Information about VAT & Duty
In e-commerce, especially when shipping cross border, it is vital to be aware of all value added tax (VAT) and duty rules that apply to your business.
There are a lot of variables at play. Depending on such aspects as the size of your business, value of a parcel or the type of product that you are shipping different rules might apply. And that is for a single country. When shipping products to multiple countries the topic of VAT and duty quickly can become complex.
Spring is there to support its customers in dealing with VAT and duty. Questions that we receive frequently, we have tried to answer on these pages. Of course, we are available to hear about and understand your situation and provide tailored advice.
What is an EORI number?
EORI stands for “Economic Operator Registration and Identification number”.
Businesses, and in some cases individuals, wishing to trade crossing EU borders use the EORI number as an identification number in all customs procedures when exchanging information with Customs administrations.
Having one single type of identification number across the EU is more efficient, both for economic operators and customs authorities. It is also more efficient for statistical purposes and security purposes.
The EORI number exists out of two parts:
- the country code of the issuing Member State; followed by
- a code or number that is unique in the Member State
How can you apply for an EORI number?
Business/individuals established in the customs territory of the Union should apply for the EORI number to the customs authorities of the EU country in which they are established or the HMRC for the UK.
Business/individuals not established in the customs territory of the Community should apply for the EORI number to the customs authorities of the EU country responsible for the place where they first lodge a declaration or apply for a decision. Typically it is the same country where you have a VAT registration number as the EORI number interacts with the VAT registration number.
What are HS Codes?
The Harmonized Commodity Description and Coding System generally referred to as "Harmonized System" or simply "HS" is a multipurpose international product nomenclature developed by the World Customs Organization (WCO).
The HS is thus a universal economic language and code for goods, and an indispensable tool for international trade. A full list of description and related HS Codes is available authorities website.
It comprises about 5,000 commodity groups; each identified by a six digit code, arranged in a legal and logical structure and is supported by well-defined rules to achieve uniform classification.
The system is used by more than 200 countries and economies as a basis for their Customs tariffs and for the collection of international trade statistics. Over 98 % of the merchandise in international trade is classified in terms of the HS.
The HS contributes to the harmonization of Customs and trade procedures, and the non-documentary trade data interchange in connection with such procedures, thus reducing the costs related to international trade. A full list of description and related HS Codes is available on foreign-trade.com.
It is also extensively used by governments, international organizations and the private sector for many other purposes such as internal taxes, trade policies, monitoring of controlled goods, rules of origin, freight tariffs, transport statistics, price monitoring, quota controls, compilation of national accounts, and economic research and analysis.
Every product imported or exported should a require commodity code and will need to be shown on your invoice along with the description of the goods.
Export declarations use 8 digits whereas import declaration use 10 so whatever incoterms you will be using it is advised to be showing up to 10 digits on invoices of goods.
What is a MRN?
MRN is the abbreviation for Movement Reference Number which allows for identification of the customs declaration. The MRN is displayed in numbers and bar code on the declaration document.
MRN can be used to check the customs status in case of transit and export shipments via the EU databases.
What is ECS?
The Export Control System is a system of exchange of information between EU member states on shipments that are declared for export. In the system is listed where the export starts and where the export has been finalized. The shipment then receives the status “ confirmed for export”. Consult this link.
What are customs duties?
Duties consists of different taxes including but not limited to import duty and import vat.
Import duties are a trade barrier tool for countries to protect their internal market. Simplified this means that if local production exists of a certain product, the import of a similar product is subject to import duties with a tariff of >0%. If no or limited production exists of a certain product, the import of a similar product is subject to import duties with a tariff of 0%. Import duty amount is calculated as % of the customs value of the goods.
Import VAT is a domestic consumption tax which must be paid upon importation. Exemptions of import VAT could apply.
What is VAT?
VAT is a consumption tax imposed by the national government. Different types of VAT exist.
Upon import, import VAT applies in which case the VAT is calculated on the basis of the value of the goods, the total transportation costs, any additional costs (insurance costs, packaging costs) and customs duties (for example, import duties, excise duties and anti-dumping levies).
Upon local sales, supply VAT applies which is a standard % over the transaction value.
The VAT rate depends on the type of product. A list of VAT rates per EU country can be found here EC.
What do DDU and DAP mean?
Delivery Duty Unpaid and Duty At Place. The receiver will cover VAT and import duties at destination.
DDU and DAP are incoterms. Incoterms are international commercial terms which reflect a standard set of agreements on a split on roles and responsibilities between seller and buyer.
Every 10 years a new version of incoterms is published to modernize the incoterms. DDU is often still used in the market but in fact replaced by DAP (delivered at Place) in newer versions of the incoterms.
What is Indirect Representation?
In case of indirect representation, a customs agent lodges a declaration in his or her own name but on behalf of a stakeholder. A customs agent who acts as an indirect representative is the declarant and, as such, responsible for the content of the declaration.
