EU logistics for e-commerce company from Asia

[drumtraks]

Hello everyone, this is my first post. Thanks for an amazing forum. I hope I will be able to contribute and give back to the community.

I have an EU company and I was given the opportunity to take care of logistics of trading card games and collectables for an HK company. Not sure if anyone's familiar with Magic The Gathering and games like such but basically our job would be to receive the boxes, unpack them, sort and then fulfil orders directly to their end customers. We will not hold assets in any accounting sense nor I want to. Only interested if this can be done 100% as logistics play.

1) HK company sells these cards to their customers via e-Commerce platform (that for my understanding is established in Germany, if that has any relevance at all). This HK company has a track record in this business in Asia already, so they are legit in that regard.
2) Their proposal is to make a contract with my EU company to do the logistics for them (only for the sales made/shipped to EU customers).
3) We would receive the boxes directly from their supplier on a monthly basis. Our job, as per the agreement, is to unbox, sort and ship as to whatever addresses they provide, on a daily basis.
4) My company would be paid a monthly fixed-fee for this service.

One of my accountants said all good but someone else kinda put up this would be a gray area since we would be exporting to within the EU (which would require us to charge VAT on the transaction). The thing is, we do not sell anything. We only fulfil the orders.

Anyone experienced enough to put up their 2 cents? I would be greatly appreciated.

Cheers.

 

[Paper Chaser]

As long as you operate within the EU, you will have to pay the VAT of all goods you're receiving from outside. Different VAT apply, different tax allowences apply.

So while your business actually may be running well if you are the one who's selling the goods to your customers, I don't think it will work in your specific case. I'm not a 100% sure, so please carefully read my 3 advices at the end of my post.

Look, HK companies don't need to pay for it, but their customers will have to. Most of times with additional charges for obvious reasons (extra customs charges for having to check, open, store packages etc. etc.).

That's why customers lost interest in ordering costly items from Asia long time ago while low cost items still sell like crazy in the EU.

My advices to you since I'm not an expert myself, just a fellow learning too:
1) Contact a local tax consultant.
2) Look up the specific VAT and tax allowances of your country.
3) Be very careful with Asian business men (or women). Most of them are mad for money, it's insane.

 

[Paper Chaser]

Look here, similar topic, same conclusion: How to avoid paying VAT ?

 

[drumtraks]

Look, HK companies don't need to pay for it, but their customers will have to. Most of times with additional charges for obvious reasons (extra customs charges for having to check, open, store packages etc. etc.).

I would imagine this is exactly why they are looking for an EU partner to do the logistics.

As long as you operate within the EU, you will have to pay the VAT of all goods you're receiving from outside.

They will be shipping directly from their supplier, a company in the EU (I've verified and they are a big business... legit too).

Don't want to be a douche but on that "How to avoid paying VAT?" thread it seems the same person is the owner of the entire thing and as the topic itself implies, is trying to avoid VAT. I am not trying to avoid VAT as I have nothing to do with the HK company. I just want to understand how this is done (thinking about it, Amazon FBA comes to mind as being something similar).

Just to be clear, I will not own the inventory nor I will receive money from their clients, rather a monthly fee for the logistics service.

For all intents and purposes I imagine they could hire some company like DHL or something to do it?

 

[fshore]

They need to register and pay vat in the country they store the goods (where you are). You need to charge vat on your fees (if you are vat registered).

If they break the distance sales thresholds in other countries then they also need to register for vat in those other countries.

 

[Paper Chaser]

They will be shipping directly from their supplier, a company in the EU (I've verified and they are a big business... legit too).

The bigger the business, the greedier the Asian leaders (in most cases). Have you considered asking them about the VAT situation, mate? It seems to be even more shady now that there is another EU company involved. Why don‘t they just work with DHL or similar by theirselves?

Don't want to be a douche but on that "How to avoid paying VAT?" thread it seems the same person is the owner of the entire thing and as the topic itself implies, is trying to avoid VAT. I am not trying to avoid VAT as I have nothing to do with the HK company.

Doesn’t matter, as soon as there will be a connection (through contracts etc.) you will be part of the whole. If s**t would get real, you would be the first one to get roasted.

For all intents and purposes I imagine they could hire some company like DHL or something to do it?

Again, have you considered to ask them by yourself, why would they not do it? That‘s the most interesting part yet.

 

[AdamT1]

They need to register and pay vat in the country they store the goods (where you are). You need to charge vat on your fees (if you are vat registered).

If they break the distance sales thresholds in other countries then they also need to register for vat in those other countries.

Yes all of this is true. I dealth with such intra EU supplies alot and this is the reposnisbilty of goods owner when he makes supplies.

 

[AdamT1]

They will be shipping directly from their supplier, a company in the EU (I've verified and they are a big business... legit too).

Don't want to be a douche but on that "How to avoid paying VAT?" thread it seems the same person is the owner of the entire thing and as the topic itself implies, is trying to avoid VAT. I am not trying to avoid VAT as I have nothing to do with the HK company. I just want to understand how this is done (thinking about it, Amazon FBA comes to mind as being something similar).

Just to be clear, I will not own the inventory nor I will receive money from their clients, rather a monthly fee for the logistics service.

You as a logitics service supplier are not directly responsible for their VAT maters, but you risk is that if they avoid VAT due in some EU countires you coud have problems as a facilitator who knowingly participated in VAT avoidance scheme. Consequences differ from country to country, but anyway it would be unpleasant experience trying to convince authorities that you did not know what they did.

