Incoterms terms: main options and what to choose for import and export
Imagine: you ordered a batch of goods from China, the container went on its journey, and somewhere in the Indian Ocean it was damaged during a storm. Who compensates the damage — you or the supplier? The answer to this question depends not on your luck, but on three letters in the contract: the Incoterms terms.
One incorrectly chosen delivery basis — and the company gets not goods, but a lawsuit, cargo stuck at the border, or an unexpected VAT bill from the tax office. In this article, we break down Incoterms in plain language: what they are, how they work, and which option is more advantageous specifically for Ukrainian business.
What are Incoterms and why are they needed
Incoterms (International Commercial Terms) are international trade rules developed by the International Chamber of Commerce (ICC). In essence, they are a common language for sellers and buyers from different countries, eliminating misunderstandings even before signing the contract.
Each Incoterms term answers three fundamental questions:
Who pays for what? That is, who bears the costs of freight (transport), insurance, loading and customs clearance.
Where do risks transfer? This is the most important point — a specific point on the map, after which responsibility for the safety of the goods passes from the seller to the buyer.
Who arranges what? Who orders transport, obtains licenses and prepares accompanying documents.
It is important to understand what Incoterms do not regulate: the transfer of ownership of goods, the transaction price, payment methods and penalties. All this is specified separately in the body of the foreign trade contract.
The current version of the rules is Incoterms 2020. That is exactly what we are analyzing.
Incoterms terms and groups
In total, there are 11 terms, divided into four groups. The logic is simple: the further the seller transports the goods, the more costs and risks they assume.
Group E — the seller simply hands over the goods
There is only one term here — EXW (Ex Works). The seller places the goods at their warehouse, and their obligations end there. The entire further journey is the buyer's concern. Sounds simple, but in practice this is the most complex condition for a foreign buyer (more on this below).
Group F — the seller delivers to the carrier
This includes three terms: FCA (Free Carrier), FOB (Free On Board) and FAS (Free Alongside Ship). The seller undertakes to deliver the goods at their own expense to the agreed carrier or to the ship's side, and then everything is paid by the buyer. This is a balanced option: each party controls its own segment of logistics.
Group C — the seller pays for the main carriage, but the risks are no longer theirs
The trickiest group. It includes CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), CFR (Cost and Freight) and CIF (Cost, Insurance and Freight).
The trap here is: the seller pays for delivery right up to your city, but the risks transfer to the buyer at the moment the cargo is handed over to the first carrier in the country of departure. That is, if the goods are damaged en route, the seller will pay for the freight, but the loss of the goods is yours.
Group D — the seller takes on everything up to your doorstep
DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid) — terms that are maximally convenient for the buyer. The seller bears all costs and risks until the moment the goods arrive. Under DDP, they also pay all customs duties in the destination country.
Which Incoterms terms are better to choose when importing to Ukraine
When importing goods, the main task of the Ukrainian importer is to keep control over logistics and, critically, to manage customs clearance at the Ukrainian border themselves.
FCA and FOB: a reliable choice
FCA (Free Carrier) — an ideal option for road and air transport. The supplier clears the export in their country and hands the goods over to your carrier. From that moment, you fully control the route, the freight cost and customs clearance in Ukraine. No surprises from someone else's logistics specialist.
FOB (Free On Board) — a classic for sea container transport. The supplier at their own expense brings the container to the port and loads it onto the vessel. After that — your area of responsibility. This term eliminates hidden port charges from the supplier, because they have already fulfilled their part.
It is also important to understand how these terms affect customs value. Under FCA and FOB, transport costs are not included in the invoice, so the customs broker must add the delivery costs up to the Ukrainian border to the goods' value. For this, the carrier provides a transport cost statement, where the amount is clearly split into two segments: up to the border and within Ukraine. Only the first segment affects the base for calculating duty and VAT.
CPT and CIP: convenient and accessible
These terms are suitable if you do not have your own logistics specialist on the sender's side and you want the seller to arrange delivery to the Ukrainian terminal themselves.
From the customs value perspective, there is an interesting opportunity for savings here. Since transport to Kyiv is already "baked into" the invoice, you have the right to deduct from customs value the cost of delivery within Ukraine (from the border to your warehouse) — and pay less duty and VAT. But for this, the invoice or contract must separately highlight the amount for logistics within Ukraine. If there is no such breakdown — customs will charge taxes on the entire invoice amount without discounts.
EXW and DDP: better to avoid
EXW at first glance seems advantageous — the goods are cheaper, everything is transparent. But under EXW, the obligation to arrange export customs clearance in a foreign country falls on you, the buyer. Not every Ukrainian company has its own brokers there and the capabilities for this. Any mistake — and the goods will get stuck at the exit.
