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, providing 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.
However, many are under the misapprehension that these regimes can only be used when the Incoterm is DDP. This is not true. This will be explained further down.
So what are the conditions?
- Regime 40 is used when clearance is effected on entry into France for a consignee based in France. The goods can be sold to other EU countries after this point.
- Regime 42 is used when clearance is effected on entry into France, and where the consignee is in another EU country (including Cyprus and Malta). When using Regime 42, the goods must leave France immediately after customs clearance, and proof of delivery must be able to be provided.
Customs Procedure 42 (regime 42) is a legal customs procedure that allows simultaneous release for free circulation and home use of goods which are the subject of a VAT-exempt supply to another Member State.
In order to use this procedure, the persons must meet the conditions listed in Article 143(d) of Directive 2006/112/EC (VAT Directive). In accordance with Article 143(1)(d) of the VAT Directive, goods may be imported with an exemption from VAT only via a trader who is registered for VAT in the country of release for free circulation or via a tax representative in that country.
In simple terms…
When transporting under Regime 40 into France, VAT is postponed under France’s equivalent of our Postponed VAT Accounting scheme (PVA).
When transporting under Regime 42, the exemption from payment of VAT is granted because the import is followed by an intra-Union supply or transfer of the goods to another Member State for which the destination importer will record an intra-EU acquisition.
Back to the subject of DDP, if you consider an export where the goods are of UK origin…
- The likelihood of duty being due is remote.
- If the destination is France, VAT is postponed.
- If the destination is a different EU country, the VAT is exempted by way of the intra-community transfer as referred to above.
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.
In addition to providing the customs documentation associated with Regime 42 in particular, our representatives will also record the intra-EU supply.
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. Additional documentation may need to be signed by the consignee in some cases.
We can, however, introduce clients to specialist tax experts in France who can act as fiscal representatives, having done so already to many of our customers who have needed to overcome this hurdle.
Are there any risks?
There are some additional risks, and these come from the Incoterm DDP (Delivered Duty Paid) where this is used. 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 (as and when 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.
Note: When transporting under incoterm DDP, bear in mind that the exporter also becomes the importer.
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.
Advantages versus disadvantages
In truth, there are no obvious disadvantages apart from a bit of ‘red tape’, for which Ital Logistics will help our clients overcome. So let us consider the advantages.
- Less risk of delays that could result in demurrage charges
- No customs stops, some of which could be quite ‘off route’
- Improved transit times, particularly for time-critical express road transport
- Greater control with less risk of customs inspections
- Less risk of financial penalties for failure to discharge T forms in the requisite time
- Less CO2e emissions
What will it cost?
One would be forgiven for thinking that it is more expensive than standard export customs procedures. In the majority of cases there is actually a cost saving. So why not contact our team who can explain in more detail, as well as provide costs for specific cases.