Import: Duties and Taxes

Duties and taxes are typically paid prior to the release of goods by customs.

The European Union (EU), of which Germany is a member, constitutes a political union as well as a customs union. Customs processing and taxation are largely coordinated and standardized throughout all EU member states. However, some matters, including rate of value-added tax (see below), vary from one member state to another.

Basis for Assessing Duties and Taxes

Commercial shipments originating from outside the EU are subject to duties and value-added tax (VAT). The Common Customs Tariff (CCT) governs tariffs on goods imported to the EU from non-EU countries. Within the EU, goods are allowed to circulate freely between member states.

Classification

Rates of duty differ based on the type of product being imported. It is the responsibility of the importer to state the classification and valuation (see below) of the goods being presented for import. All products imported into the EU are classified using the Combined Nomenclature (CN) tariff classification system. (See the Tariff Classification page for more information.)

Valuation

Import duties are generally calculated on an ad valorem (a percentage of the customs value of the goods) basis. The customs value is normally the cost, insurance, and freight (CIF) landed value. Cost is the transaction value, or price actually paid for the goods when sold for export to the customs territory of the EU.

Note that the customs value can include all of the following: transaction value, commissions, packaging, packing, component parts, amortized value of tools and dies, engineering, development, artwork, royalties and license fees, insurance, loading, and freight.

United States and European Union Trade Agreement Regarding Tariffs on Certain Products

On August 21, 2020, the United States and EU announced a trade agreement regarding reductions on tariffs on certain products of interest to each side. The agreed tariff modifications entered into effect on December 18, 2020, for the EU, with the publication in the Official Journal of the EU of Regulation 2020/2131 of the European Parliament and Council. Under the agreement, the EU eliminated tariffs on imports of certain live and frozen lobster products on a most-favored nation (MFN) basis, retroactive to August 1, 2020. EU tariffs will be eliminated for a period of five years, and the European Commission will initiate procedures aimed at making the tariff elimination permanent.

Simplified Calculation of Charges

A simplified calculation of charges by means of a flat rate of duty may be applied where goods subject to import tax meet the following criteria:

• They are sent in occasional consignments by natural persons from areas that are not part of the Community customs territory or the island of Heligoland,
• They are sent free of payment to another natural person, and
• They are exclusively intended for the personal use or consumption of the consignee or his family, and
• The value of which does not exceed €700.

Where these conditions are not given, or if you reject the flat-rate approach, the amount of taxes and duties shall be calculated on the basis of the customs tariff and relevant individual tax regimes—a procedure known as the "tariff-based recovery."

The flat rate of duty is set at 17.5 percent of the product value. A reduced rate of only 15 percent ad valorem is charged on goods for which specific tariff concessions—known as preferences—have been granted.

Also, for certain goods special flat rates of duty shall be applied. These rates comprise the whole range of charges to be recovered on the products concerned, that is customs duty, excise and import VAT. The flat rate of duty can not be applied in the case of beer. Here, the charges shall be calculated on the basis of the applicable customs tariff rates and the Beer Tax Act.

Tariff-Based Calculation of Duties

Where the customs tariff is to be applied for the calculation of duties, each individual type of charge (such as tobacco tax, customs duty, and import VAT) shall be calculated separately. Where such method of calculation is not feasible, the amount of import charges depends not only on the value of the goods, but also on their nature and characteristics. The import charges will then be calculated on the basis of the Common Customs Tariff of the European Communities and the rates laid down in the relevant national tax legislation.

The total amount of import charges can be composed of the following types of duty:

• The customs duty levied on all imported goods,
• Excise duties including, for example, the charges on energy, tobacco products and spirits, alcopops, beer, sparkling wines, and intermediate products, which are due on all goods subject to excise duty, and the
• Import value-added tax levied on all imported goods.

The amount of duty payable follows from the valuation of goods for customs purposes (or "customs value") and rate of duty applicable in each case. Valuations shall be performed in accordance with the generally applicable customs valuation provisions. Normally, calculation of the excise duties to be levied shall be based on the quantity of the goods brought into the country and the excise duty rate applicable in each case. The basis for assessment of the import VAT shall be the goods’ "customs value" plus customs duty, plus—in the case of excise goods—any applicable excise duties.

Online Customs Tariff Database (TARif Intégré de la Communauté or TARIC)

The online customs tariff database known as the TARIC contains all measures relating to the import of goods, specific to the product’s CN code. Economic operators can search by country of origin and product code to find the rate of duty, any other charges that are to be paid on import, and whether a license or permit is required to import the product into the EU.

The TARIC includes information on tariff measures, agricultural measures (additional duties, sanitary regulations, countervailing charges), commercial measures (antidumping and countervailing measures), and measures relating to the restriction of movement of goods (import and export prohibitions and restrictions). The TARIC does not contain information relating to national levies such as rates of VAT and rates of excises.

The TARIC can be accessed online at www.ec.europa.eu/taxation_customs/dds2/taric.

Value-Added Tax (VAT)

The standard rate of value-added tax (VAT) in Germany is 19 percent. There is a reduced rate of 7 percent for food, books, hotel accommodation, cultural services, and other goods and services as permitted by EU tax law; these are generally goods or services that are consumed locally. All taxes are applied on the CIF value plus the duty charged.

