Import VAT and customs duty on a first order from China

Short answer. When your order from China enters the European Union (EU), two charges are due: customs duty and import value added tax (VAT). Duty is a percentage of the goods price plus freight to the EU border, set by your product's tariff code, and it is a real cost. Import VAT is charged on that value plus the duty and transport to your address, and a VAT-registered company can deduct it on its VAT return. Before the goods ship, get an EORI number and make sure the import is declared in your company's name.

This page is general information and not legal advice.

The two charges, in plain words

Customs duty. EU law starts from the price you paid for the goods and adds the cost of transport and insurance up to the point where the goods enter the EU (Union Customs Code, Articles 70 and 71). That total is the customs value. The duty rate depends on the product's tariff code. Look it up in the Commission's Access2Markets tool with China as the origin, and never guess. Cotton T-shirts are commonly listed at 12 percent; ask your forwarder to confirm the code and rate for your item in writing.

Import VAT. The VAT base is the customs value plus the duty, plus costs such as packing, transport and insurance up to the first place of delivery in your country (VAT Directive, Articles 85 and 86). The rate is your country's VAT rate. In the Netherlands the general rate is 21 percent.

A worked example

Say you order 500 cotton T-shirts at EUR 4 each, shipped by sea to the Netherlands.

1. Goods: EUR 2,000
2. Freight and insurance to the EU port: EUR 300
3. Customs value: EUR 2,300
4. Duty, if the tariff code carries 12 percent: EUR 276
5. Transport from the port to your warehouse: EUR 100
6. VAT base: 2,300 + 276 + 100 = EUR 2,676
7. Import VAT at 21 percent: EUR 561.96

The freight figures are made up. The duty adds about 14 percent to the goods price and stays a cost. The VAT is cash out of your account until you deduct it. The other costs on top of a factory price are in how to read a China quote.

Getting the import VAT back

A VAT-registered business can deduct VAT due or paid on goods it imports, on its normal VAT return, as long as the goods are used for its taxable business. The European Commission adds one condition that matters a lot: you need an import document that names your company as the consignee or importer and shows the VAT. No document in your name, no deduction. So for most companies import VAT is a timing problem, not a cost.

Some countries remove the timing problem too. This is often called the reverse charge on import.

• Netherlands. With an Article 23 permit, import VAT is not paid at the border. You report it on your VAT return and deduct it on the same return, so it nets to zero. A business from outside the Netherlands cannot apply for the permit itself; a Dutch tax representative applies and handles it for you.
• France. Since 1 January 2022, businesses registered for VAT declare import VAT on their VAT return instead of paying it to customs. It is mandatory and automatic.

Other EU countries have their own rules. Ask before the first shipment.

EORI number: get it this week

An EORI number (Economic Operators Registration and Identification number) is your company's customs ID. Every business established in the EU that deals with customs needs one. You apply to the customs authority of the country where your company is established. The number does not expire. Your forwarder will ask for it together with your VAT number.

Who is the importer?

The importer is the company named on the customs declaration. For a small brand this should usually be you, because that declaration is the document you need to deduct the VAT.

A customs broker or forwarder usually files the declaration, in one of two ways (Union Customs Code, Article 18). In direct representation the broker acts in your name. In indirect representation the broker acts in its own name for you, and then both of you owe the duty (Article 77). Either way, check the tariff code yourself.

Be careful with factory quotes on DDP (delivered duty paid) terms. Duty and VAT hide in the price, and the import is commonly declared in someone else's name, so you may lose the VAT deduction.

What to do before your first shipment

• Register for an EORI number with your national customs.
• Ask your forwarder for the tariff code and duty rate in writing.
• Set up import VAT on your VAT return if your country allows it.
• Agree that the declaration is made in your company's name.
• Keep the customs declaration and the duty invoice for your VAT return.

Further reading

Read how to read a China quote for the full delivered-cost sheet and the EUR 3 parcel charge guide if you ship samples or single parcels. Bulk orders go through Source.