Sending hi-tech equipment to Russia as DDP shipments is not easy but possible. We will explain the whole DDP freight process step by step, from choosing a consignee to post-sales support.
Bringing electronics, telecom equipment, or medical devices to Russia has a significant value for the local market. Based on the first quarter of 2021, Russia spent $7.64 billion for importing electrical machinery, sound recorders, and television hardware. For the same period, optical, photographic, and medical instruments imports cost $1.66 billion.
In 2019 and 2020, the demand for such equipment in Russia increased by the end of the year (see images below). Thus we are expecting the same growth in the fourth quarter of 2021.
Russia is willing to purchase IT or telecom equipment and medical apparatus from abroad. One of the best ways to motivate the customers to buy even more is to offer them DDP shipping. However, a high demand does not mean that it is not easy for foreign manufacturers to bring the hardware to the country with the DDP freight model.
Strict local requirements for importing high technologies to the region are not the only reason. The other cause is the difficulty for sellers abroad to understand how the DDP shipping to Russia works.
To make the DDP freight clearer for understanding, we will go through all stages of the process bit by bit. In the case of DDP shipping, it takes eight steps to deliver a customer’s purchase to his door.
But first of all, what is DDP shipping?
DDP stands for Delivered Duty Paid, meaning that the seller assumes responsibility for costs and risks associated with shipping, export, import, customs clearance, and final delivery of the products to their destination point within the country. Paying import duties and fees, VAT, and local taxes is a part of the process under the DDP freight agreement too.
DDP shipping is popular among buyers worldwide. Its advantage is the minimum risks and effort buyers should take to get the purchases delivered straight to their home, office, warehouse, manufacturing facility, or any other final destination point of their choice.
When you think through the customs clearance, duty payments, bureaucratic paperwork and organize a smooth, streamlined purchase and delivery process for your customers, it motivates them to buy more of your products often.
Comprehensive Delivered Duty Paid shipping includes:
- shipping costs payment;
- export and import duties payment;
- transportation insurance;
- customs clearance;
- shipment delivery to a consignee;
- after-sales support.
DDP shipping is available to any kind of goods, including IT hardware/software, RF, 5G, and Telecom equipment.
Key points in a brief FAQ list about DDP Shipping
Below, we gave short answers in 2–3 sentences that help you understand the main idea of DDP shipping, what features it has, and to whom it may be helpful.
Is DDP shipping good?
Yes. DDP shipping is a perfect option for buyers who do not want to get involved in the shipping process, be responsible for customs clearance and import operations.
Is DDP shipping door-to-door?
Yes, DDP shipping includes an option of equipment delivery directly to its final user. Also, the shipments can be forwarded to local distributors for future selling or to a warehouse for storage and later distribution.
What is the disadvantage of using DDP as an incoterm?
DDP freight to Russia is available only when a seller, manufacturer, or the shipper have a local entity and can act as an importer for the shipments. To do so, the company must have a registered legal entity, branch, or representative office in Russia.
Does DDP include customs clearance?
Yes. DDP shipping means the seller is fully responsible for clearing goods and paying all the necessary customs fees.
Does DDP include unloading?
Unloading is not a part of the DDP shipping. Under a DDP freight incoterm, a seller assumes all obligations for transferring goods until they arrive at the final point. The responsibilities for unloading operations and fee payments belong to a consignee. But when needed, it can be arranged as well by DDP freight providers.
Does DDP include shipping?
Yes. DDP freight means a seller must organize the delivery of the hardware to the customer without the latter’s involvement in the shipping process.
Who pays VAT under DDP terms?
According to a DDP shipping agreement, the sender is responsible for all duties and fees payments, including VAT. Sometimes, consignees might choose to pay VAT for their own reasons. In this case, a DDP VAT Unpaid shipping agreement is in use.
Is DDP safe?
Yes. Among other services, a comprehensive DDP shipping model includes transportation insurance and after-sales support. Thus, a consignee gets a warranty that his order will arrive undamaged, or claim faulty details replacement / repair.