DDP — the reverse situation. On paper it is a dream: the seller brings the goods to your warehouse with paid duty and taxes. But in Ukraine, this term practically does not work. For a foreign seller to be able to pay Ukrainian VAT and duty, they must have a permanent tax representative office and accreditation at customs. Most foreign suppliers do not have this — the cargo will simply "freeze" at the border without any chance of customs clearance.
Which Incoterms terms are better for export from Ukraine
For Ukrainian exporters, the priorities are different: you need guaranteed documents to confirm the zero VAT rate and not to take on unnecessary risks outside Ukraine.
FCA: the optimal choice
FCA (Free Carrier) — the most convenient term for a Ukrainian exporter. You independently carry out customs clearance in Ukraine, receive the cargo customs declaration with a mark of crossing the border. This is your iron-clad confirmation for the tax office for 0% VAT. The buyer sends their transport to your warehouse, picks up the goods — and from that instant all risks are on them.
CPT and DAP: good for working with Europe
CPT and DAP are excellent for road export to EU countries. You hire a carrier and transport the goods to the buyer's warehouse. Under DAP, risks transfer at the moment the goods arrive; under CPT — still at the moment of loading in Ukraine. The main thing: the export documents are fully in your hands, the grounds for zero VAT are clear and do not raise questions.
EXW: possible problems
Many novice exporters choose EXW, reasoning: "I handed over the goods at the factory — after that it's not my problem." This is a mistake that can cost dearly.
Under EXW, the obligation for export customs clearance falls on the foreign buyer. If they turn out to be unscrupulous, fill in the documents incorrectly, or export the goods through "grey" schemes — the Ukrainian tax office will not recognize your export. Result: you will be charged an additional 20% VAT on the entire transaction amount plus penalties. The sum may exceed the entire profit from the deal.
How to correctly specify Incoterms in the contract
For the delivery basis to have legal force, it must be fixed according to a strict template:
[Three-letter code] [Specific geographic point] [Version of rules]
Correct example: FCA Chernihiv, 15 Mazepa St., Ukraine (Incoterms 2020).
Incorrect example: FCA Ukraine — it is unclear where exactly the goods are handed over and who pays for internal logistics.
The more precise the address — the fewer disputes between the parties and fewer questions from customs.
Frequently asked questions about Incoterms
What are the most common mistakes when choosing Incoterms terms?
Most often, mistakes are not in the terms themselves, but in choosing them "out of habit" or simply agreeing to what the supplier offers — without thinking about the consequences.
The first and most common mistake — agreeing to EXW for export. It seems convenient: you handed over the goods at the warehouse and forgot. But the obligation for customs clearance in Ukraine then falls on the foreign buyer. If they do something wrong or export the goods bypassing — the tax office will not recognize your export and will charge an additional 20% VAT.
The second mistake — agreeing to DDP for import, because "the seller takes everything on themselves." In practice, in Ukraine DDP almost never works: the foreign supplier does not have accreditation at Ukrainian customs and physically cannot pay your VAT. The cargo will simply stop at the border.
Third — inaccurate specification of the geographic point in the contract. Writing just "FCA Ukraine" is not enough. If a specific transfer address is not indicated, disputes arise: who pays for domestic delivery to that point and where exactly risks transfer.
Fourth — confusing FOB and FCA for non-maritime transport. FOB technically applies only to sea transport. If you are transporting goods by truck or plane and specify FOB in the contract — this is legally incorrect, and in the event of a dispute the term may simply not work.
What happens if the carrier does not split costs before and after the Ukrainian border?
This is a typical situation that imperceptibly increases your tax expenses.
When calculating customs value, Ukrainian customs follows a simple rule: all transport costs up to the moment of crossing the Ukrainian border are included in the tax base. Costs for delivery within Ukraine itself — from the border to your warehouse — are not included and are not subject to duty and VAT.
But if the carrier issued one total amount for the entire route — for example, "Warsaw — Kyiv, 1500 euros" without any breakdown — customs will add all 1500 euros in full to the goods' value. Including the portion that falls on the segment from the border to Kyiv. Duty and VAT will be charged on this amount.
In practice, the overpayment may not be very large on a single shipment, but if you are transporting goods regularly — over a year this adds up to a tangible sum. To avoid this, you need to ask the carrier in advance to provide a transport cost statement, where the cost of the segment up to the Ukrainian border and separately within Ukraine are indicated. Most normal freight forwarders issue such a statement without any problems.
Is it mandatory to use Incoterms in a contract?
No, no law obliges you to use Incoterms. But if you do not specify a delivery basis — or stipulate it vaguely — each party will interpret the contract terms in their own way. Who pays for freight? Who is responsible for damaged goods? These questions will remain without a clear answer until the first conflict.
