DDP vs DAP: Why One Letter Changes Who Pays Import Tax

Your buyer asks for DDP. You say yes. You just agreed to become the importer of record in their country, pay their import duties, and cover their VAT. That last part — the VAT — is where most sellers lose money without realizing it.

This guide breaks down the real difference between DDP and DAP, explains why VAT becomes a trap under DDP, and shows where DDP gets complicated.

What is the actual difference between DDP and DAP?

DDP (Delivered Duty Paid) is the only Incoterm where the seller handles everything — export clearance, transport, import clearance, duties, and taxes — in the buyer's country. DAP (Delivered at Place) covers transport to the destination, but the buyer handles import clearance, duties, and taxes themselves.

According to the ICC Incoterms 2020 rules, DDP represents the seller's maximum obligation. The seller must clear goods for both export and import, pay all duties and taxes, and deliver to the named destination. DAP stops short: the seller delivers, but the buyer takes over at customs.

In practice, the difference comes down to one question: who clears customs in the buyer's country? Under DDP, the seller does. Under DAP, the buyer does. That single distinction triggers a chain of obligations most sellers underestimate.

Why does DDP make the seller the importer of record?

To clear customs in a foreign country, someone must be the Importer of Record (IOR) — the legal entity responsible for compliance, duties, and taxes. Under DDP, that entity is the seller. According to Globalior, a trade compliance advisory, DDP is the only Incoterm that requires the seller to act as IOR in the buyer's country.

This means the seller is legally responsible for:

• Accurate tariff classification of the goods

• Payment of all applicable duties and taxes

• Compliance with the destination country's import regulations

• Recordkeeping for potential customs audits

According to Mohawk Global, a US-based trade consultancy, US Customs and Border Protection (CBP) assigns higher risk scores to shipments where the importer of record is a foreign entity. This increases the likelihood of customs examination, which causes delays the buyer ends up absorbing.

What happens to VAT under DDP?

Under DDP, the seller pays the destination country's Value Added Tax (VAT). This is where the real cost difference between DDP and DAP appears — and where most sellers miscalculate.

In the European Union, standard VAT rates range from 16% in Luxembourg to 27% in Hungary, according to the European Commission's VAT rates database (2026). The EU average sits near 21.7%, per the Tax Foundation. This VAT is calculated on the total customs value — goods plus duties — not just the product price.

Here's the problem: if the seller is not VAT-registered in the destination country, the VAT is non-recoverable. According to Beeping, a DDP logistics platform, VAT-registered sellers can reclaim VAT through their returns, while non-registered sellers must absorb it as a direct cost.

Corintax Consulting, a UK-based VAT recovery firm, confirms that foreign companies shipping DDP into the UK can only reclaim import VAT if they hold a C79 VAT certificate — which requires VAT registration as a foreign entity. Without it, the VAT paid at import is lost.

International Trade Matters, a UK trade advisory, puts it plainly: the seller needs to be tax-registered in the overseas location to recover the import VAT. Without local registration, the tax becomes a pure expense that directly reduces the seller's margin.

The asymmetry under DAP

Under DAP, the buyer pays the same VAT. But because the buyer is typically a registered business in their own country, they offset the import VAT against their output VAT through the standard input tax credit mechanism. The net cash impact for the buyer is minimal.

This creates an unusual situation: the same tax costs the seller money under DDP, but costs the buyer almost nothing under DAP. The tax amount is identical. The financial impact depends entirely on who pays it.

Where does DDP get complicated?

Some countries don't allow foreign companies to act as importer of record directly. Agreeing to DDP in these markets means you need a local partner to make it work — or you can't clear customs at all.

• Mexico: According to the U.S. Commercial Service (trade.gov) and Lopezadri Group, a Mexican trade consultancy, foreign entities cannot register as IOR directly. Importers must be a Mexican legal entity with an RFC (Registro Federal de Contribuyentes) tax number and a physical address in Mexico. Sellers can work through a local partner or trading company that acts as IOR on their behalf, but this adds cost and complexity.

• Brazil: According to Novatrade Brasil, only Brazilian companies with a CNPJ can obtain a RADAR import permit, which is required for customs clearance. Foreign companies cannot obtain RADAR directly, making DDP impossible without a local entity or partner.

According to Shipping Solutions Software, an Incoterms reference published in 2025, these restrictions make DDP "challenging or impossible to use unless the seller partners with a local entity." The Incoterm itself isn't banned — but the seller's ability to fulfill it is blocked without local infrastructure.

When should you use DDP vs DAP?

The right choice depends on your buyer, the destination country, and your operational setup.

DAP works best when:

• Your buyer is a business with their own customs broker

• You don't have VAT registration in the destination country

• The destination country restricts foreign IOR (Mexico, Brazil, etc.)

• You want to control transport without taking on import liability

DDP makes sense when:

• You have a local entity or VAT registration in the destination country

• Your buyer is a consumer (B2C) who can't handle customs clearance

• You have a reliable customs broker on the ground

• The VAT cost is factored into your pricing

According to the ICC Academy, sellers can also negotiate a modified term — "DDP excluding VAT" — where the seller handles import clearance and duties, but the buyer pays VAT directly. However, the ICC notes this is not an official Incoterm and may conflict with local tax laws that dictate who is liable for import VAT.

Quick reference: DDP vs DAP checklist

• Before quoting DDP, confirm you can legally act as IOR in the destination country — or have a local partner who can

• Check the local VAT rate and whether you can register to recover it

• Calculate the real cost: goods + duties + non-recoverable VAT = your actual margin

• If VAT recovery is not possible, price it into your quote or offer DAP instead

• For recurring shipments, consider establishing a local entity or partnering with a licensed IOR

• Default to DAP for B2B transactions where the buyer has import capability