I had a situation when simmilar non-eu trader ordered production of some items in BE and instructed them to send it all to their warehouse service provider in LV, while instructing BE producer to issue an invoce with 0% vat (under reverse vat charge scheme) stating that buyer is VAT registered in LV that was the LV warehouse company while LV warehouse guys did not know about existence of this invoice. All goods were sold out within EU without any VAT payments. Non-eu trader got all the money and were gone as soon as they heard of some VAT liabilities.

LV warehouse had some troubles proving that they did not trade the goods and were only logistis service providers.

Do your due dilligence an dont get involved in agressive VAT avoidance schemes, and if possible request for a deposit from customer as a security so that they dont disapear if sh.. hits the fan or at least you have some money to cover your legal expenses.

 

[drumtraks]

Thanks @AdamT1 that would be more in line with our situation although I’d hope no one would be invoicing me.

Anyhow, the answer I got regarding VAT was the following:
“Hong Kong does not have sales tax and hence we are not required to charge any tax on our sales. Europe - Import duty and VAT is also not levied due to the small value of each shipment of the goods (orders are almost always under 50 USD). About your question on supplier invoice, our supplier will always invoice us, never you.”

 

[fshore]

They must always charge vat when shipping from within the EU.
They seem either very ignorant or they're trying to take advantage of you.

 

[drumtraks]

@fshore is Amazon paying VAT on the orders they fulfill for third parties? Is any processing/transportation/fulfillment company paying VAT on their customers sales? Answer to both questions is I don’t think so. I don’t even see how they would even if they wanted to, if they’re not selling anything.

This is my first time in this space but I’ve done business for quite a while and I know the VAT rules pretty well and even for me (and some accountants I’ve talked to) this seems to be a gray area.

the way I see it, if ever there’s VAT to be paid, it’s always a burden of who sells and not who distributes. I have nothing to do with the business of selling.

anyone with me or am I being naive?

And even in the part of VAT being due, for me that’s debatable, due to the amount of each transaction as they explained - yes there are rules with minimum amounts on importing being exempt. The question is: is this still importing since their supplier within EU will not ship to HK and make the goods come back? Although I assume they invoice from HK.

anyhow, as I said before, I don’t see how that has anything to do with me.

 

[fshore]

@fshore is Amazon paying VAT on the orders they fulfill for third parties? Is any processing/transportation/fulfillment company paying VAT on their customers sales? Answer to both questions is I don’t think so. I don’t even see how they would even if they wanted to, if they’re not selling anything

I said that the seller should charge vat, did you misunderstand what I wrote?
This is not grey area, its very clear.
Also, amazon will charge vat on behalf of foreign sellers in the UK from 2021, and amazon EU certainly don't make it easy for non EU sellers to break vat laws.

If you fulfill orders for the HK company you risk being held accountable, and maybe tax authorities world even consider you as the seller.

The question is: is this still importing since their supplier within EU will not ship to HK and make the goods come back? Although I assume they invoice from HK.

They are not importing when buying goods from an EU supplier. They need to pay vat to their supplier if they are not vat registered, and if they are vat registered it should be reverse charged (if from another EU country). And they need to charge vat when selling goods that are located within the EU at the time of the sale.

 

[drumtraks]

Also, amazon will charge vat on behalf of foreign sellers in the UK from 2021, and amazon EU certainly don't make it easy for non EU sellers to break vat laws.

My Amazon example isn't a good one as Amazon is a fully automatic digital service and therefore they are obligated to implement the technology that processes VAT automatically accordingly to the customers. If anything, this would be a problem of the platform where the HK company sells their stuff.

If you fulfill orders for the HK company you risk being held accountable, and maybe tax authorities world even consider you as the seller.

I can be considered the seller? I'm interested on the legal basis on how this can happen.

 

[AdamT1]

My Amazon example isn't a good one as Amazon is a fully automatic digital service and therefore they are obligated to implement the technology that processes VAT automatically accordingly to the customers. If anything, this would be a problem of the platform where the HK company sells their stuff.


I can be considered the seller? I'm interested on the legal basis on how this can happen.

Quite the opposite. Amazon is great example.

Few years ago there was vawe of requests from chinese Amazon traders looking for european fiscal VAT represenatives in UK due to Amazon was handling import & local EU fulfilment for many such CN traders. Tax authorities warned Amazon that they will be held responsible for their platform's traders' VAT liabilities if they dont make sure that all the traders register for VAT in relevant countries of supply. Thus Amazon re-run their due dilligence process by requesting all those traders to get VAT reg. or they cancel the accounts.

Thus we can see that tax authorities are treating such logistics providers as facilitators who could be held liable for their client's vat in certain circumstances. But to get deeper understanding of where is the red line you should talk to your local tax expert who knows local tax case practice.

Google this one:

Amazon UK reviews Chinese traders before VAT fraud clampdown​

 

[AdamT1]

Anyhow, the answer I got regarding VAT was the following:
“Hong Kong does not have sales tax and hence we are not required to charge any tax on our sales. Europe - Import duty and VAT is also not levied due to the small value of each shipment of the goods (orders are almost always under 50 USD). About your question on supplier invoice, our supplier will always invoice us, never you.”

I heard this sooo many times..
First you try to educate them about how EU vat works, if they dont wanna learn you decline their busines.

No other options.

 

[drumtraks]

Thank you @AdamT1 for the invaluable info there. To everyone actually.