Article 18 and article 19 of the UCC (Union Customs Code) stipulates the following: Indirect representation is applied when you do not have a VAT Registration number in the country where the customs formalities are performed. In such way the customers broker can issue the customs declaration with its own number and on your behalf (you are listed on the customs declaration). With indirect representation scheme both customs broker and represented company are liable for the customs declaration. A Power Of Attorney (POA) must be granted to the customs broker.
Contact us now and request more information to your local account manager who will provide you with the correct form to be signed.
What has changed to the European Union’s VAT rules per July 1 2021?
The new rules of the European Union’s VAT e-commerce package will contain changes for both shipping goods into and within the EU.
For goods shipping into the European Union, the VAT exemption on imported products up to €22 will be abolished. This means VAT will be applicable on all goods shipped into the European Union from the first cent.
For goods shipping within the EU, the distance sales after which a business needs to register and pay VAT (in the country of the addressee) is lowered and unified. This means thresholds that currently vary between €35.000 or €100.000 (depending on member state) are replaced by one threshold of €10.000 representing the total turnover in all member states. In both cases applying local VAT rates upon sale is the new standard for shipping goods into and within the EU.
When a product is sold by a seller based outside of the European Union to a buyer in the European Union via an electronic interface (marketplace, platform, etc.), the EU tax authorities consider the electronic interface the seller to the consumer. Electronic interfaces will be liable to register and pay VAT when facilitating sales of distance goods into the EU.
The One Stop Shop (OSS) scheme will be introduced to facilitate a simple VAT administration.
Why is the European Union making changes to its VAT policies?
Items worth less than €22 have been free from VAT under an exemption known as the Low Value Consignment Relief (LVCR). The Low Value Consignment Relief (LVCR) was introduced as a way of removing from customs authorities in European Union member states the responsibility for checking the potential tax liability of high volumes of small packages which might generate little revenue.
Even so, various countries have claimed that the system has been abused by e-commerce operators in non-EU territories deliberately understating the value of small items being sent to consumers in Europe. Figures published by the European Union itself suggested that as much as €5 billion in VAT was being lost to tax authorities each year in such a fashion.
Starting July 1 2021, the exemption is being abolished.
At the same time the European union is adapting its VAT policies to the current dynamics of e-commerce.
What is IOSS and (Union) OSS?
The One Stop Shop is one digital portal in which businesses can manage, declare and pay their VAT on goods imported into or shipped within the European Union. It provides businesses with one single point of contact to deal with obligations towards any of the 27 member states.
The Import One Stop Shop (IOSS) has been created to simplify the VAT administration for goods imported into the European Union, in a parcel with total value up to €150.
The Union OSS is created to simplify VAT administration for trade within the European Union.
What are the benefits of the IOSS and Union OSS?
Switching to IOSS or Union OSS becomes beneficial when your business ships goods to multiple member states. In that case having a single registration to manage your VAT can add efficiency to your business process. Your business only deals the with tax authority of the member state in which you have registered for the OSS. Via the OSS your VAT payments will be distributed to the relevant member states.
Besides a single registration, other uniform VAT rules apply such as a unified standard for the VAT administration, VAT return, submission deadlines and retention period of relevant documents.
Consumers may also experience great benefits of the IOSS scheme. Upon sale the consumer pays the VAT and will not be surprised by unexpected fees. Delivery including the required customs clearance will run smoothly.
When does your business needs an IOSS or Union OSS registration?
Businesses shipping goods into or within the European Union are not obligated to get an IOSS or Union OSS registration. Any business can still register at any member state’s tax authority and handle their VAT affairs there.
You can register your business on the OSS portal of any European Union member state. To do so your business needs to have an entity in the European Union. If that is not the case, you must make use of an intermediary based in the European Union to fulfil your VAT obligations.
What is an IOSS or Union OSS intermediary?
To make use of the IOSS scheme your business must be established in the European Union. If your business is not, but does want to make use of the of the IOSS scheme you can do so by appointing an intermediary which is established in a member state. The intermediary will represent your business and will share responsibility for VAT administration for trade within the European Union.
What are the VAT rates per country worldwide?
What is Low Value Consignment Relief or LVCR?
Low Value Consignment Relief (LVCR) is a European Union tax rule, exempting ‘low value items’ (worth less than €22) from VAT. The Low Value Consignment Relief (LVCR) was introduced as a way of removing from customs authorities in European Union member states the responsibility for checking the potential tax liability of high volumes of small packages which might generate little revenue.
July 1 2021, the exemption is abolished.
What is considered an Electronic Interface?
The electronic interface enables sellers and buyers to enter into contact. By doing so the electronic interface facilitates the sales of goods to the buyer. This takes place via, but not limited to, a website, portal, gateway, marketplace, platform, application program interface (API).