Over the past 6 months we have received an unprecedented number of queries from businesses trading cross border seeking advice on ways in which they can minimise the cash flow burden of paying import VAT on shipments of goods into EU Member States from non EU locations.
Import VAT is generally payable at the standard rate on most imports, and whilst this VAT can usually be recovered in full by most businesses, with rates now exceeding 20% in most EU countries, the requirement to fund the import VAT payment whilst the business awaits a refund from the tax authorities can have a significant impact on working capital. Worse still the business may have overlooked this area when considering their funding requirements .
A number of EU Member States (including but not limited to The Netherlands, Ireland, Italy and France) have trade facilitation measures in place that relieve businesses from the requirement to pay import VAT that is ultimately recoverable. These mechanisms take a variety of forms – typically either by allowing a business to account for import VAT on the VAT return and recover it at the same time, or by relieving them from the requirement to account for import VAT in the first place provided the majority of their transactions are zero rated (eg exports). However some of these easements can only be used after 12 months of trading in the Member State in question.
Businesses with a degree of flexibility in their logistics for shipping to the EU should seriously consider the impact of this and if possible plan to clear goods through an EU location with a facilitation mechanism, or failing that, a country with a track record of making repayments relatively quickly eg UK. The goods can then move from the Member State of entry to the destination Member State(s) without the need to account for import VAT again.
The above issues do not just apply to import VAT – a number of countries worldwide make it difficult for businesses to receive a cash refund if they are in a VAT repayment position – the credit is carried forward to offset against future VAT liabilities and/or there is a delay of a number of years in receiving a refund (we understand delays of 4-6 years are not uncommon in Italy). Businesses in this position are therefore well advised to consider ways in which they can unlock their repayment as quickly as possible.
For further information on this issue contact Julie Park on 01962 735350.