Now, when we have slightly covered the basic information about DDP freight, let us see what happens if a Russian customer chooses this service for high-tech product delivery.
8 Steps for DDP Shipping of IT Technology to Russia
Step 1: Defining your importer
Is it a Russian customer always the consignee and the importer for shipments that he buys from you? When the client chooses DDP freight, he must not think about who will import his purchase to the country and how. Usually, it means that a seller has to import the equipment on his own.
For DDP shipping to Russia, a foreign manufacturer must have a local branch. In this case, he can act as an IOR — Importer Of Record — and perform the import and clearance operations on his own. Without the manufacturer’s legal entity or representative office in the country, DDP shipping becomes almost impossible.
If you cannot be an IOR on your own, you can use the following alternatives to import goods to Russia:
1. Local branch:
Pros: a local branch or representative office allows you to be an IOR for yourself and import goods to Russia however you want and without outside help.
Cons: Long time-to-market — it takes time to recruit staff and start running a company. In addition, you have to deal with local bureaucracy on your own, which takes much time and effort. Another issue to consider is the company’s exposure to an unstable political situation.
2. Exclusive Distributor:
Pros: Act as an IOR and import shipments to Russia on your behalf.
Cons: You become dependent on a single distributor Moreover, distributors usually sell products of several vendors, often of competing brands. Therefore, they have a major influence on your pricing and market share.
3. Several distributors or a B2B final customer:
Pros: No dependence on a single distributor.
Cons: Some import licenses are issued per importer, so you might need to obtain separate import permits for each distributor — it increases the operational time and costs. The operation complexity is also higher in this case, as you have to coordinate and interact with dozens of companies and agencies to handle multiple freight and clearance processes simultaneously
4. Final non-B2B customer:
Pros: Once shipping to a final client, it is unnecessary to turn to third parties for import services.
Cons: Some final customers cannot or wish to avoid the responsibility of using their names for official import and clearing procedures.
5. IOR service provider:
Pros: With an IOR service provider, you can arrange door-to-door DDP shipments to all of your customers and distributor, using a single consignee for all of the shipments (the Importer Of Record). As opposed to the exclusive distributor option mentioned above, EOR / IOR is not a part of the sales process, therefore does not affect your pricing or competition. An IOR, logistics service provider, is more like a function rather than a full-fledged mediator.
Cons: The EOR / IOR kind of “owns” your goods for the purposes of export-import, customs and tax conformance, so finding a reliable IOR provider, with an international reputation is crucial for technology import.
Step 2: Import permits preparation
Russia belongs to countries with closed markets, whose strict requirements affect extra paperwork you deal with. It is crucial to keep this in mind when you ship IT technologies, networking hardware, or Dual-Use items here.
After defining an IOR for IT equipment, it is necessary to understand if the shipments are allowable to enter Russia. To do so, a DDP service provider should obtain special import permits from local government authorities.
Depending on the type of imported hardware, various certificates and licenses are essential:
- Certificate of Conformity or Eurasian Conformity mark:
— for devices running on 220v electric power;
- FSB Notification or FSTEK Certification:
— for devices with encryption technologies;
- Minpromtorg (Ministry of Industry and Trade) license:
— for devices with RF/Wireless Communication technologies;
- RFC and EMC Certificates:
— for devices with radio-electronic details;
- FAC Declaration of Conformity:
— for telecommunications devices;
- The registration certificate from the Federal Service for Surveillance and Healthcare (Roszdravnadzor):
— for medical devices and instruments.
The country of OEM affects the necessity of additional certificates too. For example, importing medical items or electronics manufactured in the USA requires Electronic Export Information.
Step 3: Deciding who ships your equipment
For western businesses and shippers, it might be confusing at times, but you should keep in mind that customs and import tax fees cannot be paid on behalf of a 3rd party, and only a local entity can act as an importer in Russia.
Thus, a pure DDP freight model is available only when a sender has a local representation that acts as a consignee while importing the shipment to the country. After the clearing, the goods are forwarded domestically to a final customer / distributor.
