What’s the reason for Import VAT charges in Europe?
When you ship goods from the US to your logistics partner or own warehouse in Europe, you are typically required to pay import VAT (Value-Added Tax) at the port of entry. This is a standard practice in many countries, to ensure that goods entering the country are properly taxed. Here’s a detailed explanation of why you need to pay import VAT and how to reclaim it.
Why must I pay Import VAT?
When goods are imported into an EU member state, they are subject to VAT as part of the import process. This ensures that imported goods are taxed similarly to goods produced and sold within that country and maintain a system of fair competition within the market. Charging VAT on imports helps to level the playing field between local businesses and foreign suppliers by ensuring that all goods sold within the country bear the same tax burden.
How do I complete an Import VAT Refund?
Make sure to retain all paperwork associated with any import of goods into the EU. The most important documents you will need include:
- A commercial invoice for the goods
- A bill of lading or airway bill for the consignment of goods
- Customs declaration forms completed at port of entry
- Proof of payment of VAT to the local customs authority
Many companies will consider working with customs broker to help navigate the import VAT compliance process. The services provided can include checking your documents are complete and correct, helping to filing the paperwork and explaining payment options available with the relevant local tax authority. These services are aimed at avoiding potential delays in releasing your products – which usually occur when payments of import duties and VAT due are either not submitted or are not remitted correctly.
What will a tax authority require from me?
Your business must have an Economic Operators Registration and Identification (EORI) number to import your products into the EU.
In addition to your EORI number, your business must also have a local VAT registration number for the EU state where you import products into the EU. This local VAT registration number is required to reclaim the Import VAT charged.
When your products arrive in an EU country, you must pay the import VAT to clear customs. Payment is normally made to the customs authority.
When import VAT is paid, the next step is to account for it in your company VAT return. The amount paid can usually be reclaimed as input VAT*, offsetting it against the VAT you charge on your own sales to the final consumer down the line.
Walk me through reclaiming Import VAT?
Simply include the Import VAT paid within your VAT return. The amount paid should be listed as input tax. Again, its worth repeating that all documentation related to the import and payment of VAT is available. This includes receipts from customs, invoices, and any other relevant documents.
What is my task list for Import VAT Compliance and Reclaim?
Step One – Your goods arrive at port of entry to an EU member state. The logistics partner or customs broker submits the necessary customs declaration forms. Your business pays any applicable customs duties and import VAT and you retain all documentation including receipts.
Step Two – After payment, you must obtain proof of VAT payment via a receipt or confirmation letter from the customs office
Step Three – complete your VAT Return Filing. Record the import VAT paid in your accounting records. Include the import VAT in your periodic VAT return as input tax*.
Submit the VAT return to the local tax authorities. The import VAT paid will be offset against the VAT collected on your sales, resulting in either a lower VAT liability or a VAT refund, in turn reducing your overall tax burden and ensuring compliance with local tax laws. If you are unsure about any part of the process, consulting with a tax professional or customs broker can provide additional guidance.
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*Defining input VAT – when goods are imported into the EU, import VAT is typically paid at the point of entry.
This import VAT can be reclaimed as input tax by businesses, as long as:
1. the imported goods must be for use in the course of taxable business activities.
2. the relevant documentation is available to support the refund.
3. the business is registered of VAT in the EU country where the goods were imported.
Source: https://taxation-customs.ec.europa.eu/taxation/value-added-tax-vat_en
