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EU import VAT solutions for non-resident businesses

  • Dec 28, 2014 | Richard Asquith

EU import VAT solutions for non-resident businesses

More than ever, EU businesses sourcing non-EU products, are demanding that their suppliers deliver DDP, Delivered Duty Paid. This means they avoid all the administrative problems of importation. They do not have to pay the Duty and import VAT payable on EU entry.

Non-resident VAT

Non-resident suppliers often do not immediately realise the difficulties of the European import VAT issues. It is only long after supply contracts have been signed, and the shipping is underway, that their unfortunate position becomes apparent. Panic sets in. The possibility of a broadside VAT hit is distinctly unpalatable. The supplier’s commercial team executives, who initially brokered the deal, along with their company’s finance team, fall under the spotlight.

Goods from non-EU locations which are being shipped into an EU country have to be cleared through Customs. Duty, if any payable, for it depends on the goods concerned, is calculated at whatever percentage applicable. This is an irrecoverable tax and has to be provided for by the supplier as part of the contract price realisation.

Based on the value of the goods including the duty payable, import VAT is chargeable at the applicable rate in the EU country of entry e.g. 25% in Sweden; 19% VAT in Germany. Now here is the issue. The supplier who agreed the DDP supply must pay the import VAT. The big question is how can this import VAT be fully recovered, so that neutrality is preserved?

Loss of import VAT

In certain countries, the recovery of import VAT may simply not be possible, unless certain arrangements are made in advance. Many unsuspecting non-resident companies, importing into countries where they have no presence, have to swallow the VAT on initial shipments.

Clearly it makes sense to plan the logistics and VAT issues well in advance to avoid mishaps. There are many different VAT approaches available to importing goods into EU countries. The choice of route can depend on the logistics and frequency of imports, through to the long term strategy of the company within Europe.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara