Customs & VATFrom a sales perspectiveMichel de Haas, Group Customs & Trade Compliance Senior Manager

2 | DSV – June, 2016

Scope

We sell a wide scope of logistic solutions across the globe and once implemented the operation we have ongoing customs consequences;

supplier end-customer

supplier / distributorcarrier port of

arrival transport port of departure

1. From a duty point of view (levy, €) – fiscal

2. From an economic, a protection and a security point of view – non-fiscal

3 | DSV – June, 2016

Scope

Indirect taxation:• Import duties & related • Tax (VAT) • Excise

Fiscal Duties

VGEM : • Safety • Health• Economy • Environment

Non-fiscal Duties

Besides specific purpose also another means to control input, process and output streams.     VB import , transit and export , import restrictions , quotas, product , counterfeiting, environmental requirements , flora and fauna etc.

4 | DSV – June, 2016

• The Netherlands, gateway to Europe.

• EU consists of 28 European countries, sharing identical or similar trade regulations.

• This means free trade within all 28 countries of the EU, no internal borders (for customs):

- One general Customs Code;

- Similar, almost identical VAT regulations

- One common trade policy

- NO internal customs formalities and controls

• Customs clearance on EU border

• Van “aankomst” naar “winkel” is een reeks van vastgelegde en voorgeschreven processen;

• Dat loopt via DSV of een van de andere betrokkenen

European UnionEuropean Union = Customs Union

Non-EU flow

5 | DSV – June, 2016

European UnionCustoms

1. Placing of goods under a customs procedure;• bring the scheme into free circulation• Transit• the customs warehousing procedure • inward processing • processing under customs control• temporary importation• outward processing • Export

2. Entry of goods into a free zone or free warehouse

3. Re-exportation from the customs territory of the EU

4. Destruction of goods

port of arrival

supplier / distributor transport end-

customer

6 | DSV – June, 2016

European UnionCustoms

Most common process:

• port (after release)

• pick-up (DSV, 3 rd party)

• under transit (DSV, 3rd party)*

• warehouse (DSV, 3rd party)

* direct warehouse possible, DSV licensed

PORT transport DSV

7 | DSV – June, 2016

Shipments of goods arriving in Europe:

1. Goods are cleared immediately (port) or semi-immediately, clearance on arrival

2. Goods are stored in bonded warehouse, clearance on outbound order

3. NO clearance at all, transit in Europe (bonded shipment/NCTS)

- T-doc system, clearance and closing closely monitored on operational site-level for riskmanagement purposes

Doing business in Europe

8 | DSV – June, 2016

European Union

Non-EU Sourcing Clearance upon arrival Free storage

Or direct distribution

Bonded storageClearance on outbound

Transit/ bonded export outside EU

9 | DSV – June, 2016

• Customs clearance on arrival– using Sagitta/AGS system for electronic clearance

and communication with Dutch Customs;

• Customs clearance on outbound – (using bonded warehouse), fully automated in

‘GPA’ (= abbr. of automated periodic duty return). Monthly report and payment to Customs. Most of relevant information (a joint effort of customer and DSV) implemented in system.

European Union Customs

10 | DSV – June, 2016

Relevance for you:

• Good inventory of what is asked, whether or not (timely) arming customs specialist ( e.g. using a questionnaire)

• Realise that not always EVERYTHING ( equal) OR is possible that additional measures must be taken

• We do - in principle – NOT do brokerage unless we have real prospects of transport and/or logistics

• Cost -efficiency hinges on how customs information is supplied (loose, EFI, email, system downloads etc).

European UnionCustoms

11 | DSV – June, 2016

Regardless of the chosen clearance set-up (Sagitta/AGS or bonded warehousing/GPA), duties are based on three important elements:

1. CLASSIFICATION (HS code) and related tariff

– Classification is based on the goods themselves, technical aspects, description, use

2. Customs VALUE– Value is transactional value, value according to

first transaction into Europe, which includes price paid, costs of insurance, transportation until place of importation, paid commissions etc.

3. ORIGIN of the goods– Origin is important for use of proper (preferential)

tariffs All three elements require close cooperation during initial setup and frequent monitoring when continuously using HS-coding and value for products. This is part of DSV’s internal control procedures.

European UnionCustoms

12 | DSV – June, 2016

Importation also triggers VAT (value added tax) because four main activities are actually VAT liable:

1. Import(s)*

2. Actual supply of goods*

3. Providing or rendering services

4. Intra-Community acquisitions

(Netherlands 21 or 6 %, but in cross-border situations reversed charged / 0% …)* Foreign companies most common and regular activities

Value Added Taxation

VAT Is the Value Added Taxation on prices an entrepreneur charges to its customers for the

supply of goods or for providing services

13 | DSV – June, 2016

• System of VAT focuses on the VAT being charged to END-consumer

• Companies importing and delivering to other (VAT registered) companies (B2B), may have VAT exemption, or VAT is charged but reclaimed

• When selling to end-consumers (often private individuals or non-registered companies) VAT is being charged

European UnionThe system in general

0%

0%

0% 0%

0%

23%

25%

14 | DSV – June, 2016

European UnionStandard transaction in supply chain, FOREIGN company fiscally represented, B2B

Private individual Company

21%reverse charged, 0%

Private individual Company

Company

19%

19%, but refund

Private individual

19%

Germany

Company

Spain

VAT 0% VAT 0%or VAT 0%

15 | DSV – June, 2016

• A non-resident trader, not having a Dutch based company or permanent establishment/branch office, performing VAT taxed activities in the Netherlands (like import) should pay VAT on importation, unless the company appoints a fiscal representative. Only for companies using fiscal representation, VAT deferral on import (exemption) is available!

