You’ve been working on your board game for years. Or perhaps you’ve created a new, fantastic technological wonder and you just need a little bit of funding to make it a reality.
No matter what you’ve done, you put your heart into it. You’ve designed it, tested it, gone to all the conventions, built up a mailing list, and everything else. Kickstarter is your destiny!
But alas: taxes. Specifically, customs and VAT. How are you going to handle that for your Kickstarter?
This is a very common stumbling block, and for good reason.
Customs & VAT may seem very complicated, and we won’t lie to you – they are. But with a little bit of planning, you can handle your Kickstarter backers’ customs with ease. In this article, we will discuss four ways you can do so.
Please note: we are writing this article assuming that you’re doing business in the US. If you’re not, though, most of the advice in this article still applies.
How Customs & VAT Work
The whole idea behind customs is to allow different countries to control the flow of goods in and out of their borders. Customs agencies are responsible for making sure that every business shipping goods into the country is following the law and paying the right taxes.
Customs duties are taxes imposed on goods when they are transported across international borders. These taxes are based on tariff codes, which correspond to the type of item being exported or imported. VAT, or value-added tax, is a tax that countries apply based on a percentage of the item’s sale price.
To simplify: many times, when your Kickstarter backer in a foreign country imports your item, someone will have to pay for customs duties and/or VAT.
Customs and VAT don’t apply to everything. Many countries do not have VAT at all, so that often does not apply. Customs duties only apply if the imported good’s value exceeds the importing country’s “customs de minimis value.” (A similar principle applies to VAT). In the USA, an item imported from a country with a value of less than $800 USD is duty-free. But beyond that, you may owe customs.
Lastly, you might be saying “how do tax authorities know what an item is worth?” Simply put, you – the sender – tell them. The value you tell them is the declared value.
4 Ways Your Kickstarter Can Handle Customs & VAT
In this section, we’re going to talk about four ways you can handle customs and VAT for your Kickstarter campaign. You can generalize these lessons to business as a whole, though, even if you aren’t using crowdfunding.
To help us give you the best possible advice, we’ve reached out to Robert Ruutsalo, Chief Revenue Officer at EAS. In their own words, EAS is “your trusted partner for European tax compliance.” When it comes to customs and VAT matters, including IOSS and UK VAT, they’re the best people we know to answer.
With that context in mind, let’s talk about four ways you can handle these tiresome taxes.
1. Use the IOSS/UK VAT Scheme (EU & UK Only)
Up until 2021, there were basically three ways to handle customs and VAT for Kickstarter. You could make backers pay for fees, store inventory in other countries, or use delivery duty paid (DDP) shipping.
The Import One Stop Shop (IOSS) was rolled out to simplify and expedite customs clearance. In Ruutsalo’s words, “for shipments to the EU, the IOSS is a cost-effective way for Kickstarter creators to manage VAT for goods valued at €150 [about $165 USD] or less. This allows creators to collect VAT at the point of sale, simplifying customs and ensuring that backers receive their rewards without additional customs fees upon delivery.” [Emphasis ours.]
Ruutsalo goes on to clarify that “it’s important to note that IOSS applies only to EU countries, but a similar VAT system is in place for shipments to the UK, where you can collect and remit VAT for low-value goods in the same manner. For US merchants with many backers in Europe, using IOSS for the EU and UK VAT registration can significantly streamline customs clearance and reduce the chance of delays.”
You may wonder where it makes the most sense to use IOSS for Kickstarter. In response to that question, Ruutsalo states that “IOSS is ideal for campaigns with smaller items and a significant number of EU backers. Compared to other methods, it offers a cheaper and faster way to handle customs for low value shipments, reducing the complexity of dealing with multiple tax authorities.” [Emphasis ours.]
It should be noted, however, that IOSS is complex to understand. If you want to take advantage of it, your best bet is to work with a professional such as EAS.
2. Make Backers Pay For Fees
You have another option when it comes to customs and VAT, and it’s deceptively simple. Do nothing.
The benefit of this method is clear: it’s very easy. Even Kickstarter itself does not require Kickstarter creators to specify how customs will be handled. They merely recommend it.
Kickstarter creators are not obligated to go out of their way to ensure that backers don’t pay customs. In fact, if your item is really low in value, it may fall under the customs de minimis of most countries, making it not worthwhile to try to create a “customs-friendly” campaign. What’s more, many international backers are accustomed to paying for customs and VAT for Kickstarter campaigns that they receive.
It’s not hard to imagine the problems you might encounter if you do take this path, though. In Ruutsalo’s words, “this option pushes the responsibility of paying customs duties and taxes to the backers, which can lead to a negative experience if they are surprised by additional fees upon delivery.”
Put another way, it might make people mad!
But Ruutsalo doesn’t dismiss this path entirely, saying that “this option may work for smaller campaigns or those that do not expect to have significant international backers.” But he cautions that “it can be risky in terms of customer satisfaction for larger campaigns.”
3. Store Inventory in Multiple Countries
“Customs-friendly” is a phrase you will see a lot of on Kickstarter if you look. You can often find variants of it such as “EU-friendly,” “UK-friendly,” “Canada-friendly,” and “Australia-friendly.” This is generally understood to mean one of the following:
- Goods are shipped from within a country or region, avoiding import fees and taxes.
- Goods are below the customs de minimis value.
- The import fees are handled on behalf of the backer. (This is a definition we have added on our own, based on our understanding of backers’ underlying needs.)
