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Import VAT and customs value in the EU

Two numbers decide what an import costs at the border: the customs value, on which duty is charged, and the import VAT base, which is larger still. Getting the customs value wrong distorts both duty and VAT, and import VAT is often the bigger cash outlay. This guide explains how customs value is built, what the VAT base adds on top, and two mechanisms that change the cash-flow timing: customs procedure 42 and Poland's deferred import VAT accounting.

By Hiram Trade Editorial Desk

Published

8 min read

Why customs value matters

Duty is almost always charged ad valorem — as a percentage of the customs value. The same percentage on a higher value is more duty, and because import VAT is calculated on the customs value plus duty, an error in the value flows into both. Customs authorities scrutinise undervaluation precisely because it understates two charges at once. Fix the tariff code and origin first; then the value.

The transaction value method

Under the Union Customs Code (Regulation (EU) No 952/2013), the primary method is the transaction value: the price actually paid or payable for the goods when sold for export to the EU, adjusted by defined additions and deductions.

Added to the price (if not already included), per the UCC:

  • commissions and brokerage, except buying commissions;
  • the cost of containers and packing;
  • royalties and licence fees the buyer must pay as a condition of sale;
  • the value of materials, tools or design work supplied by the buyer for the production (assists);
  • transport, loading and insurance to the place where the goods enter the EU.

Not included (if shown separately):

  • transport inside the EU after the point of entry;
  • import duties and taxes;
  • interest, and charges for construction or assembly after import.

The Incoterm you agree determines how much transport and insurance already sits in the invoice price, so it directly affects the customs value — a reason to align the Incoterm with how you want the value built.

When the transaction value cannot be used (no sale, related parties affecting the price, conditions that cannot be valued), the UCC sets secondary methods applied in order: the transaction value of identical goods, then similar goods, then a deductive method, then a computed method, then a fall-back "reasonable means". Do not improvise — follow the hierarchy.

What the import VAT base includes

Import VAT is governed by the EU VAT Directive (2006/112/EC) and the national VAT act that implements it. The taxable amount on importation is the customs value, plus:

  • customs duties and any other import charges due;
  • ancillary costs — commission, packing, transport and insurance — up to the first place of destination in the importing Member State (and on to a further destination if known at import).

So import VAT sits on top of a base that already includes duty. The rate is the standard (or reduced) VAT rate of the Member State of import; check the national rate. Import VAT paid by a taxable person is normally deductible as input VAT, so for most businesses it is a cash-flow cost, not a final cost — which is exactly what the next two mechanisms address.

Customs procedure 42: import without paying import VAT

Where goods are imported into one Member State and then immediately supplied or transferred to a taxable person in another Member State, the import can be VAT-exempt — Article 143(1)(d) of the VAT Directive. This is customs procedure 42 (procedure code 4200): release for free circulation with a simultaneous exempt onward intra-Community supply. The VAT is then accounted for in the destination Member State instead of being paid at the border of import.

The exemption is conditional (Article 143(2)): at import the declarant must provide its VAT identification number, the VAT number of the customer in the other Member State, and evidence that the goods are intended to be dispatched or transported there. Authorities scrutinise procedure 42 heavily because it has been abused for fraud, and the Court of Justice has held it cannot be refused automatically where the substantive conditions are met (case C-531/17, Vetsch). Use it with complete, retained documentation (such as transport evidence) and correct recapitulative statements.

Poland: deferred import VAT (article 33a)

Normally import VAT is paid to customs at import. Poland (like several Member States) offers a simplification: under article 33a of the VAT Act, an active VAT payer can account for import VAT in the VAT return instead of paying it in cash at the border. The import VAT is declared as output tax and, where the business has full right of deduction, deducted as input tax in the same return — so the import does not tie up cash at the border; the benefit is timing.

The scheme has conditions (active VAT-payer status, notifications to the customs-fiscal and tax authorities, and reporting the imports in the JPK_V7M file). The exact conditions, deadlines and form fields change, so confirm the current wording of the VAT Act and the JPK structure before relying on them. Discuss both procedure 42 and article 33a with your customs agent and tax adviser for your flows.

Fold value and VAT into landed cost

Because customs value, duty and import VAT compound, compare import quotes on total landed cost, not the headline unit price. A lower price under an Incoterm that loads more freight into the customs value can cost more delivered. See landed cost and customs clearance and EORI. Reliefs and suspensions (inward processing, customs warehousing) can defer or avoid duty and import VAT; see special customs procedures.

Checklist

  • Tariff code and origin fixed before valuing.
  • Customs value built by the transaction-value method, with the correct additions/deductions.
  • Incoterm reconciled with what the invoice price already includes.
  • Import VAT base understood (customs value + duty + costs to first destination).
  • National VAT rate confirmed for the Member State of import.
  • Procedure 42 considered (and its evidence kept) if goods move straight to another Member State.
  • Article 33a (or the local deferred-VAT scheme) considered for cash flow.
  • Total landed cost, not unit price, used to compare quotes.

On Hiram you can compare quotes by total landed cost and keep valuation documents with the deal. Go to the market.

Sources

This article is for information only and is not legal, tax or customs advice. Rules and rates change: check the current official sources or consult an adviser before you decide.

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