• Advantage, doing business in Europe operating similar to a (residing) European company, by just selling from EU distribution centre storage, no corporate tax issues. Reduced lead times to customers, operate as a direct European competitor.

• Non-resident trader has to meet (and to keep up with) all legislative and tax law requirements, but in order to do so, appoints a fiscal representative familiar with local law and legislation.

• Fiscal representative takes care of VAT related administrative services and shares VAT responsibility with non-resident trader. The fiscal representative provides guidance in EU VAT requirements and supports administrative process.

A non-EU resident trader

16 | DSV – June, 2016

A non-EU resident trader

• For import and subsequent transaction only

• No own registration (you use DSV’s VAT#)

• Application of VAT deferral system at importation

• Authorisation from tax authorities

• Authorisation from client

• Liability of limited fiscal representative is unlimited

• Guarantee to LFR (unless decided differently)

• For import, intra-Community acquisitions and sales to private individuals

• Own VAT registration

• Guarantee to authorities

• Application of VAT deferral system at importation

• Authorisation from tax authorities to general fiscal representative

• Authorisation from client to general fiscal representative

• Liability of general fiscal representative is limited to the amount of the guarantee

Two options to choose from

General fiscal representativeLimited fiscal representative

17 | DSV – June, 2016

Customs Services & Fiscal Representation

1 An effective and efficient supply chain;

2 Having the lead on all aspects, including delivery;

3 Strenghtening relation with customer;

4 Better market position as competitor;

5 Better leadtimes (no delay in administrative process);

6 Acting as a ‘EU company’

7 Better inventory management (a smooth operation may increase more frequent ordering, reducing inventory levels for customer);

8 Exempted VAT on import, cashflow benefit;

9 In case of fiscal representation NO handling, administrative burden i.e. extra costs for customers

What is in it for non-EU suppliers?

Doing business in EuropeBusiness to Consumer (B-2-C)

19 | DSV – June, 2016

VAT - European UnionBusiness to Consumer – B2C

20 | DSV – June, 2016

Distance selling in the EU occurs when a supplier in one EU member state (for instance from a DSV Solutions warehouse in the Netherlands) sells goods to a person in another member state who is not registered for VAT (mostly private individuals) and the supplier is responsible for the delivery of the goods. You can think of mail order sales or goods ordered over the internet .

Under the distance selling arrangements, sales to customers in other member states who are not registered for VAT are liable to VAT in the Member State of the supplier provided that the (turnover) threshold appropriate to the Member State of the customer is not breached. Where sales exceed the threshold in any particular Member State, the supplier must register and account for VAT in that particular Member State.

Apart from the demanding logistics in this (retail) supply chain, DSV – in co-operation with a business partner – offers a solution for ‘unburdening’

Distance sales in the EUWhat is distance selling?

B2B = sales to VAT registered companies, distributors

B2C = sales to private individuals

21 | DSV – June, 2016

European Union - Normal VAT regulationsStandard transaction in supply chain, B2B

Private individual

reverse charged, 0%

Company

Germany

Company

SpainNetherlands

VAT 0% VAT 0%or VAT 0%

22 | DSV – June, 2016

European Union - Distance selling VAT regulationsTransactions with private individuals, B2C

21%21%

Private individual

Private individual

21%

Germany Spain

Private individual

Netherlands

Private individual

Private individual

21%

21%

Invoices to Dutch consumers with 21% Dutch VAT !!VAT reporting in Netherlands for import, B2B and Dutch consumers !!

23 | DSV – June, 2016

European UnionDistance Selling

€35,000

€35,000

€100,000

£70,000

€35,000

SEK320,000

€35,000

€35,000

€35,000

BGN 70,000

RON 188,000€35,000

€35,151

LVL24,000

LTL125,000

PLN160,000€100,000

CZK1,140,000

€35,000€35,000

DKK280,000

HUF8,800,000

• European Union, thresholds

• Exceeding thresholds = VAT applicable of country of destination

24 | DSV – June, 2016

European UnionTransactions with private individuals B2C (AFTER exceeding thresholds)

21%

19%

Private individual

Private individual

21%

Germany Spain

Private individual

Netherlands

Private individual

Private individual

Invoices to Dutch consumers with 21% Dutch VAT VAT reporting in NL for import, B2B & Dutch consumers

Invoices to German consumers with 19% German VATVAT reporting in Germany for German B2C

Invoices to Spanish consumers with 21% Spanish VATVAT reporting in Spain for Spanish B2C

By DSVBy third party, but data to be provided by DSV

By third party, but data to be provided by DSV

VAT registration VAT registration

25 | DSV – June, 2016

1. Initial setup / contract / bond; who is importer of record

SETUP fee , monthly fee

2. Compliance – a.o. invoicing requirements

3. INCO terms

4. Direct shipments (passing by NL’s), B2C issues

5. Verhuizingen (stock-movements)

6. NL is rapidly losing VAT deferral advantages ...

From Practice…

26 | DSV – June, 2016

7. GFR better than LFR AND threshold to LFR feels, given security is almost gone ;

8. GFR can never duplicate and therefore not a " takeover " GFR (for example, two service with GFR is impossible)

9. GFR LFR can possibly be ( two service BUT administratively complex and risky in case of identical goods )

10.LFR may double ( two service BUT administratively complex and risky in case of identical goods )

From Practice…