In international trade, there are a lot of tax issues to be considered, both within and outside the European Union. When importing goods from third countries, the so-called import VAT is charged – for both private and business purchases. The following article explains what import VAT actually is, how it can be refunded or deducted, what its scope is and when a VAT exemption is possible.
Maximilian GamplLast Updated on 21 September 2020
What is Import VAT?
The import VAT is comparable to the VAT known to us, which is calculated in each EU member state. The import VAT, on the other hand, is incurred with countries outside the European Union. It is levied by the local customs administration within the EU when goods are imported from third countries, in addition to customs duties and special consumption taxes.
This means that not only within the European Union VAT is due on the import of goods, but also when they come from outside – here only referred to as import VAT. However, unlike turnover tax, import VAT is regarded as consumption tax and import charge. The basis for the amount of the import VAT is the tax of the country of import.
Scope of the Import VAT
In principle, import VAT is only payable on goods imported from outside the EU – but there are one or two exceptions to this rule, even in Germany itself. There are in fact some places that do not correspond to the domestic turnover tax law, which means that they are subject to local import VAT instead.
Exports of goods to these territories, in turn, are considered tax-free export deliveries. As a rule, the Community territory in the sense of the VAT Act corresponds to the customs territory of the European Union.
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Taxation and Assessment on the Import of Goods
The import VAT is levied together with the customs duty. A uniform procedure was deliberately introduced here in order to be able to handle both items at the same time and thus simplify the processes. Thus, the topics customs, clearance procedure, incurrence of the tax debt as well as the calculation and payment of the import turnover tax are dealt with in one process.
This also applies in the event that individual topics such as customs are omitted. The remaining steps are accordingly unaffected by this and are nevertheless carried out.
The debt of the import VAT therefore arises at the moment when the goods are accepted at the customs declaration of the customs office. The amount of the duty is determined by the customs regulations.
Deviations from customs regulations can be made in the following points:
- When determining the basis of assessment for the import VAT
- For the level of the tax rates
- With regard to the special rules for persons entitled to deduct input tax
The levying of import VAT is based on the respective customs value. If they are not already included in the customs value, there are other costs which must be added to it for the calculation of the import turnover tax:
- Amounts owed in import duties, taxes and other charges in the respective foreign country
- Amounts of customs duties and special excise taxes such as tobacco or mineral oil tax applicable to the imported goods
- Transportation costs from the country of dispatch to the first station in the recipient country
Exemption Limit for Import VAT
By law, there is an exemption limit for the levying of import turnover tax, which is 22,- EUR. This means that the tax does not apply if the value of the goods including shipping is 22,- EUR or less.
However, this is to change on January 1, 2021 and the tax-free amount of 22 EUR is to be completely abolished. Whether this will be possible in time despite Corona will be shown, but it can at least be assumed that this tax-free allowance will be abolished throughout Europe in 2021.
Exemption from Import VAT
There are several ways in which the buyer can be exempted from import VAT. Basically, we distinguish between the general VAT exemption and the specific import VAT exemption.
General VAT Exemption
The general VAT exemption applies, as the name suggests, to all products that are also exempt from VAT in the case of domestic deliveries. In the case of an import, they should not be charged more than in the case of domestic trade.
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Specific Import VAT Exemption
In addition to the general VAT exemption, there is also a specific import VAT exemption. This is regulated by the Import VAT Exemption Regulation and is intended to facilitate the cross-border movement of goods. In addition, there are also the entry tax-free quantities for travel and the small consignment tax-free quantities for gifts.
In principle, everything that falls under the customs exemption regulation and can be imported duty-free from third countries is exempt from import VAT.
In addition, the import VAT is waived in minor cases in order to keep the rules simple. The so-called small amount regulation comes into effect when goods are only subject to import turnover tax on import, the amount of import VAT is less than 10 EUR and the full amount can be deducted as input tax.
Import VAT: Claim as Input Tax
The input tax deduction serves the purpose that ultimately only the end consumer is charged with VAT. Only companies can claim it, but not private end consumers, federal, state, local or small businesses that do not pay VAT. As a rule, companies offset the input tax against the VAT already paid in the quarterly returns.
Import VAT on products purchased by the company can be claimed as input tax. This input tax deduction must be claimed by the entrepreneur by providing appropriate evidence. They can do this, for example, by means of a customs document such as an import duty notice or a substitute document such as that certified by the relevant customs office. If imports are processed via the digital procedure ATLAS, the proof can be provided electronically or by printing out the electronic proof.
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If a person or a company is considered to be entitled to deduct input tax, a too low or too high amount of import VAT has no effect, since the VAT is offset to the same extent. If the person or company is not entitled to input tax, appropriate evidence of the costs actually incurred must be submitted. Therefore, the entitlement to deduct input tax must be stated in the customs declaration.
The import VAT thus largely corresponds to the VAT we are familiar with. With the difference that it is due when importing goods from third countries into the European Union. Once understood, import VAT is therefore an easy factor to consider in international trade. Our hellotax tax consultants can answer more detailed questions about this. Don’t hesitate to drop us a message.