The importation of goods into a country is in most cases a taxable event for VAT. This means that at the moment the goods arrive at the border, a customs official will want to know what is being imported, so that the appropriate amount of customs duties, excise duties and VAT can be charged.
In most cases, these taxes must immediately be paid at the moment of importation. Only if the goods are brought under a special customs regime (e.g. bonded warehouse or inward processing relief) or if a special VAT rule applies, the VAT can be paid later or not at all.
The latter is the case in countries where it is possible to use a so-called reverse charge mechanism. This means that the import VAT is not paid at the moment the goods are imported, but instead the importer calculates the appropriate VAT amount himself, and reports this in his VAT Return. The same VAT amount is deducted in this VAT Return, thus resulting in no effective payment of VAT for the importation of goods.
This can be a very interesting VAT cash flow planning tool. As not all countries may have a reverse charge mechanism (or a similar rule such as the deferment of VAT in the UK) for the importation of goods, it may be worthwhile investigating if the physical flow of the goods can be routed via a country that has such a system. Via this ‘centralized importation’, the cash-flow on the importation of goods into different countries can be minimized.
We prepared an overview of the countries that currently have or allow a reverse charge mechanism or a deferment scheme for the importation of goods.
The overview can be found here: www.vatupdate.com