Customs and taxes: be careful with cross-border trade

Fatih-Kağan Taşkoparan

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  • Markus Bitzera former customs investigator, knows what makes customs tick and how it works. He himself worked there for 17 years. With his experience and expertise, he now advises tax consultants, lawyers and entrepreneurs, among others, so that they are not surprised by customs audits and exposed to additional claims.
  • Nadja Müller is a tax consultant and Head of E-Commerce at fynax. After holding various positions at major auditing firms, she spent several years working intensively on tax law issues relating to online trading. Since then, she has not let go of the topic. In addition to her own law firm and her role at fynax, she co-hosts the fynax podcast "Thanks for Shopping" (prod. by Podstars by OMR).

Whether it's the long-awaited sneakers or the new household appliance that you ordered from a third country - there are many situations in which you need information about customs, regardless of whether you are a retailer or a consumer. We therefore asked customs expert Markus Bitzer and e-commerce tax consultant Nadja Müller about customs and taxes: What rules apply to customs clearance for online orders? What taxes do I have to pay as a retailer in the destination country? And what are the biggest stumbling blocks in customs clearance and how can I avoid them?

What rules apply to customs clearance for Internet orders?

Markus Bitzer: A distinction must be made at the outset: Who exactly is ordering the goods? Is it a normal customer ordering something from abroad from home or is it the retailer importing goods? If it is the retailer, the fixed upper limit of 150 euros must always be observed. If the value of the goods is lower, then there are usually no customs duties and the goods are not subject to customs duties. However, if the value of the goods exceeds this limit, a customs declaration must be submitted, which can be created either via the Internet or via freight forwarders and customs agencies.

Nadja Müller: Under tax law, a distinction must always be made between export and import. If goods are imported, import sales tax is due. This is the tax levied on the import of goods from third countries. This can always be refunded if you are entitled to deduct input tax. Exports to a third country are generally tax-free, as the goods are subject to the customs and tax regulations of the country in question.

How can you imagine the customs clearance of goods?

Markus: Here too, a distinction must be made between the private customer and the retailer who orders in bulk. If a private customer receives their goods and the retailer has not taken care of customs clearance, customs will check whether a declaration has been made or not. If this is not available, the shipment will be stopped. Customs then checks whether an invoice is enclosed and checks the contents of the goods. The buyer is then contacted and asked to complete an online customs declaration, as the goods can only be released once this has been done.

In the commercial sector, on the other hand, a customs declaration must always be made. As a rule, this almost always involves bulk orders. These must be identified by corresponding customs declarations, for example with the help of freight forwarders or customs agencies.  

As an import trader, you must also make an export declaration for the export of goods with a value of more than 1,000 euros in order to properly support the shipment and import in the destination country.

Which documents are required for the customs declaration?

Markus: This depends on the transportation route. However, what is generally always required is the genuine commercial invoice. Not a pro forma or customs invoice, but the original commercial invoice. In addition, there are packing lists and freight cost invoices, and from a value of 10,000 euros there is also the DV1 special sheet that must be completed.

Nadja: From a tax perspective, there are no additional documents that need to be submitted. In any case, you should keep and document the export papers. Customs will determine which documents are required and it is precisely these that must be kept ready for tax purposes in the event of an audit. As Markus has already mentioned, the commercial invoice is the most important document. Tax advisors need this in any case in order to settle accounts properly. However, there are no other obligations; the rule of thumb is: official customs documents are also sufficient for tax consultants.

It is also worth knowing that tax documents have the same retention periods as customs documents. Everything relating to the export and import of goods should be kept for ten years.

What is the EORI number all about?

Markus: The so-called "EORI" number is the English term for the former customs number and stands for "Economic Operator Registration Identification". This is a uniform identification number that is valid throughout the EU and is required by every trader who imports and exports regularly and commercially. The number must be applied for in the country in which the person is based. However, it is also advisable for private individuals who make more than ten customs declarations per year to have an EORI ID. The application is made free of charge online and is relatively simple, unproblematic and quick.

The EORI number, which is assigned in an EU member state, is valid for all customs transactions within the EU. The ID number has no effect outside the EU.

How is the value of goods determined during customs clearance?

Markus: There are a few rules on how to carry out the calculation, but the process is quite complex: the standard rule states that the retail price or the agreed purchase price at the time of import is the basis. However, this must then be adjusted to the delivery route and transportation costs - which vary depending on the delivery, EU country or third country.

There are also commissions and other costs that can occur as factors; there is a list for additions and deductions that can be used as a guide. Freight costs and the trade price are the basis of the customs value to be determined, which is then offset against the customs tariff. With the correct customs tariff number, you are allocated a percentage of the customs duties to be paid. These values must then be added together and offset against the import sales tax to finally arrive at the total value.

What taxes do I have to pay as a retailer in the destination country?

Nadja: In principle, goods are first exported tax-free and then have to pay import sales tax in the destination country. This depends on the respective destination country and its tax obligations.

Markus: From a customs perspective, it always depends on the type of consignment. In general, there are always excise duties on certain products. For example, alcohol tax is charged when you order whiskey from abroad. Coffee tax is charged on a coffee order and so on. 

How is VAT treated when importing and exporting goods?

Nadja: The tax rate of the respective country always applies here. If you import goods to Germany, 19% VAT is generally charged, but there are also exceptions here and a reduced tax rate for certain goods. When exporting goods, it is always necessary to check which tax rate applies in the destination country, although this is usually the same tax rate in the EU.

Which goods can be reduced or fully exempted from customs duty?

MarkOn the customs side, there is the applicable customs tariff and a list of products that are generally duty-free. However, duty-free goods are usually very specific, such as spare parts for aircraft or oil drilling platforms. There are also other reductions across the board, but these are always earmarked. For example, fish deliveries only qualify for zero duty if it is clear that they will be processed into fish sticks. The relevant applications must always be submitted for a concession. There are many agreements and arrangements between the EU and third countries in this area. Nevertheless, these must always be checked.

Nadja: When it comes to VAT, we always try to use the applicable customs tariff as a guide. We also have product lists with different tax rates. This varies in each country, and regardless of whether it is an EU country or a third country, these tax rates can be very different, as each country regulates this itself.

What are the biggest stumbling blocks in customs clearance and how do you avoid them?

Markus: My absolute top piece of advice when it comes to stumbling blocks and how to avoid them: responsibility! You should never forget that customs declarations for imports or exports in the European legal framework are equivalent to a commercial tax declaration. This means that you disclose yourself and your goods and undertake the obligation to declare everything properly and correctly. However, if the values, data or the customs declaration in general is incorrect, then you very quickly move into the criminal area and risk tax evasion. Even if you commission a forwarding agent, the trader or private individual is and remains the main party responsible. You are always liable and responsible for your own consignments, which is why I urge you to do so: Take responsibility early, get to grips with the issue and check your details.

My second point is of a more practical nature: you should not blindly accept data in import and export trade. For example, traders from abroad often enter a six-digit HS code for a tariff number that is assigned to the consignment in the destination country. This HS number from abroad could theoretically be correct, but does not necessarily have to match the HS code from Germany. The same applies here: Take responsibility and check the number to avoid fines and penalties.