The following article tries to descrive in brief how a company from Latin America is able to sell goods in Europe without a fixed establishment or daughter company in Europe.
In Europe it is decisive where the customer is resident, either within the European Union (EU) or outside.
Members of the European Union
At the moment the European Union consists of the following member states: Belgium, Bulgaria, Denmark, Germany, Estland, Finland, France, Greece, Ireland, Italy, Croatia, Latvia, Lithuania, Luxemburg, Malta, The Netherlands, Austria, Poland, Portugal, Rumania, Sweden, Slovakia, Slowenia, Spain, Czech Republic, Hungary, United Kingdom, Cyprus .
In this article the flow of goods to the European Union should be described. Trading with countries outside EU differs very much from country to country and is mainly based on bilateral Agreements.
Customs regulations and import restrictions
This article does not refer to customes regulations and import restrictions. With these topics we will deal on a single inquiry basis.
If the customers are from EU one has to distinguish whether foods were directly shipped from Latin America to the customer or if the Latin American company uses a warehouse in Europe and delivers the goods from the warehouse to the customer.
If goods were shipped directly from Latin America to the customer, it has to be kept in mind, that the import is subject to import Value Added Tax (import VAT; which is between 10% und 24% of the price of imported goods, depending on the product and on the import country) and potentially customs duty. Is the customer a company, then customer will be charged by import VAT and customs duty and customer is eligiable to import VAT refund in the next VAT return. Customs duty are not refundable and is therefore cost. Import VAT is cost for private customers.
Companies and non-companies
There are two types of customers, companies and non-companies. Private persons are non-companies. Governmental bodies and NGOs are also no-companies. If a customer has got a VAT-identification number (VAT-ID), it is seen as company. So always ask the customer about its VAT-ID.
For selling goods to non-companies the Latin American company need a so called ‘fiscal representative’ resident within the EU. A fiscal representative is usually a tax adviser. He is the contact point to various EU offices. The fiscal representative registers the Latin American company at various offices, reports monthly or quarterly sales to tax office, prepares annual tax declarations and takes care that import VAT is refunded correctly.
If good were sold from an EU-warehouse to the customer, then goods have to be declared also at customs for import VAT and potentially customs duty when they enter EU the first time. Afterwards goods can be shipped and sold within EU without any further import VAT or customs duty. In this case fiscal representative should come from the country of the warehouse. The advantage of an EU-warehouse is that goods can be delivered very fast to the final customers. The disadvantage is that the warehouse means additional cost and bears the risk that stored goods cannot be sold.
So one should start with direct shipping from Latin America to the EU-customers in order to test the acceptance of your goods on the European market or to use services from e.g. amazon.de who – by charging a fee – store your goods, handle orders, packaging and shipping. In addition you need in case a fiscal representative. We would be glad to assist you.
Yours Renate Otti, tax adviser and owner of Tax Austria