Overview of the concept of inciterms

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Overview of the concept of inciterms

International sales operations follow a specific codification. It’s called Incoterms, set up by the International Chamber of Commerce. It means « terms of international trade » known as « international trade conditions ».

Those terms are set up to improve economic performance of all international trade actors, since it separates the obligations between suppliers and buyers in the purchase / sales contract.

INCOTERMS CODIFICATION GOALS

  • Set up all responsibilities for both the seller and the buyer ;
  • Determine in which moment during the transport, the buyer or the seller takes risks and property ;
  • To share fees between the seller and the buyer ;
  • Precise customs declaration charges

It should be noted that these elements, specifying the delivery conditions, will directly impact the selling price. This will also allow the determination of the customs value during an importation. Incoterms are also likely to influence the classification of transactions in relation to VAT.

This system was modified in 2010, through a reform that came into force on January 1, 2011.

In this reform, new rules were introduced, including the removal of four terms in favor of 2 new ones.

These incoterms are distributed in 2 groups :

  • Applicable terms for sea and river transport ;
  • Applicable terms for all other transports modes.

TAX CONSEQUENCES

The major fiscal risks are related to these 2 incoterms : EXW (ex-works named place) and DDP (Delivry duty paid: named place of destination). Indeed, in these situations, it is up to both the seller (EXW) and the buyer (DDP) to prepare the documentation justifying their operation and the benefit of its regime.

Finally, our experts alert you to a potential changement to come as a result of the Brexit, and the exit of the Great Britain from the European Union and, de facto, the customs Union.

With its expertise, ASD Group proposes the management of your customs formalities. Do not hesitate to contact our experts.

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