Incoterms is not a formality, but insurance against misunderstandings. Three letters in the contract replace an entire paragraph of legal text and eliminate most potential disputes before they even arise.
Can you agree on terms that are not in Incoterms?
Yes, you can. Incoterms are recommended rules, not law. The parties have the right to stipulate any individual conditions for the distribution of costs and risks in the contract if they both agree to them.
But there is one "but": the further you deviate from standard terms, the more text you need to write manually, the higher the risk of ambiguous interpretation and the more difficult it will be to prove your case in court or at customs. Standard Incoterms terms have been tested by decades of international practice and are clear to any customs broker or judge in any country. Homemade constructions — are not.
Who bears the cost of insurance under different Incoterms terms?
In most Incoterms terms, insurance is a right, not an obligation. Each party can insure the goods on their own segment of responsibility, but no one forces anyone.
The exception is two terms where insurance is the seller's obligation: these are CIP and CIF. The difference between them is fundamental. Under CIP, the seller is obliged to take out insurance with maximum coverage — at least 110% of the goods' value under Institute Cargo Clauses (A). Under CIF, the requirements for insurance are significantly lower — minimal coverage under Clause (C), which does not protect against many real risks en route. Therefore, if the seller offers CIF and the goods are expensive or fragile — it is worth either agreeing on CIP or additionally insuring the cargo yourself.
What does "transfer of risk" mean in practice and how can it be proven?
Transfer of risk is the moment after which losses from damage or loss of goods are borne by the buyer, not the seller. Even if the goods are still in transit and you have not laid eyes on them.
In practice, this means: if the container with your goods sank after the risks transferred to you — the seller owes you nothing. You will receive an invoice for the goods and nothing in return, if you did not insure.
Documents help prove the moment of risk transfer. The main one is the CMR waybill (for road transport) or bill of lading (for sea). They record the date and place of cargo acceptance by the carrier. It is exactly this document that is proof of whose zone of responsibility the goods were in at the moment of damage. Therefore, always keep transport documents until the goods have physically arrived and have been inspected by you.
How to confirm 0% VAT on export — what documents are needed?
A zero VAT rate on export is not an automatic benefit, but a right that must be documented. If the documents are insufficient or filled in with errors — the tax office will charge the standard VAT amount.
The main package of documents for confirming export from Ukraine: customs declaration (EK-10) with a customs mark confirming the actual export of goods from Ukraine, a foreign trade contract with the foreign buyer and an invoice. Additionally, transport documents may be needed — CMR, airway bill or bill of lading depending on the type of transport.
To confirm export from Europe, the package of documents is similar, only the customs export declaration has a different name — EX-1.
The most reliable term for obtaining these documents is FCA. You carry out the customs clearance yourself, you yourself receive the mark confirming the export closure. No dependence on the foreign buyer or their brokers.
Does Incoterms affect the goods' price in the invoice?
Yes, and very significantly — even if the goods themselves cost the same. The price in the invoice reflects what exactly is included: just the cost of goods, or also logistics, insurance, customs clearance.
For example, the same goods costing $10,000 can have a different price in the invoice depending on the terms: under EXW it is just 10,000, under FOB — 10,000 plus delivery to port and loading onto the vessel, under CIF — plus sea freight and insurance.
For customs, this is critically important: it is exactly from the figure in the invoice (taking into account adjustments) that customs value is calculated, and from it — duty and VAT. That is why you should not blindly compare prices from different suppliers without paying attention to the delivery terms. An EXW offer may seem cheaper, but after adding all logistics costs it may turn out more expensive than CPT from another supplier.
What statement should be obtained from the carrier under FCA to reduce customs payments?
When importing under FCA, transport costs are not included in the invoice — you pay them separately. But for customs, you need to clearly show which part of these costs falls on the segment up to the border, because it is exactly that which is added to customs value.
For this, your carrier or freight forwarder provides a transport cost statement. It must indicate: the total transport cost, separately — the cost of the segment from the loading place to the border, and separately — the cost of the segment in the buyer's country. Request this statement in advance, before submitting the customs declaration.
Summary: how not to make a mistake when choosing Incoterms terms
For import to Ukraine — FCA or FOB, depending on the type of transport. If you want the seller to arrange delivery themselves — CPT or CIP, but make sure that logistics costs within Ukraine are separated out in the documents.
For export from Ukraine — FCA in most cases, CPT or DAP for working with the EU. Avoid EXW for export: the risk of losing the right to 0% VAT is too great.
And the main rule: choose those terms where you control the critical segments of the route — especially customs clearance in Ukraine. Do not take on obligations where you have neither brokers nor levers of influence.
Need help? The logistics company TobiPaczka provides turnkey import and export from Europe. Delivery calculation and consultation are free.