Excise Duty and Cross Border Trading
The movement and trade of excise goods is tightly controlled within the countries that make up the current EU (European Union). The controls are even tighter when excise goods such as tobacco, wine and spirits are sold to a country outside of the EU. These territories are known as ‘third countries’.
It is important to understand how your business can export excise goods to these countries to ensure you comply with all the regulations regarding the payment and accounting of excise duty. In the context of this guide, cross border trading will be defined at selling excise goods to countries outside of the EU.
Trading with Third CountriesYour business should clearly understand the tax differences that exist when trading with an EU and none EU country. Generally, if you sell any goods to an EU member country no taxes such as VAT or excise duty is payable. Any other country your business sells to is called a third country as it is outside of the EU economic region. As such any goods your business ships to these countries may have taxes, quotas or other restrictions placed on them. It’s vitally important to understand all of the taxes and other payments that could impact on any goods you ship to a third country.
The amount of VAT and or excise duty you have to pay on the goods you are exporting to a third country will depend on the tax regime that is currently in place. Organisations like UK Trade & Investment can help your business research the different taxes you may have to pay when your goods enter a particular third country. Don’t forget, customers my want your business to provide a price for your goods that is inclusive of any local taxes.
Distance SellingThe use of E-commerce to sell excise goods across the Internet has to be handled carefully by you business. Generally speaking the excise goods you sell to a customer in the third country will have has excise duty paid on them when your business bought these goods into the UK for the first time. It is usually the responsibility of the buyer to ensure that any excise duty on the goods they are buying from your business over the Internet is paid in full to their countries duty collecting authority.
Paperwork and DocumentationWhen your business sells to a third country all of your consignments will need a customs declaration. These declarations are handled by the electronic system called NES (National Export System). NES is based on a much larger system called CHIEF (Customs Handling of Import and Export Freight).
HM Revenue & Customs (HMRC) also have available the Authorised Economic Operator system. Your business could benefit from this system as it is a simplified version of NES. The HMRC website has more details about the system and how your business can apply to use it.
Rules of Origin and Third Country ExportsSome of the third countries you could export your goods to may be able to offer your business the chance to reduce the amount of duty you pay. Any reduction in duty is determined by a number of factors, but the crucial element is where the goods originated. For instance, if the goods sold to the third country came solely from an EU country and is exported to a third country where there is an agreement to reduce the duty payable, your business could benefit from the reduction.
However, some goods may have had their components sourced from a number of different countries. It may then be the case that the country of origin is actually where the goods were finally assembled. It is this country you would have to look to for any existing agreement about the payment of duty or other taxes when your exports enter their destination country. A good example is exports to Arab states. They require an Arab-British Certificate of Origin before your goods will be allowed into their countries.
To save your business time and money, if you are constantly exporting the same goods to the same third countries, you can apply for what is called Binding Origin Information (BOI). This document formally states the origin of your goods.
The Europa website has details about how the rules of origin work and how they can be applied to your third country exports. You can also called the HM Revenue & Customs National Advice Service Enquiry Line on: 0845 010 9000.