer, meaning that the price they see at checkout is the final price they pay, with no surprise fees later. This way, they can be certain that they are willing to pay their final bill before they hit “checkout.”

Why Managing Duties Upfront Matters (DAP vs. DDP)

When shipping internationally, you have two primary options for handling duties and taxes, often described by the terms DAP (Delivered at Place) and DDP (Delivered Duty Paid).

DAP (also known as DDU - Delivered Duty Unpaid) 

With DAP, the customer is responsible for paying all import duties and taxes upon delivery. You ship the product normally, and when the package arrives at the destination country, the carrier (or customs) will charge the customer for any duties or tariffs due. The advantage of DAP is that there’s no upfront cost to you as the merchant. However, this approach can lead to a poor customer experience. 

It often means surprise fees for the customer and requires them to pay the carrier before the package is handed over. In many cases, parcels shipped DAP won’t be delivered to the customer’s door. Instead, the customer might get notified to pick up the package at a local post office or pay the fees online. This isn’t ideal and can result in delivery delays, frustration, or even package refusals if the buyer wasn’t expecting the extra charges. 

DDP

With DDP, duties and import taxes are calculated and paid at checkout as part of the order total. In other words, the merchant takes responsibility for those import fees, and the customer pre-pays them during checkout. 

This creates a transparent experience for the customer wth no surprises at delivery and is the ideal solution for merchants who want to expand their store beyond their home country or region. Customers get to see their final price at checkout and decide whether or not they wish to pay that amount or not before committing to anything. 

Why choose one over the other?

While DAP might seem simpler for a merchant, as there’s no setup of tax calculations and no payment of duties yourself, it can hurt international sales in the long run. Customers generally prefer to know the total cost when they place the order. If they only discover extra taxes upon delivery, they may feel misled or annoyed. 

DDP requires some setup and will display higher prices at checkout to include those taxes, but it often results in happier customers and smoother delivery. Many Shopify merchants opt for DDP by collecting duties in checkout for this reason. 

Keep in mind that if you don’t collect duties at checkout, it’s important to communicate to potential customers that they’ll be responsible for import taxes upon delivery. This way, they’re warned in advance and can decide whether they want to take on these additional charges or not. 

How Shopify Helps Merchants Handle Duties and Import Taxes

Shopify has always been at the forefront of international expansion for its merchants, constantly upgrading and improving its Managed Markets suite to help brands localize their websites and content. Additionally, they provide all users with the option to prepay duties, taxes, and tariffs for international orders. 

This functionality allows you to offer a DDP experience to your buyers. The customer sees either a separate line item for “Duties and Import Taxes” or an all-inclusive price, and they pay it during checkout. Shopify then records that amount on the order while charging the merchant a small transaction fee. Users leveraging Managed Markets can guarantee the amount of import taxes and duties collected per order for their customers as well, for even greater peace of mind. 

When you use Shopify for duties and import taxes, you fulfill the order and purchase a shipping label as usual, but you’ll need to use a supported carrier that allows for DDP shipping labels. The carrier will then deliver the order to the customer and later invoice you for the duties and taxes that were due. 

In other words, Shopify’s taxes and duties feature shifts the payment timing: the customer pays you, and you pay the carrier/customs. This approach requires coordination with carriers to prevent double-charging the customer, which we will address below.

How to Set Up International Shipping on Shopify

Before exploring Shopify’s duties and taxes options, let’s break down the process of setting up international shipping in its entirety. First, decide where you want to ship to. In Shopify, navigate to Settings > Markets if you have Managed Markets enabled; otherwise, you’ll use basic shipping zones. 

Using Shopify Markets, you can create a new market for your international region. For example, you might create an “International” market grouping that encompasses all countries you plan to serve (or separate markets, such as “Europe”, “North America”, etc.). Click “Create Market,” give it a name, and select the countries you want to include. 

This helps you manage settings like available items, languages, currency, duties, and shipping for those countries collectively. If you’re not on Shopify Markets, you should also verify that those countries appear in your shipping zones under the “Create a custom profile” submenu in Settings > Shipping and Delivery > Shipping.

Next, choose your preferred carriers and shipping methods. If you’re in a region where Shopify Shipping is available, such as the US or Canada, you can offer discounted rates and label printing for select carriers. Additionally, you can enable carrier-calculated rates (available on Advanced plans or via third-party apps) to let customers choose options like “DHL Express International – $X” at checkout, or you can keep it simple with one or two flat rate options. 

Now, you’re ready to turn on and configure your tax and duty settings. 

Setting Up Duties and Import Taxes in Shopify

Once you have your store configured for international shipping, it’s time for duties and taxes. When shipping internationally, you’ll need to include customs paperwork with your packages. 

In your Shopify admin, go to Settings > Taxes and Duties. Then, head to “Duties and import taxes” and click “Set up” to enable this feature for the countries or regions where you want to collect these fees. If you’re using the newer Shopify Markets feature, you can enable duties on a per-market basis.

Shopify will help generate a customs form if you buy shipping labels through the platform for specific carriers. Ensure each shipment includes an itemized list of products, their values, Harmonized System (HS) codes, and origins. If you have collected duties (DDP) at checkout, it’s important to mark the shipment accordingly.

If you have many products, you can do a bulk import via CSV to update these fields in one go. Providing accurate HS codes will ensure the duties calculated are as accurate as possible. Finally, decide on whether you’d like your duties and taxes to appear on a separate line item at checkout or be included in your prices. 

When everything is to your liking, we recommend conducting a test run to ensure everything is working correctly and that you’re collecting the correct duty and tariff rates at checkout. Use Shopify’s Bogus gateway or set up a product with a low price, and simulate an international order to a country where you have enabled duties. 

Verify that the checkout displays the expected duties or that your prices accurately reflect the duties. Also, when you receive the test order in your admin, verify that a “Duties” line item appears in the order summary.

Conclusion

Shipping internationally doesn't have to be complicated. With Shopify’s built-in tools for managing tariffs, duties, and import taxes, you can offer a transparent checkout experience that eliminates hidden fees and surprise charges. By proactively managing duties upfront, your business can significantly improve customer satisfaction, reduce chargebacks, and ultimately drive greater international sales. 

As a Shopify Plus Partner agency, Blue Badger can help you navigate the options available in Shopify for merchants looking to expand their businesses into new markets. Get in touch with us today to learn more.