Import VAT planning imperative for DDP supplies into the EU
At one time, EU businesses, importing goods from non-EU sources, used to pay the relevant customs duty and import VAT at clearance in their own home country, before subsequently recovering the VAT by deduction on their next periodic EU VAT return filing. Now, this scenario tends to be the exception rather than the rule. EU companies, fully aware of the global competition, have passed the import payment responsibilities back up the supply chain to sourcing intermediaries or direct goods suppliers. DDP deliveries (delivered duty paid) are the norm.
Importing into the EU – VAT and duties
Non-EU companies exporting from their own home countries must take great care to check the EU VAT issues within their plans to supply their EU customers. Take for example, a Taiwan company exporting to an Italian business for the first time. Having secured an order it would seem simple to just ship the goods direct to Italy. While the Italian customs duty element will be payable when the goods enter Italy, so also will be the Italian VAT. If payment is not made, the goods cannot enter the country. It is the same in any of the other EU states. Unfortunately in this Italian case, it is simply not possible to recover for the Taiwanese company to recover the import VAT suffered. There are a variety of solutions to this particular situation, but only if arrangements are made in plenty of time before the event.
Customs duty is payable and non-recoverable and therefore companies must provide for this as part of their total supply cost. Import VAT at the EU average of around 20% must also be paid, but any business would expect to recover the VAT paid. This is where the danger lies for first time DDP supplies into EU territories. The supply chain pressures, often exacerbated by impatient freight forwarders demanding immediate payments to clear goods through their warehouses, can lead to disasters. Statements by local import agents, who may not really know the VAT complexities, can make unsubstantiated assumptions, unwittingly misleading their clients. Unless special arrangements have been made, the import VAT paid on entry can be lost forever, with no opportunity for retrospective redress.