Due to an increasing number of online sales, the European ecommerce market is getting more attractive for US-sellers. But whether you are selling via your own online store or using one of the leading marketplaces such as Amazon or Cdiscount, you need to be familiar with the European regulatory requirements.
We spoke to Thomas Gau, Head of Customs Solutions at Hermes International, a division of Hermes Germany, about taxes and duties for US-companies in the European Union (EU) and how to manage them in an efficient and cost-sensitive way.
Mr Gau, what are the main challenges with regard to the applicable customs and tax regulations within the EU?
The regulations are quite complex. Even though customs duties – if they exist according to the tariff – are the same across the EU and only the tax rates vary from import country to import country, detailed and in-depth expertise is required. Smaller distributors or companies that are still planning their market entry often can not access the required know-how. We recommend that you work with a specialised service provider in order to obtain the right answers to all related questions. Of course, at Hermes International, we are happy to advise our customers.
Hermes International fully supports their American customers in entering the European market. What does this support specifically look like in the area of customs issues and VAT (value added tax) matters?
That’s correct. We support our customers in every respect and bundle competences along the entire international e-commerce and parcel supply chain: from assistance regarding marketplace integration and supply chain optimization to the implementation of a holistic approach to logistics solutions.
In addition, with regard to customs law we are authorized to and can fully advise and carry out customs clearance activities, such as paying import duties (customs and EUT). With regard to tax issues, we can only make recommendations and refer you to tax consultants with whom we collaborate on request.
What should be the first steps for US online retailers looking to expand their business to the EU?
First of all, it has to be clarified whether it is a B2B or a B2C business, as this impacts the applicable regulations.
In addition, distributors should inform themselves about the country-specific circumstances. For example, in order to be able to sell in Germany, a tax registration in Germany is required in order to claim the resulting import VAT (EU VAT) as input tax and to make taxable and declarable sales to Germany.
In general, companies should also check the use of tax-free limits which currently still apply in some cases and can release companies partially or even entirely from import duties. Even this measure can already lead to significant positive cost effects.
In addition, companies should decide with which Incoterm they would like to sell in the EU. The Incoterm is agreed on between seller and buyer. In the B2C area, the standard is Delivered Duty Paid (DDP). Here the buyer expects a delivery without participation in the customs procedure. In the case of Delivered at Place (DAP) and Delivered Duty Unpaid (DDU), on the other hand, the buyer is included in the customs process, which simplifies the process for the seller.
What do you advise companies that are active in the B2B sector?
From the distributor’s perspective, it is generally reasonable to refrain from DDP in the B2B area since usually German-based buyers are registered under tax law. It is easy to claim the paid import turnover tax paid as input VAT. These expenses are not deductible for the sender using DDP. According to the customs value law, all costs, including customs and EUT taxes, must be included in the selling price and be declared within the invoice amount in the commercial invoice for DDP consignments.
A correction of the customs value calculation (for example in the case of air freight) takes place as part of the customs application on European soil.
Do companies have to have a permanent seat in the EU or can online retailers also trade directly from their home country?
No, according to the Customs Code of the European Union (UCC), the applicant must have a physical place of business within the EU. However, if there is no EU residence, companies may appoint an indirect representative, such as Hermes International.
Which regulations apply for US dealers in the EU? What are the tax rates to pay? And for which tariffs should US online retailers be prepared?
As already mentioned, the duty – if it applies – is the same across the EU. The import duties are due in the EU country where the customs clearance is made for free circulation. After that, the goods are no longer under customs control. Only tax aspects still have to be considered.
The tax rates vary: In Germany, for example, the standard rate is 19 percent, while in the United Kingdom and France 20 percent VAT is payable. The reduced rates apply to defined categories such as food or books.
Do any further country-specific regulations apply in Germany, France or Great Britain?
The EU Customs Code applies to all EU countries, therefore the regulations within the EU are largely the same. However, different interpretations of the Code may lead to divergent decisions in some countries.
It’s only a few months left until the Brexit – the exit of the United Kindom from the EU. The legal situation remains unclear. Can you pre-estimate what changes could result for American companies?
For US traders only selling to the UK and not delivering to other EU countries, there are only details of UK customs clearance that change. After 29th March 2019, the set Brexit date, the UK will be treated as a third country. It is then no longer necessary to pay the EU customs duty, but the new customs duty that is then valid. Of course there is also the import VAT.
If the UK has been used as a gateway to the EU in the past, this option is completely eliminated after the Brexit, as deliveries from the UK to the EU are then also subject to a customs declaration requirement.
Are there customs procedures or means in which US dealers can save money? If so, can you outline one or two procedures for us?
As already indicated, goods can be cleared through the use of tax-free-limits – that is, up to a value of EUR 22 duty-free and EU-tax-free. In addition, commodity values up to EUR 150 are duty-free, yet EUSt-liable.
The use of authorized customs warehouses in the EU also allows for the storage of goods from third countries without levying a tax. With sales / order receipt, the goods leave the customs warehouse. Only then will customs duties be charged. When selling from a customs warehouse to a third country, there are also no import duties in the EU.