In global trade and international logistics, VAT on shipping is a common concept. For importers, exporters, and cross-border e-commerce sellers, understanding the role of VAT in shipping costs helps optimize financial costs and comply with tax compliance requirements in various countries. This article will take a deep look at what VAT on shipping is, how to calculate VAT, the differences in VAT in various countries, and how to manage VAT costs.

What is Value Added Tax (VAT)?

Value Added Tax (VAT) is a tax levied on the added value of goods and services, and is widely used in most countries around the world. Similar to consumption tax, VAT is borne by the final consumer, but it is gradually levied and declared by each link in the supply chain during the circulation of goods. Usually, VAT on imported goods needs to be paid at the customs clearance stage, which includes the value of the goods themselves and the related logistics and transportation costs.

• Scope of application: VAT applies to most goods and services, especially in countries and regions such as the European Union, Asia, and Australia. The main feature of VAT is that it is levied based on the value added of goods or services.
• How it is levied: VAT is usually paid by manufacturers, wholesalers, and retailers based on the value added of goods, while consumers pay the corresponding VAT at the time of final purchase.
• How it is calculated: VAT is usually calculated by multiplying the selling price of goods or services by the prescribed VAT rate. For example, if the price of the product is $100 and the VAT rate is 20%, the VAT is $20 and the total cost is $120.

What is freight VAT?

Definition of freight VAT: Freight VAT refers to the VAT calculated based on the amount of the freight part in international transportation. According to the tax laws of various countries, import VAT usually covers not only the value of the goods, but also additional costs such as freight and insurance.

Applicability of freight VAT: Freight VAT mainly applies to international cross-border transportation. When goods are transported from China to other countries, the destination country may require VAT, and freight is usually included in the taxable range.

You may be interested in the cost of shipping from China to other countries, you can read the following post:

What is the difference between VAT and excise tax?

Excise tax is a tax directly imposed on consumer goods or services, usually applicable to specific commodities such as alcohol, tobacco, luxury goods, etc. The characteristic of excise tax is that it is levied directly on certain goods and services purchased by consumers.

The difference between VAT and excise tax is shown in the table below:

Feature	Value Added Tax (VAT)	Excise Tax
Scope	Applied to most goods and services	Applied to specific goods (e.g., alcohol, tobacco, luxury items)
Method of Collection	Collected gradually at each stage of production and distribution	Collected once at the time of sale
Tax Burden	Ultimately borne by the consumer, but paid by businesses at each stage	Paid by the manufacturer or importer, reflected in the product price to the consumer
Calculation Method	Calculated based on the added value of the product or service	Calculated based on product price, quantity, or specific category
Tax Rate	Varies by country, typically between 10%-25%	Tax rates vary by type of good, often higher than VAT
Common Countries	EU countries, Australia, New Zealand, Canada, etc.	Most countries impose excise on luxury goods, alcohol, and tobacco

Although VAT and consumption tax differ in the way they are collected and the goods they apply to, they are both indirect taxes, and the final consumers are the ultimate bearers of the taxes. In addition, the purpose of collecting VAT and consumption tax is to raise national fiscal revenue, and both involve the production, sales and circulation of goods. They both play an important role in international trade, especially in cross-border logistics and import and export processes.

How to calculate VAT on freight?

When calculating VAT on freight, the following factors are mainly included:

• Value of goods: The basis of VAT is usually the declared value of the goods, which is the basis for customs assessment.
• Freight: Most countries stipulate that freight should be included in the taxable base. For example, when transporting goods from China to EU countries, the freight amount will be included in the VAT calculation base.
• VAT rate: VAT rates vary from country to country. VAT rates in EU countries are generally between 15% and 27%, while rates in some regions are higher.

Calculation formula: VAT amount = (value of goods + freight) × VAT rate

For example: Assume that the declared value of a batch of goods is US$1,000, the freight is US$100, and the VAT rate in EU countries is 20%:

VAT = (1,000 + 100) × 20% = US$220

Different countries have VAT regulations on freight

EU: EU countries levy VAT at the time of import, and freight is included in the taxable base. In addition, the EU has launched the IOSS system to simplify the VAT processing of small cross-border packages. For example, the VAT rate in Germany is 19%, while the VAT rate in France is 20%.

UK: Since Brexit, the UK has formulated an independent VAT policy, requiring goods imported from non-UK regions to pay VAT at customs, and freight is still a taxable part.

Australia and New Zealand: In these countries, imported goods also include VAT, and freight is also taxable.

USA: Regarding VAT, most states do not levy VAT on imported goods. The United States is one of the few countries that does not levy VAT on goods, but has different regulations on consumption tax on goods.

Why do you need to pay attention to freight VAT?

• Increase transportation costs: Freight VAT will directly increase the total cost of imports, especially in countries with high VAT rates, this part of the cost may account for a large proportion of the total cost.
• Impact on pricing strategy: For cross-border e-commerce sellers, freight VAT directly affects product pricing strategy and competitiveness. Excessive VAT will increase sales prices, thereby affecting market demand.
• Compliance requirements: Many countries strictly require importers to declare VAT. Failure to pay VAT as required may result in the seizure of goods or fines. Therefore, accurate calculation of VAT is the key to ensuring compliance.

How to reduce the VAT cost of freight?

• Choose the right mode of transportation: According to the nature of the goods and transportation needs, choosing a more cost-effective mode of transportation can effectively reduce freight costs, thereby reducing the total amount of VAT.
• Import in batches: If the volume of goods is large, consider importing in batches to reduce VAT without exceeding the tax-free amount.
• Use a dedicated tax agent or freight forwarding company: For example, Basenton Logistics has rich experience in international transportation and can help customers optimize logistics solutions, ensure reasonable VAT declarations, and avoid unnecessary tax expenses.

VAT on Shipping is one of the key costs in cross-border transportation. Understanding the VAT policies of different countries, accurately calculating VAT and choosing the right transportation plan can help reduce the overall import costs. Choosing an experienced logistics company, such as Basenton Logistics, can help customers effectively manage and reduce VAT on shipping, ensure smooth customs clearance of goods and reduce overall logistics costs.