Understanding EU VAT: your key to seamless trade
Value added Tax (VAT) is a consumption tax, which means that all (commercial) parties involved in producing or selling a product can forward the VAT to the next party in the value chain.
Ensures compliance with EU regulations
Optimizes cash flow
Streamlines e-commerce operations
Value added tax in the EU
In most cases, the only party paying the VAT is the end user of a product (the consumer). If no specific arrangements are made, all companies in the value chain pay VAT and can apply for a refund afterwards (the period between payment and refund can vary between a few weeks to several months).
VAT at import
When goods are imported from outside the European Union (EU) into one of the 27 EU countries, VAT and import duties become due. These taxes need to be paid when the goods are customs cleared and brought into “free circulation”, either upon arrival into the EU or when they are discharged from a bonded warehouse.
Import duties are harmonized for the EU which means that the import duty (a percentage of the value of the product) and the way it is calculated, is the same in each EU country. For VAT the situation is different; the EU VAT Directive sets out the general principles of VAT, but allows flexibility for countries to determine their own rates, exemptions, and specific rules within this framework.
The benefits of importing via the Netherlands, using the VAT deferment system
In the Netherlands, the ‘reverse-charge mechanism on import’, or ‘VAT deferment system’ allows companies to defer the payment of import VAT until the periodical VAT return. This way, the VAT due for the import of the goods, can be declared, but also deducted as input tax in the same return. As a result, companies do not need to pay the import VAT and reclaim it later, like in many other EU countries, which is a considerable cash-flow advantage.
To make use of this VAT deferment system, companies with a Dutch entity can apply for an Article 23 permit via the Dutch tax authorities. Foreign companies that do not have a Dutch entity can also make use of the VAT deferment system by appointing a fiscal representative.
Two types of fiscal representation
Limited fiscal representation:
- The foreign company uses the VAT number and the article 23 permit of the fiscal representative.
- This makes it quick to set up, but limited representation can only be used for relatively straightforward imports and the VAT number cannot be used for EU acquisitions and B2C sales in the EU.
General fiscal representation:
- The fiscal representative applies for a VAT number and article 23 permit on behalf of the client.
- In this case the foreign company will be registered with the Dutch tax authorities for VAT purposes, as a non-resident business.
- The application process for this set up takes around 8 weeks and a bank guarantee or cash deposit will be required by the tax authorities.
There are specialized companies in the Netherlands that offer fiscal representation services and some logistics services providers also offer the service to their clients. Usually the fiscal representative will also take care of mandatory EC sales listings and/or Intrastat declarations. Fees for fiscal representation services are usually a fixed monthly fee, or a fixed fee per customs clearance.
VAT and e-commerce
When companies sell direct to consumers in the EU, they will need to charge the VAT rate of the country where the buyer is located. Sellers are responsible for the correct calculation, collection, reporting and payment of collected VAT.
To prevent entrepreneurs from having to register with the tax authorities in all EU Member States where they sell goods to non-business customers, a ‘One-Stop-Shop’ was introduced, which allows businesses to report VAT on deliveries to all EU countries in one single “OSS-return”. The OSS return is made to the Tax Authority in the country where the seller registered for OSS. After submitting the OSS-return, a single payment will be made for the total sum of VAT due across the EU. The Tax Office of the country where the OSS return is submitted will then distribute all amounts between EU Member States.
E-commerce businesses may also use the “Import One Stop-Shop”-scheme (I-OSS) for direct deliveries to customers in the EU. These deliveries are goods that are not yet in the EU, but must be imported first. In other words, the I-OSS is an optional solution for all distant sellers dispatching goods from a non-EU country. The I-OSS is only applicable for goods with an intrinsic value of €150,- or less. For goods over €150,- current rules apply (no I-OSS) meaning that you need a VAT registration in the country of importation of goods. You can then register for OSS and report all VAT in one Member State only.
A fiscal representative in the Netherlands can apply for an OSS registration, submit OSS returns and pay the collected VAT on behalf of a non resident foreign business.
Any questions about the Value Added Tax in the EU?
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We can introduce you to specialized member companies that offer VAT advice and fiscal representation services to foreign companies.