3.3 De Minimis ValueDuties-and-Taxes
De Minimis Value:Trust in online sellers is reasonably high everywhere except Asia, according to a study sponsored by UPS, the logistics company. Time and experience may spur an increase in customer’s trust and willingness to buy direct, but if your goal is more Asian sales, you might first consider selling on a “brand name” platform where trust has already been established.
Another barrier, according to a Forrester study, is duties—the percentage charged by governments’ customs authorities based on the value of the item above a threshold value. De minimis value, as the threshold is known, varies from country to country. Items imported into the United States are subject to duty when the value is over USD 200, but a bill in Congress would raise that amount to USD 800. In Australia, duty and taxes kick in after the first USD 1,000. In Canada, it’s USD 25; in some other countries, it’s USD 5. In Europe the average is about USD 190. Worldwide, 56 percent of individuals surveyed said they would buy more if the duties were reduced or eliminated. That opinion is shared by 80 percent of consumers surveyed in Latin America. Knowing which value applies to which country can help you estimate the landed cost—the full cost the customer will pay—and you can communicate this price to the buyer. A list of values by country can be found in Appendix One.
What the Customer Usually Pays
- Cost of the goods, including your profit margin
- A handling charge added by you at your discretion
- Duty, if applicable
- Sales tax as set by the country where the buyer lives
- The cost of return freight unless you agree to cover or pay a portion of it
By the way, many items can be received duty free if the goods meet the rules of origin under free trade agreements. Bilateral and multilateral efforts are underway to lower duty rates further among countries that don’t have free trade agreements.
Other barriers involve rules and regulations. They too have improved, but more work needs to be done. Chapter 4 provides information on how to comply with the regulations of some of our main trading partners.
A potential barrier is that a buyer has never heard of your company or your product and may hesitate to make a purchase. A couple of studies report that 42 percent to 50 percent of the buyers surveyed said reputation, trustworthiness, and ability to verify such attributes play a role in purchasing decisions. A consumer would weigh such factors in evaluating whether to make purchases from the website of a small company based in, for example, the United States.
This concern must be balanced in the mind of the buyer with the desire to acquire an unusual item or one seen as a good buy. Clearly, the latter wins out in many cases. Also, your company could be helped by the high esteem in which U.S. products and companies are held by foreign buyers. Buyer wariness, at least until perceptions change through experience, may require that your strategy involve more than one selling channel.
Your online reputation is as important in the United States as it is in Australia or Germany. Online customer comments such as “terrible customer service” and “the product didn’t work as advertised” can be translated easily. Collect too many comments like those and you will be expelled from the e-commerce marketplaces that have the positive reputation for trust that buyers are looking for and that the marketplaces will share with you—until they have reason not to.