DDP shipping can lead to major import VAT costs. Imagine writing off 20% of the value of your DDP shipped goods as a sunk cost, when it could have been refunded or avoided. However, so many businesses suffer this VAT leakage due to hard-to-understand cross-border compliance and shipping regulations. It can all be avoided or reclaimed with the right VAT & customs compliance procedures in place when shipping. Today, no international trader (from the solopreneur eCommerce seller to multinational enterprises) can really afford to pay foreign sales tax (Import VAT/GST) unnecessarily.
Differentiating between Custom Duties, Customs Tariffs and Import VAT
What are Customs Duties?
Customs duties are taxes imposed on the consumer for imported goods and cross-border transactions.
What are Customs Tariffs
Customs tariffs are fees imposed by governments on goods imported from a foreign country.
What is Import VAT/Tax/GST?
Import VAT is Value Added Tax charged on the total value of the goods imported.
Customs Duties Characteristics
Customs Tariffs Characteristics
Import VAT Characteristics
How to calculate Import VAT on a DDP shipment
The import entry acceptance advice will show the Import VAT as a line item. Each country has its own VAT rate.. The taxable amount is calculated based on:
Import VAT
=
Value for customs purposes
+
Customs duties and any other taxes due because of import
+
Supplementary costs up to the place of destination
Two ways to claim back import VAT
Claiming import VAT via local VAT return
If you are the recipient of the goods and your business is a vat registered entity in the destination of the goods, you simply account for your Import VAT on your local return. There are even import VAT deferment schemes in many countries to help with cash flow so you don’t have to pay high Import VAT upfront.
How does a local EU VAT registration help to minimise import VAT?
Can local VAT registration be used by the sender/exporter to avoid Import VAT? Yes. And no. Ultimately, the sender would have to have a local VAT registration in the destination country (or at least in the EU). Moreover, if the seller is warehousing in Europe, they’d also have to be an Importer of Record or assign one. Only once a business meets these VAT and customs compliance requirements, can they claim VAT through a local return and make use of local VAT deferment schemes.
If a business meets a specified sales threshold in an EU country, they must register for VAT. In this case, you will be able to claim the import VAT through your local return.
How to claim import VAT retrospectively (After a DDP shipment is made)?
Claiming import VAT via the 13th Directive
It is a cumbersome and administrative process to claim import VAT via the 13th Directive. But when it’s for 20% of your shipping costs, it’s critical. Very few finance or logistics teams have the know-how to execute foreign VAT recovery across 28 jurisdictions. Consequently, most businesses opt to outsource foreign VAT recovery and compliance to specialists.
The rules of reciprocity: Is your country eligible to claim
It’s important that your business checks whether it has reciprocity with your place of destination if you intend on using the 13th Directive to claim Import VAT. The rules of reciprocity dictate whether a foreign-registered entity is permitted to seek a VAT refund from an EU country. For example, South Africa does not have reciprocity with Germany. Therefore, any South African business shipping DDP to Germany would never be able to claim their German import VAT.
Conclusion
As the supply chains grow more complex, freight and its underlying services become more nuanced. How does any logistics professional start to take action when they don’t know what they don’t know? For now, the task is simple.
Step 1: Open your shipping folders from last year, find the acceptance clearance advice from your DDP shipments. Is there VAT?
Step 2: If yes, claim it. Preferably by working with experts like us. Life’s too short to learn 28 countries’ VAT laws.
Getting the goods from A to B is easy. Clearing the goods is the stuff made of nightmares. Do you have a hunch that you might be incurring unwanted taxes or duties that you shouldn’t be paying? We’ll help you locate cost savings and create cross-border supply chain structures that optimise for cost, tax savings and shipping efficiency.
