How to start exporting... within the EU
It’s never been more important for businesses to stay globally competitive, and it’s never been easier to forge connections across the world. But if you’re a small business who wants to trade with the rest of Europe, what regulations do you have to comply with, what tax do you have to pay, and how should you go about it?
Duty and custom
Good news – if you’re sending goods within the European Union, the good are in ‘free circulation’. This means that you don’t have to pay duty (aka, custom charges), and there are no customs checks. These exports are called ‘dispatches’.
As another bonus for small businesses across the EU, regulations and product standards are generally uniform across EU member states. So if your products already comply to UK regulations and standards, it’s very likely that they also comply with standards in other countries, such as electrical safety.
You do have to pay VAT - Value-added Tax - on your goods however, and that’s a bit more complicated. Which brings us to…
VAT within the EU
When selling within the EU you need to pay VAT on some items. This means you’ll need to:
- Record all the goods you’ve sold to EU countries on your VAT return.
- If your total sales to other EU countries are worth more than £250,000, you have to fill in an Instrastat Declaration. The Intrastat system collects statistics about the trade between EU member states.
How you pay your VAT also depends on the VAT status of your customer. If your customer is VAT registered in their country (for example, you're selling to a business in another EU country) they’ll pay the equivalent to VAT for the purchased goods at their country’s rate. This means you don’t have to pay any VAT.
You'll also need their VAT registration number (including the 2 letter country code) for your sales invoice; you'll need evidence of removal, which shows that goods have gone out of the UK (for example, a shipping receipt); and you'll need to dispatch the goods and get this evidence of removal sorted within 3 months. Ensure you keep customer orders, sales invoices, invoices from customers involved in removal, customer correspondence, bank statements, proof of shipping, and other paperwork.
Want to check their VAT number is valid? Check here.
If your customer ISN’T VAT registered in their country (for example, you are selling by mail order or online to an individual within the EU), you’ll generally have to pay UK VAT on goods you export to them. However, if the value of your goods is above an amount called the ‘distance selling threshold’ and you deliver the goods, your customer covers the VAT. Distance selling thresholds vary from country to country – find out what they are here.
Paying VAT on services within the EU
Working out who pays the VAT is based on the ‘place of supply’ – where a supply is made.
If you are in the UK, and the place of your supply is in the UK, you pay UK VAT.
If you are in the UK and the place of supply of your service is in another EU country, you don’t pay UK VAT.
Generally, if you supply services to a business customer, the place of supply is the place where the customer belongs. If you supply services to a non-business customer, the place of supply is the place where the supplier belongs.
However, services can make this trickier, particularly when it comes to land purchase, catering, events and electronic services such as downloading. Find out how your place of supply for industries such as these is calculated here. For example, if you’re supplying services that relate to land and property, the place of supply will be where the land or property is located.
What happens if your goods pass from country to country?
As you don’t have to pay duty within the EU if your goods are made in the EU and passed to another EU country, free circulation means they can do their rounds of EU countries hassle-free. And if the goods are made outside of the EU and duty has been paid on them already, they’re also in free circulation. However, goods moved the other way – through the EU to non-EU countries - are known as indirect exports, and will require extra measures.
- An importer brings hats into the UK from India and pays duty on them. The hats are then dispatched to Germany and Spain by the UK purchaser, and no more duty needs to be paid, as the hats are in free circulation.
- You’re a UK company that sells a customer in Italy that isn’t VAT registered a very large order by mail. It’s worth 40,000 euro. This means it’s the buyer in Italy’s responsibility to pay the VAT – nor yours – as it exceeds the distance-selling threshold.
- You’re a UK company selling a catering service to an event in France. As the place of supply is the place where the event is held, you do not pay UK VAT.
- You’re a UK company selling clothing worth 500 euros to a Spanish company. They pay VAT at the Spanish rate, and you don’t pay anything.