Asides from the regulatory hurdles necessary to navigate when marketing your devices in the EU, taxation requirements are also applicable. And while not among the most complicated taxation systems for foreign companies to navigate, there are important taxation considerations for manufacturers when importing their devices into the EU. In this article, we briefly touch on some of these importation and taxation considerations, including DDP vs DAP, and different approaches to financial responsibility, when selling into the EU.
Important considerations when importing devices into the EU
Import duties are levied on goods imported into the EU. In the case of The Netherlands, the Dutch Customs authorities levy and collect the import duties and transfer the duties collected to the EU, retaining a portion of the sum levied to cover collections costs (as all Member States are entitled to do if they are the point of entry into the EU). Import duties are calculated based on:
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- Goods classification (for the purposes of the EU common customs tariff);
- The source/origin of the goods;
- Value of the goods.
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Regulation (EEC) 2658/87 (consolidated) established the EU common customs tariff and statistical nomenclature for goods classification and consultation of TARIC, the integrated multilingual database of the integrated tariff of the EU and is based upon this regulation. Consultation of all measures relating to EU customs tariff, commercial and agricultural legislation in TARIC is possible here.
Products from countries with which the EU has concluded a free trade agreement (e.g. Vietnam, Japan, Canada, Singapore) and developing countries within the scope of the Generalised System of Preferences (GSP), are subject to import duty at a reduced or zero rate. Import duties are not levied on products traded between EU Member States.
Value-Added Tax (VAT) is a tax, which is payable on sales of goods or services within the territory of the EU Member States and is ultimately payable by the final consumer of the good or service. Each party in the chain of supply acts as a VAT collector from their respective supplier. For VAT purposes, the territory of the Member State includes its territorial sea which extends to a limit of twelve nautical miles.
The EU legislative framework includes legal mechanisms that allow for the EU Commission to waive customs duties and VAT, targeted specifically to assist disaster victims. In the case of COVID-19, these mechanisms were employed by the EU Commission to temporarily suspend customs duties and VAT on protective equipment (e.g. face masks), COVID-19 test kits and other devices necessary for the care of patients with COVID-19 (e.g. ventilators) during the heights of the pandemic and extended through to the end of 2022.
EU importation and taxation: DDP vs DAP
Among the 11 internationally recognized rules established by the International Chamber of Commerce (ICC), known as the Incoterms®, which define the responsibilities of sellers and buyers for the sale of goods in international transactions are the terms Delivered at Place (DAP), and Delivered Duty Paid (DDP). Both DDP and DAP terms are among the seven Incoterms® 2020 rules for any mode(s) of transport and it is important to understand the differences and advantages between each when determining which of these approaches to apply when importing goods into the EU.
Delivered Duty Paid (DDP)
In a DDP agreement, the seller assumes financial responsibility for all costs up to the point of customer product receipt, including cargo packing, shipping fees, customs clearance, and warehousing. Generally, the seller will add these costs within the product’s price, or the shipment fees so that the buyer can partially cover the costs; however, the seller will maintain liability for any damages of losses prior to the buyer receiving the delivery. Under a DDP agreement, the seller’s responsibilities include:
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- Ensuring financial coverage for damaged or lost cargo when the item does not reach the delivery destination;
- Following all necessary protocols during management of the export processes at the shipment location;
- Assuming financial responsibility for customs clearance procedures at the delivery location;
- Ensuring that products and goods arrive at the correct international site prior to ceasing liability;
- Covering all transport costs from packing areas to delivery locations;
- Organizing the carrier contacts with all carriage companies that assist with delivery.
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DDP shipping services are one of the most common ways to build trust between buyer and seller with benefits of this approach including:
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- All delivery logistics are under the same agreement;
- There is less risk involved (as DDP solutions typically have a more streamlined process, resulting in a lower probability of products getting lost or becoming unavailable during transit);
- Complete financial transparency (the final cost is known and there are no unexpected costs for importers);
- “Hands off” customer experience (customers don’t need to worry about customs complications or other shipping requirements).
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Delivered at Place (DAP)
While DAP and DDP share several similarities, the critical distinction is that the seller lacks financial responsibility after the cargo arrives at the foreign location. While in a DDP agreement, the seller is responsible until the buyer receives the item; this is only true until it reaches the buyer’s country in a DAP agreement. The responsibilities of the seller in a DAP shipping service include:
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- Providing the necessary shipping documentation (e.g. licenses, permits, declarations) to the pickup location;
- Ensuring that the buyer’s goods arrive at the correct country and the proper location for the shipment;
- Ensuring that when the item does not reach the delivery destination, lost of damaged cargo is financially covered;
- Covering all transport costs from packing areas to delivery locations;
- Providing updates to the buyer regarding their delivery.
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DAP shipping agreements allow the buyer to assume much more control over their shipping procedures and include the following advantages:
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- Provides the buyer the opportunity for cheaper options;
- There are fewer legal complications (sellers are typically less aware of the shipping affairs in a foreign country than the buyer);
- Greater supply chain visibility (in DDP agreements, the buyer is limited to the amount of reporting they can access);
- Greater buyer control (where buyers seek to maintain a consistent inventory, complete control over transportation at the country’s drop off location is often desired as they have a greater ability to control costs and learn of delays as soon as possible)
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Learn more about EU importation and taxation with MedEnvoy
Making the choices best suited for your business model, and trade obligations are critical in ensuring smooth trade practices in the EU. If you have any questions regarding DDP/DAP, EU importation and/or taxation requirements, or require relevant training/consulting services, get in touch.