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VAT and Selling Goods Cross Border – a Guide

By October 6, 2023January 4th, 2024Customs Duty news|VAT news
VAT and Selling Goods Cross Border

Selling goods cross-border, either to or from the UK, brings with it a number of complex VAT and customs duty considerations for a business. Having a sound understanding of these is vital to ensure that business profits are not adversely impacted and that the business remains compliant with the rules.  The latter is critical when due diligence is being carried out in the event of the business looking to sell or to seek additional funding – depending on the circumstances, and unidentified under-declaration of VAT overseas can derail this process.

Being VAT registered in the right place is important to the bottom line as it means the business is able to recover the VAT credits it is entitled to and so that it is able to declare VAT on sales where appropriate, regardless of whether the customers are businesses, not for profit organisations or consumers.

These principles apply regardless of whether you are importing goods into an overseas country, acquiring them in an EU country from a supplier in another EU country, or purchasing overseas from a local supplier.

The VAT rules for sales to businesses and consumers differ and these are set out below.

Selling services? Click the link to see our guide on selling services cross-border.

B2B Sales

B2B sales in goods are typically VAT neutral ie VAT does not form a cost for the supplier or customer, but this only holds true if the supplier and customer are VAT registered where they should be, enabling VAT credit on imports or purchases to be reclaimed.

 

Sales from the UK to Overseas Business Customers

These are exports of goods from the UK so the first decision to be made commercially is one of who will be the Importer of Record of the goods in the overseas location – the supplier or the customer.  This is determined by the contractual delivery terms, also known as the Incoterms.  These make it clear who is responsible for managing costs and risk in relation to the goods while they are in transit, eg transport and insurance costs, and of relevance to import VAT and customs duty, they also  determine who is responsible for bringing the goods through the border and paying import VAT and customs duty as appropriate.

If you are exporting goods into an overseas country to a business customer, it is most common (and advisable) to have them act as importer of record as they will likely have an existing infrastructure for VAT which will enable them to easily account for import VAT and customs duty and obtain a credit for the import VAT through their VAT registration.  This means that the Incoterms would be anything other than DDP (delivered duty paid) eg DAP, FOB.  If you are able to agree this with your customer, you will not have a liability to register for VAT in the overseas location.

If instead a UK supplier is responsible for acting as importer of record in an overseas location, it will likely need the following:

  • an EU EORI number if exporting to an EU Member State;
  • a VAT registration in the overseas location;
  • a fiscal representative if required under local rules;
  • a robust process to obtain and store import entries to allow import VAT to be recovered;
  • a process to issue valid VAT invoices to customers;
  • an adviser to prepare and submit VAT returns;
  • access to a deferment account to pay import VAT and customs duty

The VAT Consultancy can provide global VAT compliance services and obtain an EORI and VAT registration for you in addition to advising on the other areas outlined above.

 

Sales from Overseas to UK Business Customers

If you are an overseas supplier selling to a UK business customer, the same principles as set out above apply.  Where you have a UK business customer, it would make sense to use Incoterms that make them import the goods into the UK so that you are not required to VAT register in the UK.

If you are required to act as Importer of Record into the UK, you will require the following:

  • a GB EORI number;
  • a VAT registration (the UK’s VAT registration threshold of £85k pa does not apply to overseas businesses);
  • a PIVA registration so that import VAT can be paid and reclaimed on the VAT return
  • a process to issue valid VAT invoices to customers;
  • an adviser to prepare and submit VAT returns
  • access to a deferment account to pay customs duty

 

B2C Sales

The position with cross border sales to consumers is technically the same as with B2B sales ie the first question is one of who will act as Importer of Record of the goods – the supplier or the customer?  However in practice it is rarely the case that the customer acts as importer, paying the import VAT and customs duty, as this means they have to pay these taxes before receiving their goods from the delivery company.  This harms the customer experience and therefore the majority of etailers act as importer of record in the customer location so that the customer receives goods that have been customs cleared, incurring local VAT at a rate they recognise on the purchase (although website pricing is typically VAT inclusive meaning the rate is not immediately visible).

The impact of this on the supplier is that this frequently leads to the need for numerous VAT registrations overseas so that the relevant import VAT and customs duty can be paid and sales VAT at the local rate accounted for.    This can add a significant administrative burden to a business that is in a growth phase.

Customers returning goods they have purchased online is also a frequent occurrence and the business should ensure it has considered the customs duty implications of these movements of goods back and forth to ensure multiple customs duty costs on the same item are minimised.

 

Special Rules and Anti Avoidance

There are a number of special VAT rules now in place for cross border B2C transactions in goods which have been implemented for a range of reasons including: minimising the VAT compliance burden for businesses, reducing the VAT and duty cost for smaller businesses and reducing the incidence of VAT and duty under declarations:

  • a number of countries have put low value import reliefs in place which mean import VAT and customs duty may not be due if the transaction value is below a certain level (£135/Euros 150 in the UK and EU and similar in other countries where applicable);
  • within the EU there is a simplification which means that only a single ‘one stop shop’ VAT registration is required to account for VAT on all EU B2C sales (in addition to a normal VAT registration in the EU country of import or goods storage). These registrations are know as OSS or iOSS;
  • in the UK and EU special VAT rules apply if the business sells via an Online Marketplace (OMP). These are anti avoidance VAT rules in place to manage the risk of overseas sellers not accounting for VAT and customs duty appropriately.  The rules make the OMP liable to account for VAT on the sale (up to a value of £135/Euros 150).  For sales above this value the supplier remains liable to account for the VAT.  It is important these rules are clearly understood and that there is a process in place to ensure VAT is accounted for by the appropriate party in the supply chain

 

Other Red Flags and Considerations

If the business is involved in any of the following types of transaction, VAT and customs duty advice should be taken to determine if an overseas VAT registration liability arises as a result:

  • storing stock in another country including warehouses owned by third parties such as Amazon;
  • supply and install contracts where the business is required to install the goods in an overseas location;
  • moving goods into a country for other business purposes eg leasing, tooling for use by 3rd party manufacturers, exhibition stands and marketing material;
  • purchasing goods from a supplier in the same overseas country as your customer

 

The VAT Consultancy is highly experienced and provides relevant and practical advice to help you deal with the VAT and customs duty issues your organisation faces.  We provide global VAT and customs duty advice and VAT compliance services.  To discuss how we can help contact us today