But what if a buyer cannot pay in foreign currency? Or a manufacturer has no local office in the region. In such a case, an IOR solution would be helpful. An IOR service provider works for two parties: he acts as an Importer Of Records (a Consignee) on behalf of a foreign sender and helps a local customer with currency exchange and foreign finance transactions. The latter means an IOR receives rubles, changes them into USD or EUR, and sends money to the manufacturer.
Finally, what if a vendor would like to refrain from arranging the DDP shipping due to operational or compliance constraints. To solve the problem, a sender should use a combined DDP–IOR service when a door-to-door transportation process is organized on a turn-key basis.
Providing a DDP–IOR solution, a logistics partner first asks about its client’s preferences. After that, the company searches for appropriate variants that suit its customer the most. When the approval stage is successfully over, the logistics provider starts preparations for transferring.
Providing a DDP–IOR solution, a logistics partner explores the possible routing options based on the clients needs and preferences. When the routing and the terms are accepted, the logistics provider starts preparations for delivery.
In a DDP–IOR service, a logistics provider is your single point of contact for the whole process from pick up to delivery at the final destination point, who organizes all the necessary documents, freight and import fees payments .
Steps one and three have a direct relation to each other. Defining an exact importer and shipper for their goods, manufacturers can fully understand what solution suits them the most.
Step 4: Cash Collection and Funds Transfer
Great, we have made sure that our high-tech hardware may enter Russia. We have also found out who is responsible for transferring and importing the shipments. Now, it is time to collect money from a buyer and send the funds to a manufacturer.
According to Federal Law No. 173-FZ, “On Currency Regulation and Currency Control,” Russia has no strict requirements for currency transactions between residents and non-residents. That means local customers may pay dollars or euros while buying any product, including high technology equipment, from foreign manufacturers.
However, the same Federal Law states that buyers must report on all foreign currency transactions they carry out. Moreover, Russian companies must keep all the related documents at least three years after conducting the currency transaction. The bodies responsible for currency regulation are the Central Bank of Russia and the Russian government.
Trying to comply with the currency law causes foreign businesses to face additional headaches. That is why Russian customers often want to avoid direct payments to sellers abroad in dollars or euros. Even if a manufacturer still prefers receiving finds in foreign currency, some DDP freight service providers, like Velox, can solve this issue.
Our company can collect the payments from Russian customers and issue the invoice in rubles on your behalf . After receiving the funds, we exchange currency and send the required sum in USD or EUR to a seller/manufacturer.
Currency exchange is risky, as it can lead to revenue losses due to volatile exchange rate fluctuations. That is why billing and invoicing services are better to complement with finance protection. This solution is also available at our company.
Step 5: Preparing documents for your shipment
Here, we are talking about the main document package required for transferring equipment:
- Proforma and commercial invoices (depends on the type of shipping);
- Certificates of compliance;
- Certificates of origin (if required);
- Product packaging lists;
- Commercial agreements;
- Bills of lading;
- Shipper’s Letter of Instruction (SLI);
- Dangerous goods form (if required).
For this package, you should also add import permits you have obtained before. Worth mentioning that a final number of documents, receipts, and declarations depends on whether you transfer goods by car, ship, plane, or train. All the necessary documents are defined and listed in the 89th article of the Customs Code of the Eurasian Customs Union.
It is the last preparational step for one of the most crucial stages in DDP freight: clearing the goods.
Step 6: Customs clearance
As we said before, clearing the goods to import them to Russia is definitely not a buyer’s obligation. But who should take care of these operations depends on what services a manufacturer uses.
When the foreign manufacturer has a Russian branch and provides DDP freight autonomously, he should do customs clearance too. Otherwise, the company can count on a reliable logistics service provider who clears the goods instead. Remember that customs clearance operations include payment of import duties.
During DDP freight, a seller is also responsible for paying additional fees. There can be other costs that do not belong to customs clearance, for example, Goods and Service Tax (GST), Value Added Tax (VAT), etc.
