For the UK and other non-EU businesses it’s vital to determine the importer of the goods into the EU as this will impact the VAT treatment.
For goods under €150 there are simplified options such as the Import One Stop Shop (IOSS) or special arrangements through the postal operator. However, when supplying goods over €150, businesses need to consider how they want to import the goods.
One option is for businesses to deliver on a Delivered Duty Paid (DDP) basis and be the importer of the goods into the EU. This improves the customer experience for B2C transactions but creates a liability to be registered in the county of import and to charge local VAT, along with additional compliance requirements. If goods are moved from that country to other EU countries, then depending on the supply chain, the One Stop Shop (OSS) could be used to avoid further VAT registration requirements.
Customer as importer – available options
Due to increased compliance costs many businesses have chosen not to be the importer and pass this obligation to the end customer. If a business chooses this route, options are still available.
The business could simply place the full obligation on the customer., The customer would be sent a payment request for the VAT and any duty by the carrier before delivery., There could also be a handling fee passed on to the customer. Once paid the goods would be delivered This approach doesn’t provide the best customer experience.
This is why many businesses have opted for a ’landed cost method’ offered by many couriers. The customer is still the importer on the import documentation, but the business collects the VAT and duty from the customer at the time of sale and settles the carrier’s invoice on their behalf. In theory, this avoids the need for the business to register in the EU and still offers the customer a seamless experience. However, this raises the question: is the customer actually the importer?
The business impact of incorrect terms
Some tax authorities are beginning to take a different view of arrangements for goods with a value above €150 where goods are imported directly into the Member State of delivery. A law change on 1 July 2021 included the concept “where the supplier intervenes indirectly in the transport or dispatch of the goods”. This is to counter arrangements that allowed the seller to argue they were not distance selling but making a local sale, so only had to account for VAT in the Member State of dispatch of the goods.
Following the law change some tax authorities are arguing this concept means if a seller sells to a private individual in their country and the seller arranges for the goods to be delivered from a non-EU country and customs cleared in their EU Member State, the place of supply is the Member State as the supplier has indirectly intervened in the transport.
As a result, the supplier must register and account for VAT in the Member State even if the customer is the importer of the goods. This argument could result in double taxation and can create additional compliance obligations along with tax authority audits – all of which add additional costs and time for businesses.
How should businesses approach this change?
It’s important that businesses adopting a method where the customer is the importer put correct arrangements in place. This includes ensuring website terms and conditions reflect the fact the customer is the importer and giving the company the power to appoint a customs declarant on their behalf. It’s also important that customs documentation is completed correctly. Avoiding terms such as DDP on the website is also key as this implies that the business is the importer.
Still have questions?
For help with EU import queries or if your company needs VAT compliance assistance get in touch to speak with one of our tax experts.