VAT implications of sending goods directly from Chinese factory

Question

We are a UK Vat registered company, however most of the orders we have forecasted to receive will be supplied directly from our factories in China

I have 2 scenarios:

What will be the implications of VAT, if i sell these good directly from china on an FOB basis, where the goods are shipped from China to my European customers

2)What will be the Vat implications where the goods are imported to the UK, and then supplied to customers in Europe.

Some of these customers will be Vat registered, some won’t.

Please kindly advice on the above as i want to be prepared, for your information these goods are accessories for smartphones, so mainly cases for the iPhone

Answer

Hello Wasim –

!) if goods are shipped directly from China to non-UK customers, then importer pays VAT at rate in their country, you will invoice them without VAT, but should be able to provide proof that goods shipped directly from China, without transit through the UK, when requested by HMRC

2) if goods are imported first into the UK, you will pay VAT on the import and then either invoice with UK VAT to non-VAT registered customers, or without VAT to registered customers.These sales are declared via INTRASTAT to ensure VAT is paid in country of destination, and you then can reclaim UK VAT on these sales.

regards
Barbara

Answer

Wasim –

You should consider your is trading position sending goods from China to other counties whether through UK or other as possibly being better served and more tax efficient (not just VAT) by having a corporate structure in for instance Hong Kong from where to do your business. You don’t have to actually be there, so don’t worry about having to move.
I could put you on to the correct tax people to talk to which makes a lot of sense if you intend to trade with China (or Asia countries) going forward.
Let me know if this would be of interest to you.
brian.mclean@meridian-mkt.com

Answer

1. What needs to be established first is where the supply takes place. These rules are explained in paragraph 4.8 of VAT Notice 700 – The VAT Guide.

For VAT purposes goods are supplied where they are located when the supply takes place. If they are in the UK then UK VAT will apply. If they are outside the UK then UK VAT won’t apply but there may be tax liabilities in the country where the supply takes place. You may therefore like to enquire with the tax authorities of the country concerned.

I assume that your reference to customers located in Europe means countries in Europe other than the UK. If the goods do not enter the UK then no UK VAT would be due.

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