EXW Incoterm Explained: Why Ex Works Creates Seller Risk

EXW (Ex Works) is one of 11 Incoterms published by the International Chamber of Commerce (ICC). It places the least responsibility on the seller. The buyer handles everything — loading, export clearance, freight, insurance, and import customs.

For sellers, it looks like the simplest option. But in international trade, EXW creates problems that many sellers don't expect. This guide breaks down what EXW actually means, where it goes wrong, and what to use instead.

What is EXW (Ex Works)?

EXW means the seller makes goods available at their own facility — a factory, warehouse, or office. The buyer picks up the goods and takes responsibility for all costs and risks from that point forward. That includes loading, inland transport, export clearance, ocean or air freight, insurance, and import customs at the destination.

According to the ICC Incoterms 2020 rules, EXW is the only term where the buyer — not the seller — is responsible for export clearance. Under all other 10 Incoterms, the seller handles export formalities.

This makes EXW fundamentally different from every other Incoterm. And it's the root cause of most problems that follow.

Why do sellers choose EXW?

Sellers choose EXW because it appears to minimize their obligations. No freight to arrange, no export paperwork, no insurance to buy. The thinking is simple: hand over the goods and move on.

In domestic trade, this works fine. A manufacturer in Madrid selling to a buyer in Barcelona doesn't need export clearance. There are no customs formalities within the EU single market for most goods. EXW fits.

But when goods cross an international border, the same logic breaks down. According to the ICC Academy, EXW is "most suitable for domestic trade" and traders are "strongly encouraged to consider using FCA instead of EXW where the goods are crossing a border."

What goes wrong with EXW in international trade?

Three specific problems hit sellers who use EXW for cross-border shipments. Each one undermines the simplicity that made EXW attractive in the first place.

Export clearance falls on the buyer — who can't do it

Under EXW, the buyer must handle export clearance in the seller's country. But according to Trade Finance Global, "in most countries, only an entity registered in that country can export." A foreign buyer typically has no legal standing to file an export declaration.

The buyer then hires a local agent or freight forwarder to act on their behalf. But whether that third party qualifies as the legal exporter of record is questionable. According to UPS Supply Chain Solutions, there have been cases where the seller ends up incorrectly recorded as exporter of record, creating compliance problems the seller never anticipated.

VAT exemption disappears without proof of export

In countries with Value Added Tax (VAT), sellers can claim a 0% VAT rate on exports — but only if they can prove the goods physically left the country. Under EXW, the buyer controls shipping. The seller has no transport documents, no Bill of Lading, no airway bill.

According to Gaston Schul, a Dutch customs advisory firm, "if a tax audit reveals that a seller cannot prove export, the tax authorities may disallow the 0% VAT rate, resulting in a significant tax bill." This is especially critical in the Netherlands and other EU countries with strict VAT audit regimes.

The European Court of Justice case C-664/21 (NEC PLUS ULTRA COSMETICS) confirmed this risk. A Swiss company selling EXW from Slovenia couldn't provide adequate export documentation. The Slovenian tax authority issued an additional VAT assessment.

Letter of Credit payment becomes nearly impossible

When payment terms involve a Letter of Credit (L/C), the seller must present transport documents to the bank — typically a Bill of Lading for sea freight or an air waybill for air freight.

Under EXW, the buyer's forwarder arranges shipping and controls the B/L. According to Trade Finance Global, "under EXW, it is extremely difficult to arrange payment by a letter of credit." The seller has no control over how documents are prepared, and the buyer's forwarder is under no obligation to make corrections on the seller's behalf.

As Mohawk Global points out, "without a correct bill of lading to present to the bank, the exporter will be charged discrepancy fees, or worse, not be paid at all."

Does the seller still have compliance obligations under EXW?

Yes. Even though EXW assigns export clearance to the buyer, regulatory obligations don't transfer with Incoterms. The seller's legal responsibilities under national law remain.

In the United States, the Export Administration Regulations (EAR) and Foreign Trade Regulations (FTR) still apply to the seller. According to 15 CFR 758.3, the U.S. Principal Party in Interest (USPPI) — typically the seller — remains responsible for export compliance, regardless of the Incoterm used. An EXW shipment from the U.S. is classified as a "routed export transaction," which receives closer scrutiny from the Bureau of Industry and Security and U.S. Customs and Border Protection.

In the European Union, the European Commission recently published a factsheet confirming that EXW does not release a seller from sanctions law compliance. According to Gaston Schul, "responsibility for export compliance cannot be contracted away. If something goes wrong, it's often the seller that authorities come after."

When does EXW actually work?

EXW is appropriate in limited situations where its structural limitations don't apply:

• Domestic sales within the same country — no export clearance needed

• Intra-EU trade — no customs formalities between EU member states for most goods

• Courier shipments — express carriers like DHL or FedEx pick up at seller's premises and handle all export/import formalities themselves

• Related-party transactions — when buyer and seller are subsidiaries of the same company and share logistics infrastructure

For cross-border trade outside these scenarios, the ICC's guidance is clear: use FCA.

What should you use instead of EXW?

FCA (Free Carrier) solves the three core problems of EXW while keeping a similar cost structure for the buyer. Under FCA, the seller delivers goods to a carrier named by the buyer, with export clearance completed.

Here's how FCA addresses each EXW risk:

• Export clearance: Seller handles it. No ambiguity about exporter of record.

• VAT proof of export: Seller retains transport documents and can prove goods left the country.

• L/C payment: Incoterms 2020 updated FCA to allow the seller to request a Bill of Lading with an "on board" notation from the buyer's carrier — specifically to solve the L/C documentation problem.

The cost difference between EXW and FCA is minimal. Under FCA at the seller's premises, the seller adds only the cost of export clearance and loading. The buyer still arranges and pays for freight.

EXW vs FCA: Quick reference checklist

• Domestic sale, no export needed → EXW is fine

• Goods crossing a border → Use FCA

• Payment by Letter of Credit → Use FCA (or another term where seller controls documents)

• VAT country and seller needs export proof → Use FCA

• Buyer insists on EXW → Negotiate FCA at seller's premises as a compromise

• Courier/express shipment → EXW is acceptable (carrier handles formalities)