DDP Incoterms: Why Delivered Duty Paid Is Risky for Sellers in the Gulf
DDP, Delivered Duty Paid, places the maximum obligation on the seller. The seller delivers the goods to a named place in the buyer's country, having cleared them for import and paid all duty and tax.
What DDP requires
Everything. The seller arranges and pays for all carriage, clears the goods for export and for import, pays import duty and any import tax, and carries risk until the goods arrive ready for unloading at the named place.
The buyer unloads. That is essentially the buyer's only obligation.
The tax trap
DDP is attractive to buyers because it produces a single landed price with no surprises. It is dangerous for sellers, and the danger is usually fiscal rather than logistical.
To clear goods for import and pay duty, the seller generally needs to be registered in the destination country. In several Gulf markets a nonresident seller cannot register for VAT, which means it cannot recover the import VAT it pays. A tax that a local importer would reclaim becomes a real and unrecoverable cost, against a price that has already been fixed.
We see this most often when a supplier wins a tender on DDP terms and only afterwards works out that the import tax is not coming back.
Check before you quote
Three questions, all answerable before you price.
- Can we, as a nonresident, act as importer of record in that country?
- Can we register for and recover import VAT there, or is it a sunk cost?
- Are there goods that require an import license held by a local entity, which we cannot obtain?
If any answer is unfavorable, quote DAP instead and let the buyer clear as importer of record. The commercial difference is small; the fiscal difference can be large.
DDP compared with DAP
The two rules are identical except for import clearance and duty. Under DAP the buyer handles those. Under DDP the seller does.
For most cross border sales DAP is the better instrument, because the buyer is a local entity that can clear goods and reclaim tax efficiently. DDP makes sense where the seller has a local subsidiary or a registered presence in the destination market.
Common mistakes
Quoting DDP to look competitive. A landed price is a strong sales position, but only if you can actually deliver on it.
Assuming the freight forwarder solves it. A forwarder can clear goods, but the importer of record obligation and the tax position remain the seller's.
Not naming the delivery place precisely. As with every delivered rule, name the full address.
Where this rule sits
DDP sits at the opposite end of the scale from EXW. It is the only rule that puts import clearance and duty on the seller, which is exactly why it needs checking against the tax rules of the destination market before it is offered.
For the full set, see our guide to all 11 Incoterms 2020 rules, or work through how to choose the right rule for a given shipment. Our Mastering Incoterms 2020 course covers every rule with worked examples from Gulf trade lanes.
Frequently asked questions
What does DDP mean in Incoterms?
Delivered Duty Paid. The seller delivers to a named place in the buyer country having cleared the goods for import and paid all duty and tax. It is the maximum seller obligation.
Who unloads under DDP?
The buyer. The seller delivers ready for unloading. Only DPU obliges the seller to unload.
Why is DDP risky for sellers?
A nonresident seller often cannot register for tax in the destination country, so import VAT it pays may not be recoverable. That turns a reclaimable tax into a real cost against a fixed price.
When should we use DAP instead of DDP?
Whenever the buyer is better placed to act as importer of record, which is usually the case in cross border sales. DAP is identical except that the buyer handles import clearance and duty.
