Under DDP the supplier clears the goods and pays the import VAT, and the import declaration names the supplier as importer of record — not you. Your company name then does not appear on the customs entry, which is the document a tax authority wants to see before it releases input VAT. This is not a reason to avoid DDP. It is a reason to decide the term on a costed basis before you sign, not after the invoice arrives.
DDP means the seller clears the goods for import and pays the duties and import VAT. To do that, the seller or its appointed representative must be the importer of record on the customs declaration. Your own company then does not appear as the importer, and in most VAT systems a taxable person can only deduct import VAT where the customs declaration names them or their direct representative. The VAT has been paid — you simply are not the party holding the evidence to claim it. DAP moves the customs act to you: cheaper per unit on paper, but you become the importer of record and the VAT is yours to recover. Neither term is wrong. Choosing without costing the VAT is.
The complaint arrives months later, from the accountant
A DDP order usually goes well. The price is one number, the goods arrive, nothing is held at the border, and no broker sends an unexpected invoice. Buyers like it, which is why suppliers quote it by default.
Then the accounting period closes, and a question comes back from the finance team: where is the import VAT entry for this shipment? The invoice shows a delivered price. The customs entry exists, but it does not carry the buyer’s name. The VAT was paid — by the supplier, as part of the delivered cost — and the buyer has no document that lets them deduct it.
Nothing has been done wrong on either side. Two reasonable decisions met: the buyer wanted a simple delivered price, and the seller wanted to control the clearance. The bill lands a quarter later.
What DDP actually transfers
The Incoterms framework defines who bears cost and risk at each point in the movement of goods. Under DDP the seller delivers at the named place with the goods cleared for import, duties and import VAT paid. To clear goods for import, someone has to be the importer of record — the party on the customs declaration, legally responsible for the entry.
If the seller clears the goods, the seller or its customs representative is that party. That is not a workaround or a trick. It is what the term requires. The consequence follows mechanically: the customs declaration at destination shows the seller’s identity, not the buyer’s.
| DAP | DDP | |
|---|---|---|
| Who clears for import | Buyer | Seller |
| Importer of record | Buyer | Seller or seller’s representative |
| Who pays import VAT | Buyer, at clearance | Seller, inside the price |
| Whose name is on the customs entry | Buyer | Seller |
| Evidence for VAT recovery | Buyer holds it | Buyer does not hold it |
| Price looks like | Freight included, tax excluded | One number, tax included |
| Surprise on arrival | Possible broker and VAT invoice | Unlikely |
The row that matters is the fifth. DAP looks worse on the quote and better at the VAT return. DDP is the reverse. The total cost decides which is right, and the total cost cannot be compared until the VAT treatment is known.
Why the declaration, specifically
Value-added tax on imports is structured so that the tax is collected at the border and recovered by the business that will resell or use the goods. The recovery mechanism, in nearly every VAT system, is the customs declaration.
A business deducts import VAT on the basis of a document naming it as the importer, or naming its direct representative. This is not an administrative quirk that can be waived with a letter. It exists so the tax authority can trace a specific entry to a specific taxable person and confirm the tax was actually paid.
So the constraint is not that the VAT was lost. The VAT reached the treasury. The constraint is that the party who paid it and the party who wants to deduct it are different legal persons, and the system has no path for the second to claim what the first paid.
For a business making only exempt supplies, or a private individual, or a company below the registration threshold, none of this matters — there is no deduction to make. That is why DDP works perfectly well for a large share of small orders, and why the problem appears specifically at the point where a buyer becomes VAT-registered and starts recovering input tax.
The trap is not DDP. It is the unchallenged default.
There is a version of this article that ends with “always choose DAP”. That would be bad advice, for three reasons.
DAP has costs of its own. A broker has to be appointed, the entry filed, the VAT paid at the border before release, and the goods may sit while that happens. On a small shipment the broker fee can exceed the VAT at stake. On a first order with an unfamiliar supplier, an arrival process the buyer does not control is a real risk, not a theoretical one.
Not every buyer can recover anything. Below a registration threshold, or for goods that will not be used in taxable activity, the deduction is unavailable regardless of the term. In that case DDP converts an unrecoverable tax into a line in a price the buyer can at least see and negotiate.
