Every e-commerce company owner knows that, in contrast to your customer’s point of view, delivery is never as easy as clicking a button. It takes knowledge, teamwork, and skill with tax laws to take care of business.
One of these taxes is a value-added tax, also known as VAT. If you’re asking, “When do I pay VAT on imported goods?”, you can expect to pay import VAT on every shipment waiting to make an entry on foreign soil.
However, there are ways to recoup costs when it comes to paying VAT on imports. Let’s take a closer look at this common type of import tax to figure out how to reclaim value-added taxes around the world.
The Definition Of VAT
VAT is a kind of consumption tax that reflects any value added to a product over the course of its manufacturing, distribution, and sale. Unlike a sales tax, VAT is levied on the proprietor of the product throughout the supply chain, at every stage in its life cycle.1
The main takeaway about VAT is that your product will inevitably gain more value throughout its journey from point A to point B. In most advanced countries, this value is attributed to external factors such as:
- The wages paid to laborers involved,
- Worker benefits, such as health care, offered by a shipping service,
- And the various resources used in the transportation of goods.
VAT is the planet’s most popular form of consumption tax. While the United States is one of the few leading economies in the world that doesn’t use a VAT, over 160 other nations—including major ones, like those in the EU—use it.2
The rates, exceptions, and regulations governing each country’s VAT code are all unique, which means that businesses selling goods internationally will pay markedly different taxes on the same product in different global markets. In every country, the VAT is paid to the nation’s tax authorities, who reserve the right to impose further fines, penalties, and restrictions if VAT compliance is not met at the point of importation.
How Import VAT Works
As part of the customs clearing process, international FBA businesses will pay import duties and taxes to customs authorities at the border of the destination country.
In some developed countries, like the UK, businesses can meet VAT requirements in their destination country in one of two ways:
- Paying VAT to a customs authority up-front at the border,
- Or using the destination country’s postponed VAT accounting system, where they can declare their VAT value and reclaim it on their tax returns.3
That said, the VAT reclaim process can be incredibly complex and convoluted, and businesses operating globally will need to work with a knowledgeable third party to walk them through the process legally while maximizing returns.
The Bottom Line
To optimize profits, sellers need to account for the changing VAT rate ahead of time.
Getting ahead on VAT can:
- Ensure customs compliance and avoid any unforeseen fines, penalties, or even legal trouble with the local authorities,
- Document and track the value throughout the supply chain to avoid hemorrhaging manufacturing and shipping expenses,
- And ensure their final price point is right for their customers and competitive enough to sell.
Best Practices For Clearing Customs
The volatility of trade laws, which are constantly updated and revised in every country, makes accounting for taxes like VAT enormously onerous for e-commerce businesses. In fact, staying on top of VAT compliance is really a job in its own right—not something any business should spend time, money, or energy trying to stay abreast of.
This is why it’s so essential to work with a partner who makes it a priority to stay on top of VAT laws in a suite of countries with desirable marketplaces. Few freight forwarders, shipping partners, or IORs (Importers Of Record) are willing or able to take this process on—but Zee is an exception:
- Zee takes on VAT Compliance as part of its customs compliance process—not a beast all its own.
- Zee will handle any taxes, including VAT, levied on your products at the point of importation, in addition to ensuring they are validly declared and can sail smoothly through customs.
- Zee prepares your VAT documentation and gives you the resources to maximize your VAT reclaim and get those expenditures back.
The takeaway? If you need assistance, Zee can help with VAT.
Zip Through Import VAT With Zee
Suppose you’re an e-commerce business that’s been shying away from going global. In that case, you’re in good company: unforeseen taxes and fees can be a major roadblock to businesses hoping to break into international markets. But, with the right partners in place, you can significantly tighten your margins and cut costs of taking your business to a barrier-breaking scale.
Think of Zee as your one-stop shop for all things shipping-related. In addition to taking care of import VAT, Zee can help with:
- Taking the reins on your goods’ shipment comprehensively, including brokerage, duties and taxes, and even shipping tracking,
- Intervening on any arrested shipments and working with our contacts to spring them out of hostage if seized by a customs authority,
- And ensuring all of your goods concord with the customs compliance regulations in their destination country so they can stick the landing.
To tie off import VAT—or anything else that comes up in your product’s journey from point A to point B—lean on your #1 shipping wingman and work with Zee.
- Investopedia. Value-Added Tax (VAT). https://www.investopedia.com/terms/v/valueaddedtax.asp#toc-what-does-a-value-added-tax-do
- Tax Policy Center. How Could We Improve the Federal Tax System? https://www.taxpolicycenter.org/briefing-book/what-vat
- Gov.uk. Paying VAT on imports from outside the UK to Great Britain and from outside the EU to Northern Ireland. https://www.gov.uk/guidance/vat-imports-acquisitions-and-purchases-from-abroad