DDP VAT Unpaid Model
Sometimes a consignee may cover a part of additional duties instead of a sender, for example, VAT. It happens not quite often and usually at the request of a buyer. Then, both parties must mention this in a contract, and a sender uses DDP VAT Unpaid shipping.
VAT exemption on software licenses
There is one more critical thing concerning VAT payment. In 2021, Russia has made tax changes related to the IT industry. New rules affect foreign businesses that sell technology products to Russian customers. These changes involve VAT exemption on software licenses.
For now, VAT exemption on software licenses, which was in force since 2008, will not be available for foreign sellers. The company must include its software in Russia’s National Software Register to obtain VAT exemption.
Two years ago, in 2019, Russia applied another tax requirement for sellers from abroad. If non-local companies provide electronic services to Russian customers, they must register for collecting, reporting, and remitting VAT to the Russian budget themselves. All payments are accepted in Russian rubles only. First of all, this requirement applies to those who provide B2B services on the Russian market.
VAT payment in Russia depends on how IT software enters the country to its final buyer. For example, a company from Moscow wants to buy a digital platform produced in the USA.
– If the program key is sent on a physical medium, the VAT is to be paid to the customs office.
– If the program key is sent via email, the VAT is to be paid to the tax office.
Step 7: Delivery to the final destination point
After customs clearance is over, a manufacturer or his logistics partner has three options to finish the delivery process. The most straightforward way is to send the equipment directly to its final customer. When you do not know the end-user yet, a local distributor can receive the parcels and sell them later.
Sometimes, it is necessary to send the goods to a final customer, but he does not have where to store the shipments. Local warehouses are a great choice to solve the issue. Finding an appropriate storage place depends on the buyer’s preferences and the shipper’s abilities.
A buyer or a manufacturer can find a warehouse on their own. However, it is more convenient to rely on the logistics provider who already helps with DDP shipping and importing to Russia. At Velox, we include a warehousing option with our IOR / DDP shipping services.
We offer a safe and secured storage facility located in St. Petersburg, Russia. Thanks to heating and ventilation systems, our warehouse is ideal for keeping spare parts, delicate and expensive IT equipment or hardware.
Step 8: Post-sales support
Though the parcel reaches its final customer, the DDP freight process does not end. Items can come to the buyer with manufacturing defects or failures due to equipment displacement or replacement. It is not an uncommon situation — the hardware components of Storage, Networking, and Communications equipment are fragile and sensitive to transportation, storage, and usage conditions defined by the manufacturer.
In this case, providing timely post-sales support is crucial for DDP freight. Mainly, such support consists of reverse logistics services that decrease the negative response from a client. Choosing the DDP or DDP–IOR solution from Velox, our clients may ask for additional help with post-sales support:
- RMA (Return Material Authorization) Agreements
- On-site Field Engineers
- Local Technology Manufacture
- Repair Laboratory
- 24/48h SLA agreements Support
Local RMA and Support Service
RMA takes a central place in reverse logistics allowing the sender to save money on conducting technical equipment diagnostics, replacing parts, and testing the hardware. If a logistics provider has the capabilities, he can perform these operations in Russia.
Return-to-base RMA Service
When a faulty part or device still needs to get shipped back to the manufacturer, the RMA logistics partner has the following obligations:
- Collect the faulty device or hardware component from a customer;
- Export them from Russia while preparing all the export documentation;
- Re-Import the replacement part, clearing the customs on the way back to the client.
None of the options above involve a buyer or sender. Moreover, when you use reverse logistics services from Velox, there is no need to pay duties and fees again while re-importing equipment to Russia.
DDP shipping is a preferred way for buyers to receive their purchases, and Russian customers are not an exception. However, the local closed market sets its own rules for importing shipments to the country, especially high technologies. But it is not the reason to set the idea of DDP freight aside.
When you need assistance with shipping IT, Networking, Telecom equipment or Encryption-enabled, Dual-use Technology, and Medical devices, Velox is ready to take a step to you. Our services go beyond DDP and IOR solutions — we can offer extra help with insurance, exchange rate protection, and warehousing. Contact us to expand your presence in Russia and start selling directly to local customers.