The BBC recently highlighted that the UK is currently on course to drop from Germany’s top 10 trading partners. As a result of Brexit related hurdles, German companies have been looking to source goods from EU-suppliers instead of UK ones.
Over the last months we have assisted many UK-businesses in setting up a European hub in the Netherlands to facilitate DDP (Delivery Duty Paid) supplies to their German customers. In light of the developments reported by the BBC, not a frivolous luxury but an absolute necessity to safeguard an efficient supply chain to your German customers.
Place of entry: Rotterdam or Hamburg?
Choosing the right place of entry for your goods can be challenging. There are many factors to consider, such as location, costs and proximity to other relevant services. One major aspect is the tax- and customs aspect. Even though VAT- and customs laws are harmonized in the EU, differences between EU Member states remain. This is especially visible when comparing imports via the harbours of Rotterdam and Hamburg. Based on practise experience, the tax- and customs aspect could very well become a deciding factor.
A major difference between importing via Rotterdam and Hamburg is access to a VAT-deferment scheme. The Netherlands have a VAT-deferment scheme known as an ‘article 23 VAT deferment permit’. This permit allows the importer of goods to postpone the payment of import VAT to the quarterly VAT return, where the declared import VAT can be immediately reclaimed as deductible VAT, thus creating a significant cashflow advantage for the business. German VAT rules do unfortunately not facilitate such a scheme for local German supplies. It does for intracommunity supplies taking place immediately after import of the goods in Germany.
Be cautious with DDP-supplies to German customers
Based on what we hear from our clients, most German customers demand to be delivered DDP (delivery duty paid). This means that the UK supplier is responsible for customs clearance in the EU and the payment of (import) VAT. When UK supplier is not resident in the EU, it cannot customs clear goods under direct representation (i.e. in name of the UK supplier). To circumvent this, such imports are cleared under indirect representation (i.e. in name of the customs agent, on behalf of the UK supplier). In general customs agents are hesitant however to customs clear goods under indirect representation as they, as a result, carry the full liability risks for customs, VAT, etc.
A German colleague recently pointed out that a common current practise is that the customs agent clears the goods under direct representation in name of the German end customer, without written permission or power of attorney of the latter. In practise German companies seem to be lenient with this practise and deduct the recharged import VAT in their VAT-filings. The German Tax Authorities however currently challenges the deductibility of the import VAT at the level of the German customer as the import in name of the German customer was without their consent. Instead the import VAT should be deducted by the UK supplier, thus creating VAT-risks for both the UK supplier and the German end customer.
To prevent any of these issues, the UK supplier could create presence in an EU member state and declare the goods in its own name (under direct representation) or register itself in an EU member state, clears the goods under indirect representation and arrange the correct VAT-compliance.
When the foreign seller registers in The Netherlands and imports its goods through the port of Rotterdam, it can apply VAT-deferment and improve its cashflow compared to routing the supply chain through Hamburg. We realize the tax aspects are not the only factors under consideration here. In that regard it is relevant to note that Rotterdam has a plus compared to Hamburg: it has a bigger international shipping route network than Hamburg and goods can quickly be transported to Germany by train, road and inland shipping.
Visser & Visser UK Desk is a business unit of Visser & Visser: your international business partner in Tax, Accounting, Audit, HR, Payroll and IT solutions.
Interested in structuring your supply chain to Germany via a Dutch hub? Please don’t hesitate to contact our expert below.