Post-Brexit, one major concern was that EU importers did not want to be having to pay Import VAT (and duties, if applicable) at the time of import, nor pay for the import customs documentation. And I suppose why should they? It was, after all, the UK’s decision to leave the EU (albeit marginally). Bearing this in mind, many EU importers insisted on changing their Incoterms to include these costs. This involved changing their purchase Incoterms to Delivered Duty Paid (“DDP”)
Customs Regimes 40 and 42 have been around for a long time, and provides for an exemption to pay Import VAT at the time of importation, subject to various conditions. Post Brexit, utilising these regimes has enabled a way to export to the EU under DDP and effectively pre-clear the goods into the EU, prior to the actual export. It overcomes the revised Incoterm, simultaneously saving time by not having to travel under ‘Transit’ and clear customs in the destination country at a specified location prior to delivery.
- Regime 40 is used when clearance is effected on entry into France for a consignee based in France.
- Regime 42 is used when clearance is effected on entry into France, and where the consignee is in another EU country (except Cyprus and Malta).
So what are the conditions?
The conditions under which that exemption is granted are currently laid down by Member States. Dealing with Regime 42 (which is the main focus), exemption will be applicable only if at the time of importation the importer has provided to the competent authorities of the Member State of importation at least the following information.
- His VAT number issued in the member state of importation (or the VAT number of his VAT representative)
- The VAT number of the customer, to whom the goods are supplied, issued in another Member State or his own VAT number issued in the Member State in which the dispatch or transport of the goods ends when the goods are subject to a transfer.
- The evidence that the imported goods are intended to be transported or dispatched from the Member State of importation to another Member State. However, Member State may demand that the evidence be indicated to the competent authorities only upon request.
Note: When transporting under incoterm DDP, bear in mind that the exporter also becomes the importer.
How can we help?
We have partnered with several customs partners in France who can act as our export customers’ VAT representatives, thereby preparing the import entries in advance of export.
Our export customer’s will need to hold an EU EORI number, and would be required to sign a Power of Attorney of our nominated customs partner in France, instructing them to complete the import formalities on their behalf. Additionally, the Regime 42 Process Document would need to be signed by the consignee.
Are there any risks?
There are some additional risks, and these come from the Incoterm DDP (Delivered Duty Paid). This Incoterm places the maximum responsibility on the seller. Apart from the more obvious commitment to pay for the destination import clearance and payment of VAT and duties applicable, they also become susceptible to storage and demurrage costs should they arise, even to the point that the buyer may have failed to procure important documents such import licences.
Our industry body BIFA posted a concise article about this in their September 2020 magazine and a link can be found here at page 16.
What will it cost?
Naturally it is more expensive than standard export customs procedures. It also depends on the nature of the goods being exported. If you would like to know more, the best way is to contact our team who can explain in more details, as well as provide costs for specific cases.