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! Then someone asks you, oh-so-bluntly, “is your Kickstarter going to take care of customs & VAT?”
Well, there go your dreams. The cabin’s depressurizing. We’re losing altitude.
Not so fast!
Customs & VAT may seem very complicated, and yes, 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 three 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
Before we dive headfirst into the three strategies you can use to handle Kickstarter customs, let’s talk about how customs & VAT work. In our article Customs Duty De Minimis: Important Info for International Shipping, we state that “the whole idea behind customs is to allow different countries to control the flow of goods in and out of their borders. They want to incentivize some kinds of trade and disincentivize other kinds of trade. And, of course, we all know what plain old taxes are for.”
Customs duties are taxies 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 applied 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.
Now 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. Beyond that, pay up!
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. Here’s a video showing you how to choose a declared value. (Don’t lowball this!)
Still confused? Read a more detailed version of this explanation in this post: Customs Duty De Minimis: Important Info for International Shipping.
Method #1: Your Customers Pay for Customs & VAT
Now that I’ve given you a pounding migraine by explaining international tax law, let’s talk about how you can handle customs during your Kickstarter campaign. The first method is a deceptively simple one. Do nothing.
Seriously. 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.
The benefit of this method is clear: it’s very easy. There are many drawbacks, however. You will likely have fewer international backers. International backers you do have may not be expecting a customs bill, making them mad at you. As a result, you could have ongoing customer service issues as well as decreased customer retention.
In many ways, you can consider this the default option. Even Kickstarter itself does not require Kickstarter creators to specify how customs will be handled. They merely recommend it.
Method #2: Split Your Inventory Between Countries & Manage Multiple Warehouses
“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. Seems like an all-around win!
But this is not always the best way to handle Kickstarter customs
This is an appropriate approach for many campaigns, particularly very large ones. However, splitting your inventory between different warehouses has a lot of problems.
- 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.
Method #3: Consolidate Your Inventory in One Warehouse & Pay for Kickstarter Customs & VAT
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, that you are out of luck when it comes to customs & VAT. You may think that you have to default to Method #1.
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. (Incidentally, we offer this through Fulfillrite via Asendia).
The benefits of this method are clear: freight and warehousing is not overly complicated. All of your items can be stored in a single warehouse, yet you still have the ability to ship internationally without leaving customers with nasty customs surprises. This is done by paying the customs & VAT on their behalf through delivery duty paid shipping.
Now this method isn’t perfect. Paying customs fees, as well as international shipping, can be expensive. The shipping can also be a little bit on the slow side, too, but this is less of an issue with Kickstarter than it is with eCommerce. However, even with this in mind, costs are likely to be lower using this method since Method #2 comes with the baggage of splitting a freight shipment an incurring greater transportation costs.
Final Thoughts on How Your Kickstarter Campaign Can Handle Customs & VAT
Handling customs & VAT for your Kickstarter campaign is easier than it ever has been before. For most small to medium size Kickstarters, we consider Method #3 to be best practice. Method #1 is ideal for very small campaigns or Kickstarters that sell inexpensive items (e.g. $15 or less). Finally, Method #2 is ideal for very large Kickstarter campaigns.
No matter what you decide to do for your campaign, though, you can rest easy knowing that you have multiple options for handling international shipping and the fees that come with it.