Does your company sell goods or services? This section helps you understand some of the taxes that may be applied.
There are two main types of taxation which you need to know about
- Direct taxation - taxes applied by governments on revenue, income or profit, e.g. corporation tax
- Indirect taxation - taxes imposed by governments on suppliers, which are subsequently collected from the customer, e.g. value added tax (VAT)
The following section will exclusively discuss indirect taxes, as that is the type that specifically impacts importers and exporters.
Indirect taxation can take different forms. This includes sales taxes such as VAT, excise and levy taxes, among others. This section lays a focus on VAT and excise taxes as they are the main ones that you will come across.
Value Added Tax (VAT)
Value Added Tax (VAT) is an ad valorem consumption tax placed on products and services whenever value is added within the production chain. It has four main features
- it is placed on all commercial activities. This includes all supplies of goods and services, regardless of place of origin
- it is charged on each commercial transaction and occurs as a percentage of the sales price
- it is normally charged at the place of sale. As such, exports or products sold for consumption abroad are usually not charged VAT at place of origin.
- the cost is ultimately borne by the consumer
The main activities subject to VAT are
- supply of goods for commercial purposes
- supply of services for commercial purposes
Payment of VAT
VAT is collected through a specific system.
- certain taxable persons or organisations (those registered) charge VAT on their sales (output tax) - they reclaim the VAT charged on their purchases used in their business activity (input tax)
- the difference between output tax and input tax is the VAT finally collected
- import VAT payments are slightly different. They are usually dealt with in the same way as customs duties
- taxable persons must fill in forms including the goods value, place of origin, consignee, destination, price, weight, etc. before the total VAT due can be calculated
Excise duties are imposed on goods that harm consumer health or pollute the environment
- the duties increase the price paid by the consumer, thereby discouraging the consumption or waste of the products concerned
- the general arrangements for the holding and movement of products subject to excise duty covers mineral oils, manufactured tobacco, alcohol and alcoholic beverages
Legislation on this issue can be categorised into the structure (taxable amount and event) and rates of excise duties
The excise duty is only payable upon release for consumption.The producer is not always responsible for paying excise duty.
Excise duty rates vary from country to country. To read more about the excise duties which may apply to your product, please consult the practical guide to doing business in Europe.
Total Taxable Amount
The taxable amount is the total sum actually paid or payable by the purchaser, the customer or a third party. In total, the taxable amount is the invoiced price. This includes
- taxes, duties, levies and charges (excluding the VAT itself)
- incidental expenses such as commission, packing, transport and insurance costs charged by the supplier to the purchaser or customer
When importing goods, the taxable amount will also include incidental expenses incurred in the journey to the final destination.
Value for customs purposes
Customs duties and any other taxes due because of import
Supplementary costs up to the place of destination