Cash low, customs and tax considerations when selling into the EU.
BY JONAS JIA HE
The European countries have been the wonderlands not only for the tourists, but also for the worldwide investors.
The EU single market had the largest GDP of any economy in the world in 2012. According to the European Commission’s Eurostat data, the EU’s extra-EU expor Twere €1.553 trillion (NZ$2.59 trillion) and its extra-EU imports were €1.713 trillion (NZ$2.86 trillion) in 2011.
In recent years, there have also been signiicant volumes of foreign investments in EU’s renewable energy and natural resource sectors.
After working in EU for a considerable period, I have realised that the extra-EU import rules and the relevant VAT treatments are crucial for all the participants, especially for the new entrants. It is worthwhile to share some extra-EU import and VAT tips in a brief summary here. My discussion will exclude any intra-EU import transaction.
First of all, you have to ind out the most eficient pathway for the importation.
For example, if you want to send goods from a non-EU state to Germany or Italy, it is not necessary to deliver them directly to a German or Italian seaport for customs clearance. Alternatively, you can consider the option to have transitions at the seaports of Amsterdam, Rotterdam or Antwerp, and complete your customs clearance at these customs ofices.
The Netherlands and Belgium are often called the “Gateway to Europe”. I comparison with other EU states they have advantages including:
◆ a central location within EU
◆ excellent transportation and connection systems
◆ advanced logistics services
◆ streamlined customs procedures and administrative controls
◆ VAT deferment mechanisms.
However , there may be additional transportation costs if your inal destination is a bit far from these EU “gateways”. Our experience tells us that the pros always overcome the cons when the volume of imports is large.
Next, you must manage your cash low for the import customs duty and VAT liability. Theoretically, the customs duty and VAT on importation is due as soon as the goods (from non-EU) are brought into any EU state for free circulation. It means that you have to pay cash immediately for the exchange of VAT input credits in your accounts.
Be aware that it is quite dificult to claim large VAT cash refunds in many EU states, especially during the current EU debt-crisis. For example, in Italy, when your refund request is over a certain limit, you have to provide a bank or insurance guarantee prior to the release of VAT refunds. Therefore, it is more convenient just to offset these credits with the VAT liabilities on future income. In this case, your cash low will be tight. Because your VAT credits will be utilised over a long period.
Most of EU states provide customs bonded warehouses that offer you the following advantages.
During the period of storage in these warehouses, the customs duty and VAT liability can be postponed until you ind the EU client (end-user) and start the inal delivery.
In the case that the end-user is from a non-EU state, the customs duty and VAT will only be paid at the inal destination.
The importer has the option to apply the “reverse charge” mechanism by providi a “self-generated” invoice and submit to the Customs Ofice. Later on, the same amount of VAT input credits and output liabilities will be offset against each other in the VAT return. The ultimate effect is that there is nil VAT due on importation from a cash low perspective.
The “reverse charge” mechanism offer the greatest cash low advantages to all exporting to the EU. But, your importation pathway will determine the amount of cost for you to obtain such beneit.
For example, an Italian irm wants to import goods from China. As I explained earlier , they have two import options. Option one is the direct import from China to an Italian seaport for customs clearance. The other option is to go through, say, Antwerp of Belgium for customs clearance, then arrange for delivery to Italy.
Option 1 – Direct import to Italy
In order to apply for the “reverse charge? mechanism, you need to provide a bank guarantee for the same amount of VAT that would have been due without the application of this mechanism. You can apply for the cancellation of the bank guarantee after the goods are removed from the warehouse and all the proper accounts and VAT documents are submitted to the Customs Ofice. In practice, you may discharge the guarantee funds within three to six months, depending on the speed of the customs process.
Option 2 – Through “gateway”, Antwer
You have to appoint a Belgian iscal representative since you are not VAT registered in Belgium. The iscal representative may handle all the customs procedures and the subsequent VAT returns on your behalf. The big advantage is that the Belgian Customs Authority would not require you to provide a bank guarantee for your application of VAT deferment (similar to “reverse charge” rules). It mean that you do not need to contribute any deposit or guarantee to complete the whole importation process with nil VAT payment. Of course, you need to compare the additional transportation costs with your cash low savings from VAT deferment. (The Belgian tax authority abolished the bank guarantee requirement in 2012.)
From the short analysis above, we can see that a well planned EU importation structure can help the EU importers achieve substantial cash low advantages. In general, all EU states have implemented similar laws on importations. However , each EU state may apply different detailed rules and procedures that it into its national interests. It is advisable to get proper advice from local VAT specialists.
Jonas Jia He CA is the inance director for overseas investments at Jiangsu Zongyi Co Ltd, a Chinese software and technology company.