VAT COST REDUCTION ON IMPORTS

            An understanding of the implications of the value-added tax (VAT) on imports can save a business thousands of dollars.  Importing goods into a VAT country can range between three and twenty-five percent, depending on the type of goods where they are being imported.  The VAT is charged at the rate of the local jurisdiction.

             The VAT is a form of indirect taxation on goods and services, and is usually levied when the good enter the country.  All imported goods must be listed and the name of the importer must be specifically identified on the declarations form.  The importer is usually the business holding title to the goods at the time of the importation.  This will generally be either the U.S. business selling the goods or the local customer purchasing the goods.

             A freight forwarder/import agent may be used by the importer to prepare the paperwork and expedite the moving of the goods through Customs.  The importer and agent may also agree that the agent will pay the VAT, and then charge back this amount to the importer.  This system may allow the importer to reclaim the VAT depending on the country of import provided it has the appropriate documentation (in most countries, this would be a customs form or other such document indicating the VAT amount).  The agent and the importer must ensure that all documents and declarations are completed correctly in order to recover any VAT.

              U.S. businesses can also minimize VAT costs by selling directly to a customer who is located in a VAT jurisdiction outside of that jurisdiction.  This is because the customer would be acting as the importer of record.  The business may also recover VAT costs by registering for a local VAT in the country of import so long as the documentation is completed correctly.  Finally, in some countries (including some European Union states), if the U.S. business merely acts as an importer of record for goods under warranty, and is not required to register the VAT locally, the VAT may be recovered under certain circumstances.

October 23, 2002