VAT and Customs Duty What is the real difference

Importers are usually aware that they may have to pay taxes for importing goods into the UK. However, they are often confused about the difference between taxes, tariffs, and duties. To formulate an effective shipping strategy for international goods, companies must consider import fees.

To formulate an effective shipping strategy for international goods, companies must consider import fees. Although often confused, taxes, tariffs, and duties have distinct differences that must be taken into account. 

Customs duties are based on the characteristics of the product whereas tax rates (TVA/GST) are based on the value and quantity of the goods imported. Tariffs are generally associated with specific products and countries as well as with specific times. Each country will have its own fees obligations regarding rates, forms, and rules. Ensure that you comply by working with a trusted international service provider, to avoid being caught off guard by hidden import fees.

How does Custom duty work?
Taxes imposed on imports and exports of goods are known as customs duties.  According to the customs laws, customs duties are either specified or ad valorem, meaning they are based on the value of the goods. The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 state in Rule 3(i) that the transaction value should be adjusted under Rule 10 of those rules in determining the value of imported goods.

How does VAT work?

VAT is a broad-based, general consumption tax levied by the European Union on the value added to goods and services. In general, these rules apply to all goods and services purchased and sold in the European Union. The VAT normally does not apply to exports or services sold to customers abroad. As a result, EU producers must pay import taxes to be able to compete on an equal basis with suppliers outside of the EU on the European market.

VAT Reimbursement on Imported Goods

When you purchase goods from outside the EU, you typically pay the same tax rate that you would pay in the UK. As long as the goods are used for business purposes, any VAT you paid on goods purchased in the UK can be reclaimed by VAT-registered companies. You should also keep in mind that import duties are subject to VAT.

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