What Is DDP? Seller-Paid Duty, the Import VAT Deduction Trap, and DDP vs DAP

DDP is the most convenient rule for the buyer: the seller pays the duty and taxes and delivers right to your door. But behind that convenience hides a tax trap where you can lose the import VAT input deduction.

This article looks at DDP alone. For a full comparison of all 11 rules, see the Incoterms 2020 complete guide.

What Is DDP?

DDP (Delivered Duty Paid) is the Incoterms rule under which the seller handles import clearance and pays the duty and import taxes to deliver the goods at the named destination. It works for any transport mode and belongs to Group D, where the seller's obligation is greatest. In the contract you write the rule and destination together, like "DDP Seoul."

Who Bears What Under DDP

The buyer has essentially nothing to do but unload the goods at destination. The seller is responsible for every other leg.

Both Risk and Cost Sit With the Seller to Destination

Because DDP is a Group D rule, both the cost divide and the risk divide sit at the destination. Cost and risk pass together at the moment the goods are placed at the buyer's disposal, ready for unloading, at destination. Until then, any transit accident, clearance delay, or duty burden falls on the seller.

The Hidden Trap: The Import VAT Input Deduction

This is what to watch most under DDP. For the buyer to reclaim the VAT paid on import as an input deduction, the import tax invoice must be issued in the name of the buyer (the actual importer).

Because DDP has the seller pay the duty and import VAT, if the seller or its agent ends up declared as the importer, the domestic buyer cannot receive the import tax invoice in its own name. In that case the buyer cannot deduct the import VAT, equal to 10% of the goods value, as input tax, and absorbs it as a pure cost.

So even when importing under DDP, make sure the import declaration is filed in the buyer's name and that the buyer qualifies as the actual importer that truly bears the cost and risk, so the input deduction is available. Claiming the deduction without meeting the requirements risks penalty tax, so confirm this point before signing a DDP contract.

DDP vs DAP: Who Clears Import?

The rule most often confused with DDP is DAP. The single difference is who handles import clearance and the duty.

If it matters that the buyer reclaims import VAT in its own name, DAP can actually be safer, since the buyer clears import directly.

When to Use DDP

• Low-value samples, courier shipments, and other simple-clearance deals: the buyer need not worry about clearance.
• When the buyer lacks import-clearance capability or an agent: the seller handles every leg.

For a formal import where the VAT input deduction matters, consider DAP or clearance in the buyer's name rather than DDP.

Import Duty and DDP

Under DDP the seller pays the duty and import VAT, so the buyer never has to calculate and pay duty separately. Still, to gauge whether the DDP price the seller quotes is reasonable, it helps to understand conceptually how much duty and VAT gets added to the goods value. Korea sets the customs value on a CIF basis, and duty is the customs value multiplied by the duty rate.

This guide is for general information. Duty and VAT treatment and the requirements for the input deduction vary by deal and by how the declaration is filed, so confirm with a customs broker or tax specialist.