All companies that import goods into the EU, and especially into Germany, have to pay the corresponding import duties. These duties are composed of the customs duty and the import sales tax. While, depending on the goods’ origin, the rate of duty is often 0%, the import sales tax on imports into Germany will in most cases have to be paid in the full amount of 19% or 7%. However, there may be cases, where the German tax authority will later demand payment of the sales tax yet another time.
Import duties paid by forwarding agent
The following example illustrates this point: Company X is headquartered in the USA, where it manufactures musical instruments. A private individual from Germany orders a musical instrument from X. The parties agree, that X pays all import duties and delivers the goods to the private individual. X includes the amount in its price and has the goods shipped to Germany using the services of a forwarding agent. The forwarding agent duly declares the goods on behalf of X, pays the import duties for X (customs duty and import sales tax) and delivers the goods to the private individual.
The tax authority demands the sales tax a second time
Some weeks later, X in the USA receives a tax return from the German financial administration. This document says the company has to pay another sales tax in the amount of 19%.
Now, company X assumes that there must be a mistake on the part of the tax authority, as it has already paid the import sales tax (from the point of view of the USA the transaction was export, from the point of view of the customs officers in the EU it was an import).
Registration and sales tax return required
In fact, it is company X that has made the mistake in the example above. It has overlooked a provision of the German VAT Act (Section 3 (8) VAT Act). In conjunction with other provisions of this law, the provision says that the importing company owes the sales tax because it also owes the import duties.
X would have had to register in advance and file a sales tax return after the import. In this way, the company could have deducted the paid import sales tax as an input tax. In economic terms, this means that, had X done so, it would have paid the sales tax only once.
Companies risk late payment fines and interest
In many cases, where entrepreneurs have overlooked these provisions, a damage is caused despite the submission of the VAT return: Late payment fines and interest have to be paid. Even criminal proceedings for tax fraud (up to ten years of imprisonment) are possible.
If the tax authority has issued a VAT assessment notice, it generally becomes final one month after service. This means that after this time-limit, the addressee can normally no longer challenge the assessment notice even if it contains mistakes.
Submit VAT return
If you are an entrepreneur and wish to import goods into/or export goods from Germany, you should make sure you have read and understood the German customs and tax-related provisions. In cases like the one described above, you have to register and submit a VAT declaration.
If you need any assistance regarding the import and taxation of goods, our attorneys specializing in customs and tax law will be pleased to help you.