As of July 1, 2021, VAT must be paid on all goods imported from non-EU countries including those with a value of less than €22, which were previously exempt from VAT.

Import One-Stop Shop (IOSS)

Before July 1, 2021, e-commerce sellers needed to have a VAT registration in each EU member state in which they had a turnover above a certain overall threshold, which varied from country to country. After July 1, 2021, these different thresholds were replaced by one common EU threshold of €10,000 above which the VAT must be paid in the member state where the goods are delivered. To simplify the process and make it easier to sell in other member states, online sellers may now register for an electronic portal called the Import One-Stop Shop or IOSS (www.ec.europa.eu/taxation_customs/ioss_en) where they can take care of all of their VAT obligations for their sales across the entire EU. Since 2019, the €10,000 threshold was already applicable for electronic services sold online.

Rather than grappling with complicated procedures in other countries, they can register in their own member state and in their own language. Once registered, the online retailer can notify and pay VAT in the IOSS for all of their EU sales via a quarterly declaration. The IOSS transmits the VAT to the respective member state.

The introduction of the IOSS for non-EU sellers allows them to register easily for VAT in the EU and will ensure that the correct amount of VAT makes its way to the member state in which it is finally due. For consumers, this means increased transparency because when they buy from a non-EU seller or platform registered in the IOSS, VAT should be part of the price paid to the seller. That means no more calls from customs or courier services asking for an extra payment when the goods arrive in their home country because the VAT has already been paid.

Since July 1, 2021, VAT is charged on all commercial goods imported into the EU, regardless of value. For consignments with a value of €150 or below, this can either be charged at the time of the sale by using the IOSS, or be collected from the end-customer by the customs declarant. The IOSS allows sellers or online marketplaces to charge VAT at the point of sale and remit it directly to the authorities. Online shops can handle all VAT accounting and payment for all EU countries through the tax administration of one member state, meaning you don’t need to register in all 27 countries. To sign up to the IOSS, most non-EU sellers will have to appoint an intermediary to register and declare the VAT on their behalf, unless they are established in the EU themselves. They will then need to provide their IOSS number to the customs declarant. Certain marketplaces, rather than their sellers, are responsible for collecting, reporting, and remitting the VAT due from the end-consumer if they register under the IOSS. The IOSS will then apply to business-to-consumer imports of consignments up to €150 into the EU, facilitated by the online marketplace.

In summary, the changes that went into effect as of July 1, 2021, are as follows:

• Non-EU online shops have to pay VAT on all shipments ordered to the EU. There is no longer a tax exemption for consignments of less than €22.
• The tax liability of the special scheme arises at the time of sale (no longer upon the importation of the goods).
• A non-EU online store must be a taxable person established in the EU or appoint a special VAT representative and apply for a VAT registration number.
• VAT data is transmitted through a single tax authority to the EU member states where consumers ordered the goods during the declared period.
• VAT is reported monthly. So-called zero reports must also be submitted.
• To prevent misuse, the VAT registration number of online stores must not be published (meaning, this number may not be shown on invoices).
• All consignments must be the subject of a simplified customs declaration.
• Online shops and their agents must keep VAT records on their transactions for 10 years.

Value Added Tax Information Exchange System (VIES)

The European Commission's Value Added Tax Information Exchange System or VIES (www.ec.europa.eu/taxation_customs/vies/vieshome.do) is used for exchanging information about VAT between EU member states. It enables taxable persons to easily, quickly, and efficiently collect and report data on deliveries of goods within the community. A taxable person, identified for VAT purposes, is obliged to inform the tax office about every delivery of goods to other taxable persons, identified for VAT purposes in other member states. Users of the system can verify the validity of a VAT number issued by any EU member state.

Tariff-Rate Quotas (TRQ)

Tariff-rate quotas (TRQ), also referred to simply as tariff quotas, allow a pre-determined quantity of a product to be imported at lower import duty rates (in-quota duty) than the duty rate normally applicable to that product. TRQ are managed by the European Commission, which provides a searchable online tariff quota consultation database. 

Excise Duties

Excise duties are charged on the consumption or use of certain products, such as alcoholic beverages, manufactured tobacco products, and energy products (fuels and electricity). Excise duties are usually expressed as a fixed amount of money per quantity of the product. 

Additional Duties

Countervailing

Countervailing duties are levied to counter the effects of subsidies provided by a foreign government for merchandise exported to Germany. These foreign duties result in artificially low prices that can be detrimental to Germany and other EU member state industries.

Antidumping Duties

An antidumping duty is a form of additional duty that the importer may be required to pay when importing goods for which the prices have been dumped (i.e., goods that entail a lower price when they are exported than they would have fetched on the domestic market).

Watch Duty Rate

Watches imported into Germany are subject to classification and duty assessment based on a per-item basis. The actual duty and the final rate of duty are determined based on the classification of the watch at the time of entry processing with customs.

Note: The above information is subject to change. Importers and exporters are advised to obtain the most current information from a customs broker, freight forwarder, logistics professional, or the local customs authorities.

Sources: European Commission (www.ec.europa.eu); German Customs Administration (Zolldienststellen) (www.zoll.de)

Article written for World Trade Press by Brielle Burt, Jennifer Goheen, and Nina Bellucci.
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