AvaTax Cross-Border and Avalara Item Classification automate customs duty and tax calculations when you sell internationally. When you process international transactions, it's helpful to familiarize yourself with these basic concepts and terms.
Avalara Cross-Border ensures customs duties and import taxes are calculated at the time of checkout to mitigate compliance risks and avoid surprise customer costs at the time of delivery.
Item classification is when a harmonized system (HS) code is assigned to a product based on its physical properties. Avalara assigns HS codes to customer products through its item classification service.
Value added tax (VAT)
A general and indirect transaction tax applied to nearly all commercial activities involving the production and distribution of goods and the provision of services. Known as a form of consumption tax, VAT is calculated based on the value added to goods and services as they move through the production and supply chain, all the way through to the point of sale. While VAT is calculated throughout the supply chain, it is ultimately passed on to the end consumer as part of the final purchase price of the goods or services.
Delivered duty paid (DDP)
Duties and taxes paid by the seller during online checkout. This is the preferred customer experience.
Delivered at place (DAP)
Duties and taxes paid by the buyer at delivery. This is easiest for the seller.
De minimis thresholds
Minimum threshold an international sale must meet before a country charges a customs duty or import tax. De minimis thresholds are country-specific and usually differ for customs duty and import taxes.
Harmonized system (HS) codes
Countries use unique HS codes to calculate tariff rates for most internationally traded products. AvaTax uses the fully qualified tariff code and destination country to determine the most accurate tariff rate for that product. In the case of multiple product variants, parent products are classified with a tariff code and any child SKUs inherit that classification.
Fully qualified tariff codes
Fully qualified tariff codes have country-specific identifiers. For countries that use HS codes, the first six digits are universal and the final four or six digits are country-specific.Transactions must use fully qualified tariff codes to ensure AvaTax calculates customs duties.