"Deductive Method" for import duties & VAT being applied in Germany
Hi all
Picking up from his great thread: Shipment To Amazon Germany but doubling down on the method used for judging import fees. Keen to hear if anyone else has had this and solved it.
Shipping from China to FBA WR05 Germany my shipment has been stopped in customs and UPS are saying that the way they are judging customs value is by the ‘deductive method’:
Sales price on Amazon minus 19% (VAT) minus Amazon costs
As opposed to the usual (over 90% of world trade) transaction value.
Reality here for me is US $11.6k worth of stock, by transaction value that would be €2.3k EUR duties and VAT, but by deductive method is €23.7k EUR. 10X difference.
I have a German EORI and VAT registration so could eventually claim back the VAT, but it’s still €4.5k EUR in duties and disbursements which I wouldn’t get back, I believe.
Has anyone managed to ship to WR05 and not have this? Or had it and found a different way? I thought about changing the destination to elsewhere in Germany, asked a friendly warehouse and they said I’d need an IOR. I asked Regional Express and they told me this:
Changing destinations will not remove the potential need for the deductive method – it is what Customs appear to be doing. Not all customs agents in Germany and EU are using the deductive method. It is pure luck, However, note that your shipment is ‘flagged’ changing the destination within Germany will not make any difference.
You need an Indirect representative now for what you are doing already and that party can act for wherever in Germany you wish to send your shipments to . For every import into the EU, you will need an Indirect Rep to do customs brokerage for you. Regional Express would do this if actually shipping the goods for you but won’t do it as a 3rd party.
So my current options seem to be a) pay deductive method crazy fees b) Let UPS send it back to China and try all over again - maybe setup an EU business? Really not sure.
Any fellow war stories appreciated!
Seller_XYgZGWveAdEhx
Further response from Germany Zoll (taxes & customs). I think I now have the answer to how to avoid deductive method, even if it isn’t great to hear.
The reason we’re getting hit with the deductive method is:
- A non EU entity cannot be the ‘buyer’ when products are bought from outside the EU and shipped into the EU. I.e. your UK company.
- Therefore the UK entity is treated as the exporter into the EU, and the end consumer is treated as the buyer. So the transaction = all your sales, even though they haven’t happened yet, as the transaction only counts if it’s to a person / entity in the EU.
- To import at transaction value, your factory needs to be the seller, and an EU entity or person needs to be the buyer. So you need an EU branch or subsidiary, and you need that branch / subsidiary to have its own EORI. Your UK company’s one isn’t enough (I’m not even sure what the point in the EU EORI for a UK company is now).
- So to solve long term, we need EU entities. Which comes with all the associated admin baggage. Without one, we risk being hit by deductive method.
I’m still going to try shipping to France to see if this gets round it, but at least I think I understand why Germany have been doing this (even if I obviously completely don’t agree).
Here’s what Zoll said:
Your UK company is being treated as the exporter to the EU and the end buyer purchase being treated as the transaction.
The actual transaction value is the total payment made by a buyer in the EU (e.g. an independent branch office of your company in Germany) to the seller in a third country (e.g. China) even if you appoint a freight forwarder as an Importer of Record.
If you want to have an EORI with a German address, you need at least an independent branch office according to article 5 No. 31 letter b) and No. 32 Union Customs Code in the EU which has to be registered in the Germany. For this purpose, you need the entry in the in the German Commercial Register (Handelsregister) or the German business registration (Gewerbeanmeldung).
You need at least an EU branch/subsidiary and its own EORI in order to pay import fees based on the transaction value you paid.
172 replies
Seller_UmiN1IyD9F9EV
Talking about VAT separately here.
Can you give us an example of both the methods of calculation,from import through customs and then after reclaim?
How do you arrive at the 4.5k difference?
After speaking to my accountant he is under the impression that yes the cash flow is affected as we are paying more VAT upfront but we will still be able to recaim it further down the line.??
Seller_XYgZGWveAdEhx
Yep no problem.