So with this in mind, it makes sense that if your Kickstarter rewards exceed the customs and/or VAT de minimis values of the countries you plan to ship to, that you must split your inventory between warehouses in different regions in the world. Many board game Kickstarters, for example, have a warehouse in the US, one in the EU, one in Australia, one in Canada, and so on.
This approach has a number of benefits. Backers receive their rewards pretty quickly after shipping since the warehouse is in their country. What’s more, they never see Kickstarter-related customs or VAT fees.
But there are some downsides to be aware of too:
- You have to coordinate multiple freight shipments to different warehouses in different countries, which can become complex. For smaller campaigns, this can be prohibitively expensive.
- When each of those freight shipments docks, you have to pay customs. Granted, the customs fees will be levied on the wholesale value of the goods and not the retail value, but this can still add up depending on how many countries you ship to.
- It’s complex. The more warehouses you’re working with, the more room there is for errors, customer service issues, delays, and unexpected bills.
“It’s a complex and expensive solution that may not make sense for smaller campaigns, especially when the high upfront costs outweigh the benefits,” says Ruutsalo.
4. Use Delivery Duty Paid (DDP) Shipping
There is one last way you can handle customs & VAT for your Kickstarter campaign. It’s tempting to think that if you are unable to split your inventory between different warehouses or if you don’t want to deal with IOSS, that you are out of luck when it comes to customs & VAT. You may think that you have to default to Method #2.
We’re here to tell you that there is a viable middle ground. You can house your inventory in the US, ship internationally, and avoid having your backers pay customs & VAT. The trick is that you must use “delivery duty paid” shipping.
“In DDP shipping,” says Ruutsalo, “the creator covers all customs duties and taxes upfront, ensuring that backers receive their packages without any surprise fees. This approach creates a seamless experience for backers but is more expensive than IOSS/UK VAT, for shipments to the EU or UK under €150. DDP involves paying duties and taxes on all orders, which can significantly increase costs for creators, particularly for high-volume campaigns.”
“For US merchants shipping to Europe, IOSS/UK VAT is the more affordable solution for low-value goods, as it eliminates customs fees for backers while keeping costs lower than DDP. DDP is more suitable for high-value items or campaigns where maintaining a premium backer experience is essential, but it should be used cautiously as it can cut into profit margins.”
Our experience lines up well with Ruutsalo’s. We’ve found that DDP shipping is generally more expensive than using IOSS/UK VAT, though some prefer to go that route due to either high-value goods or a strong preference to not deal with IOSS, either directly or through a third party.
How Can I Make Kickstarter Customs Clearance Easier?
Seeing how much of a hassle it can be to handle customs clearance and VAT, you may wonder what you can do to cut down on the difficulty.
In response to that Ruutsalo says “the single most effective way to make customs clearance easier is to provide accurate and complete documentation upfront. This includes correctly filled-out commercial invoices, precise product descriptions, appropriate HS codes, and clear shipping labels. These details ensure that customs officials can process shipments swiftly, reducing the risk of delays or additional fees.” [Emphasis ours.]
He goes on to state that for the EU and UK, using IOSS dramatically streamlines the process. That’s because IOSS allows you to use a single VAT identification number of all EU countries, which makes cross-border compliance easier. The same basic principle applies to UK VAT, even though it is outside of the EU.
How Do You Find a Good Customs Broker?
If you’re like a lot of creators, the idea of dealing with international trade at all is migraine-inducing. So you may want to hire a customs broker just to avoid the trouble altogether.
If you choose to do that, there are a few things you need to know. To quote Ruutsalo, “finding a reliable customs broker is crucial for smooth international shipping, but it’s important to note that for EU and UK shipments using IOSS and UK VAT, a customs broker is not required for goods valued at €150 or less. These schemes simplify the process, allowing you to manage VAT and customs clearance without needing a third-party broker.” So first, make sure you need one!
If you determine that you need a broker, Ruutsalo suggests focusing on these three factors:
- Experience and Specialization: You want a broker who is experienced with both eCommerce and crowdfunding.
- Global Reach: Your broker needs to have a strong network in key shipping regions like the US, EU, UK, and beyond.
- Clear Communication: Their pricing needs to be sensible, have no hidden fees, and they should keep you informed of the status of your shipments and any regulatory changes that might impact deliverability.
Should you find yourself needing a customs broker, looking for someone who checks these boxes will help you feel confident that you’ve made the right call.
Final Thoughts
Handling customs and VAT might feel scary, especially if it’s your first Kickstarter campaign. But if you approach the right way, you can prevent a lot of issues and streamline the process.
There are a lot of ways you can handle customs and VAT. You can use IOSS, make backers pay fees, store inventory in multiple countries, or opt for DDP shipping.
Each method has its pros and cons. Choose the one that fits your campaign best. As long as you plan well, customs won’t be an obstacle to your Kickstarter’s success.
FAQ
What are customs?
Customs are fees charged by a government when goods are imported or exported. These charges are applied to ensure goods meet legal requirements and can include taxes or duties.
What is VAT (value-added tax)?
VAT is a tax added to a product at every step of production or sale. The final buyer usually pays it, while businesses collect it for the government.
What is the IOSS?
The IOSS (Import One-Stop Shop) is an EU system for managing VAT on low-value imports. It allows sellers to collect VAT at the point of sale, making it easier for goods under €150 to clear customs and avoid extra charges on delivery.
What are tariff codes or HS codes?
Tariff or HS codes are numbers used to classify products in international trade. They help apply correct taxes, track shipments, and ensure compliance with trade laws.
