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How Import VAT Works in the EU: One Directive but different local regulations

Actualizado: 24 mar 2020

22 de Junio de 2017 -

Import VAT has not the same treatment in every EU member state. Although there is a common framework -the EU VAT Directive- the implementation through local regulations creates differences in the way in which import VAT e.g. is paid, refund or declared.

It should be highlighted that the EU VAT territory does not match with the EU Customs territory. Therefore an import from a VAT perspective (taxable event) may occurs not only  for goods coming from third territories outside the EU customs territory but also for goods coming from one part of the EU customs territory in which the VAT Directive is not applied to another part of the EU customs territory in which the VAT Directive is in force.

There is no definition of  importer (taxable payer) in the Customs Community Code -there is one for exporter- neither a definition of importer can be found in the VAT Directive. A definition of the importer of records from a VAT perspective can be found in some VAT local regulations implementing the VAT Directive.

In some local VAT regulations, several definitions are listed regarding the importer of records from a VAT perspective. However even if  it is allowed than more than one person may act as importer of records from a VAT perspective, it should be taken into account that just one of them has in principle the right to deduct the VAT and therefore deductibility problems may arise.

There is a definition in the VAT Directive about what should be deemed as import (taxable event) and the requirements in order to be entitled to deduct the import VAT (rules governing exercise of the right of deduction); requirements that in some way define what should be understood as importer.

There are two main ways in which import VAT is paid and/or declared in the EU

1. In some EU countries VAT must be paid to tax authority and later on recovered

There are different interpretations among EU member states regarding the document that entitles to the right of deduction.

When import VAT becomes due? In general terms import VAT must be paid at the moment the import takes place or 30 days after the release of the goods by the means of e.g a Bank Guarantee. It is not necessary that the importer sets up its own Bank Guarantee, in fact it is an standardized practice to use  3-4PL´s Bank Guarantees to secure VAT and customs duties.

Import VAT and customs duties must be paid on a transaction basis except e.g. in the framework of a simplified procedure or regarding customs duties if a customs duties deferment account is in place.

Even if there is no restriction based on the Community Customs Code regarding the holder of a customs duties deferment account, some EU member states only grant this Authorization to the importer of records, denying this simplification to e.g. the customs broker.

The total amount of customs duties or import VAT to be secured depends on so many circumstances e.g. to hold an AEO Certification in some EU member states automatically grants a reduction of the total amount of customs duties or VAT to secure, some EU member states do not require any secure at all  if certain conditions are met.

There are two ways to recover the import VAT under this scenario:

1. Through monthly or quarterly VAT returns for Companies established in the country of import (at least stablished for VAT purposes) and for Companies who do not fall under the VIII or XIII Directive (VAT procedure to recover de VAT as non stablished Company).

The definition about VAT permanent establishment varies among EU member states.

The concept of being established from a VAT perspective do not necessarily match with the concept of being established from a Direct tax perspective. In addition in some EU countries having a permanent establishment for direct tax creates automatically a permanent establishment for VAT purposes.

It is getting more and more important to understand the differences between both definitions and even more now when the breach could become even stronger regarding BEPS on Action 7 (artificial avoidance of PE).

2. Using the procedure to recover VAT as non established Company

I am not going to go into this procedure (VIII and XIII Directive). I just want to notice that for Companies established outside the EU, the country of import  (among others) may determine the possibility to recover the VAT.

Why? In order to recover the VAT as non EU established Company under this scenario, some EU countries require a previous Reciprocity Agreement. Some EU member states do not have so many Reciprocity Agreements in place making possible to recover VAT under this procedure to a very limited number of Companies.

Other EU member states do not require any Reciprocity Agreement at all making possible to recover import VAT (if certain conditions are met) regardless the country of establishment of the importer.

2. Other EU member states have set VAT deferment accounts up

Import VAT  is declared in monthly VAT returns with no cash impact (if the taxable payer is not under pro-rate).

VAT deferment accounts does not wok the same way in every EU member estate. There are several differences. In some EU countries import VAT deferments accounts are granted only in the framework of local customs clearance procedures  or in other EU member states VAT deferment accounts are granted not only to the importer of records but also to the 3PL.

Ownership of the goods 

In order to be entitled to recover import VAT or to declare and deduct import VAT through monthly VAT returns, the importer should use the goods for the purpose of its taxed transactions.

Some UE countries were allowing VAT to be deducted or recovered by a third party who did no take title of the goods e.g. under Tolling manufacturing Agreements based on the fact that the Toller (who acted as importer of records as consignee) was using the goods in some way  for its taxable business purposes.

It is interesting to know as well that some EU countries allow in some way to split into 2 figures the importer  of records, one for customs clearance purposes and one for VAT purposes. Therefore one taxable payer becomes liable for customs duties and other one becomes liable for import VAT. Of course certain conditions need to be met.

VAT warehouses 

VAT warehouses may impact as well on the way in which import VAT is levied and declared. Not every EU member states have local regulations regarding VAT warehouses aligned with the VAT Directive. In principle according to the VAT Directive only the import of certain goods to be introduced within a VAT warehouse could be subject but exempt of import VAT. 

42 regime

The 42 regime is another interesting procedure. When the imported goods after the importation takes place, are going to be sent to another EU member state, the import could be subject but exempt of VAT. Certain conditions need to be met and a punctual or limited fiscal representation can be used if required.

Suspension arrangements

However in the event of a customs suspension regime is applied the place of importation will be the place/country where the goods are released into free circulation in the EU and so the import will be pay and or declared using the above mentioned methods.

So may differences need to be taken into account in order to avoid VAT becomes a cost for those companies entitled to recover it. Setting up correctly the procedure in order to know how, where and when VAT and customs duties need to be paid is crucial


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