The transaction value would be this:
Importing a product classified with HS Code 7117.19.0000 to DE from CN with a value of 11594 USD results in the following:
Duty & Tax Charges
Duty: 382.31 € (Rate of 4 % )
VAT: 1888.62 € (Rate of 19 % )
Total: 2270.93 €
These numbers taken from here: https://www.simplyduty.com/import-calculator/ and line up with what I’ve ever paid historically, and paid recently importing to the UK (i.e. this year).
What UPS Germany are requesting is: sales price on Amazon minus 19% (VAT) minus Amazon costs. This is the deductive method.
So that is all my products X retail price minus VAT and minus Amazon fees. That works out as this (which is what UPS Germany want me to pay):
Duty: 3.878,40 €
VAT: 19.200,71 €
Disbursement Fee: 686,61 €
Total: 23.765,72 €
And yes as you say whilst the VAT is reclaimable and is a sort term cashflow issue, the duty and disbursements (I believe) are not. So that’s where the €4k difference comes in.
If I’ve got that wrong then I’d actually be happy!
Seller_aPJvmPpiiXKtU
I really feel your pain. It seems that liberties are being taken here. From what I have read, the deductive method should only be applied if the cost price cannot be determined.
I’ve asked a rep at UPS whether this deductive method is also being applied by the French for example. If it turns out to be an EU wide thing, then either the Brexit deal is far far worse than the bad deal that I know it is, or else the EU customs officials are making things up on the hoof, presumably to punish the UK (and let’s face it, we the UK need punishing for an idiotic decision in 2016, and the insistence on a hard Brexit)
Either way, we have to deal with this s**t show. If the deductive method is a Brexit / EU wide thing then I believe as sellers we will need to lobby our MPs to raise this to wider attention.
Seller_Yja9oH7DLHk2I
How do they plan to calculate the costs if the product is not currently sold by me on Amazon or any other platform.
I tend to work with parcels of discontinued stock. Normally when I send the stock to Amazon I am not currently selling it. If there is an existing seller selling at £40 but I plan to sell at £20 how can they use the £40 figure?
Seller_Vx8KyiEOW1rcH
And what happens if you import into DE pay all your Deductive VAT upfront, but make most of your sales in the other EU marketplaces. Will DE then have to reimburse the VAT they charged for goods not later sold in DE? What a s**t show.
Seller_Vx8KyiEOW1rcH
Accounting nightmare (we use Avalara - how do we make sure the VAT is being properly reclaimed from DE that only accounts for 10% of our sales in Europe) and potentially death by cashflow irrationality.
Seller_aPJvmPpiiXKtU
Any USA based sellers…
I’d love to know, has any USA based seller (or any other so called “3rd country” exporter), exported product to Amazon FBA in the EU, especially to Germany. What valuation basis was used to calculate the import taxes - cost or retail (deductive)?
Seller_Vx8KyiEOW1rcH
We have been importing/exporting (other business not on Amazon) for 35 years from all over the world, all commercial invoices going with goods have always shown the cost price of the goods. I have never seen the deductive method used. Surely we all end up paying the balance of the VAT when the goods are sold. How are the Germans going to keep up with what we are all doing if they use the deductive method?
Seller_aPJvmPpiiXKtU
I see the difference for the Germans. If it costs €5 to buy from China, with proceeds of €10 on amazon.de after all costs deducted, the german customs get to keep duty levied on the extra €5. That is money we will never get back.
Seller_VpKF6OWpE8wqv
At the end of the day this will come back to bite Europe on the nose. If and when we get stock into Europe our prices will have to increase due to the added expense, so European buyers pay more. If we give up and decide not to export into Amazon then the European tax authorities loose a large chunk of vat income, and tax income from Amazon, and Amazon will have to lay of staff at their European fulfilment centres because lack of work, so increased unemployment. Will Merkel stand for this??
Although we as sellers suffer Europe will suffer twice as much.
My European Vat bill was over £70k per year, and I am just a small fish in a big pond.
Personally I think in 6 months these problems would have been resolved due to Europe waking up and realising. the true costs of playing games.