Volume changes the answer. On a small sample shipment, simplicity is worth more than a recovery. On a container, the VAT figure is large enough that the paperwork has to be right. The correct term is a function of order value, buyer status and administrative capacity — not a doctrine.
The actual failure mode is different: a term being copied onto a quotation because it was on the last one, and the buyer never asking which name will be on the entry.
What to ask before accepting either term
Four questions, all answerable in writing before the order is placed.
Which name will appear as importer of record? Not “we handle customs” — the specific legal entity on the declaration. If the answer is the supplier, then the VAT question has a known answer.
Which document will connect my company to this import? Under DAP it is the entry. Under DDP the honest answer may be “none” — and if it is, that is a fact the buyer can plan around rather than discover.
Is the import VAT inside the quoted price? A DDP price that excludes destination VAT is not DDP. This single line accounts for most of the unpleasant surprises in delivered-price quotes.
Which entity on your side is clearing? A supplier clearing through a domestic subsidiary is a different arrangement from one clearing through a freight forwarder in the buyer’s country, and the documents differ accordingly.
An illustrative comparison of the two routes
Take a shipment with a goods value of 10,000 in local currency and a destination import VAT rate of 20 percent, so 2,000 of VAT at stake.
Under DAP the buyer pays 10,000 for goods, a broker fee, and 2,000 of VAT at the border — then recovers the 2,000 against the entry naming it. Net cost: goods plus freight plus broker. Under DDP the buyer pays one delivered figure that already contains the 2,000, and recovers nothing. Net cost: goods plus freight plus 2,000.
The two are identical if the supplier’s delivered price is exactly the DAP total plus the VAT. They are not identical if the supplier rounds, if the supplier’s clearance costs less than a broker would charge the buyer, or if the buyer cannot recover. The comparison is arithmetic, not ideology — which is exactly why it should be done on paper before the term is agreed.
Illustrative figures only. Not WINTEL pricing, and not a statement of any country’s VAT rate.
The one thing to say out loud
Most buyers do not learn about the importer-of-record point from their supplier. They learn it from their accountant, a quarter later, and the supplier is not at fault.
The useful move is to raise it first. A supplier that can explain, in plain terms, which term puts whose name on the entry and what each costs the buyer in total, is telling you something about how it handles the rest of the transaction too. A supplier that answers “DDP is easier for you” without mentioning the entry has either not thought about it or not wanted to.
Either way, the buyer now knows to ask.
Related reading: Incoterms & shipping, shipping to the US, shipping to the EU.
Frequently asked questions
Is DDP always the wrong choice for a VAT-registered company?
No. DDP is the right choice when the import is small, when the buyer is not VAT-registered and could not recover anything anyway, when the goods are samples or one-off promotional stock, or when the administrative cost of registering and clearing exceeds the VAT at stake. The problem is only that the term is often chosen for convenience and later found to have a cost that nobody put in the comparison.
Can a supplier deliver DDP and still give me a VAT invoice I can use?
That is the question to ask before signing, and the answer depends on jurisdiction and on how the supplier structures the transaction. Some suppliers clear through a domestic entity and invoice you locally with local VAT, which is recoverable but changes the price basis. Others cannot. Ask for the specific document you will receive and check whether your tax adviser accepts it, rather than assuming the invoice you get at the end will do.
What actually differs on the paperwork between DDP and DAP?
Under DAP the goods arrive with duty and import VAT unpaid. Your broker or your own customs agent files the entry in your name, you pay the VAT to customs, and the entry naming your company becomes the evidence behind your VAT return. Under DDP the seller's broker files the entry, the seller's name is on it, and the VAT is settled inside the seller's price. The goods, the freight and the transit time are the same.
Why do quotes so often default to DDP?
Because it is the quote that looks complete. The buyer sees one number and no surprise invoice from a broker, which removes the most common source of friction in a first order. That convenience is real and worth something. The point is to know what it costs and to price it, not to discover it at year end when the accountant asks for an import entry that does not exist.
What should I ask for in writing before accepting a DDP quote?
Four things: who will be named as importer of record, which document will show your company name in connection with the import, which entity on the supplier side is clearing the goods, and whether the quoted price includes the import VAT at the destination rate. If the supplier cannot state the first two clearly, the term is being offered without the paperwork to support it.