VAT Guides Compliance & Technical

How Import Taxes Work: VAT, Duties and Customs Clearance

When goods are imported into a country with a VAT regime, import VAT is charged as a percentage of the value of the imported goods. In addition to the VAT, customs duties will also be payable, depending on the type of goods. The below describes how import taxes work.

The European Union has a special definition of imports when it comes to VAT: a transaction is only defined as an import if the goods originate outside the EU.  Once the goods have been imported into the EU they are considered in “free circulation” and simplification measures apply for movements of goods between EU member states.

The practical issue of clearing goods through customs depends solely on who is responsible for the import. The incoterms of a transactions will usually define who takes on all the fiscal responsibilities and costs of the import.

Non-resident importers will need to appoint an Importer of Record (“IOR”) to ensure their goods don’t get stuck at customs or even returned to the country of origin. This is independent of the VAT implications of importing, it is a practical consideration to ensure orders can be fulfilled on time.

Once the import responsibilities are agreed, the IOR must pay duties and import VAT on the shipment at the time of import. The duties element is a sunk cost, but import VAT is always recoverable. If a non-resident business who exports the products is responsible for paying the import VAT, any subsequent sales of the imported goods will be taxable in most jurisdictions.  

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