Customs Taxation in and out of the EU
Unit 4: Customs Taxation
Concept
A customs tax is a tax collected on imports and some exports by the customs authorities of a country. This tax is used to raise state revenue. It is based on the value of goods, called ad valorem duty, or the weight, dimensions, or other criteria of the item, such as its size. It is also referred to as customs duty, tariff, or import tax.
EU Countries
The EU was created with the objective of eliminating frontiers and taxes between its members. Goods and persons can cross its members’ frontiers without paying any tax for it.
The internal market for goods has become one of the success stories of the European project and remains a major catalyst for growth.
In EU countries, the VAT (Value Added Tax) is applied throughout the territory.
When items are sent from one EU country to another country located inside the EU, VAT must be paid in the country of destination. There is an exception to applying it in the country of origin, which is conditioned to be paid in the destination country.
Applying the VAT in just one of the countries avoids double taxation on the same operation.
The necessary requirements to be exempt from VAT payment are:
- The items must be sent from one EU member country to another EU member country in the name of the seller, the purchaser, or by a third person in representation of one of them.
- The recipient of the items must be identified for VAT purposes in an EU state different from the one of origin.
The identification of the parties that participate in this type of operation must be managed in a specific way with the intra-community operator number and be registered in the VIES census (VAT Information Exchange System).
For that reason, invoices in intra-community operations should indicate the identification number for VAT purposes for both the seller and purchaser.
It is the responsibility of the seller to ensure that the purchaser is registered as an intra-community operator.
It is mandatory to have a NIF-IVA or IVA-VAT for all enterprises and professionals that provide services or sell items in countries inside the EU different from the one where they are located.
The Spanish Tax Agency provides it to companies that can prove they are going to make intra-community operations. After that, they will appear in the tax agency database. This database is very important and useful because sellers have the obligation of making sure that customers have a VAT number. If the process is not correct and the number provided by a buyer to a seller is not correct, the tax agency can give a period of time to provide the correct number. If it is not provided, the seller can be obligated to pay the VAT of the operation.
In the case of operations between two EU countries where the buyer does not have a VAT number, as in the case of retailers, the seller will charge the VAT to the buyer as for local operations.
Non-EU Countries
Export
When you export goods or services from an EU country to a non-EU country, VAT will not have to be paid as long as two requirements are met:
- There must be an effective exit of the items outside the EU territory.
- It is necessary to save the documents related to each operation, like invoices, transport documents, and customs documents, in order to justify that the operation was between an EU country and a non-EU country. These documents should be saved during the whole period in which the tax authorities can require VAT payment.
Import
In an international operation, the VAT is paid by the EU buyers when the purchased items are imported from a non-EU country.