Returned goods UK/EU

The recent worldwide developments have had a significant impact on retail businesses due to strict lockdowns. Entrepreneurs in retail that have adapted timely and had a good digital strategy survived and may even have had a substantial increase in revenue.

On the other hand, various logistical challenges came to surface as Brexit became a fact. As if that wasn’t enough, new E-commerce legislation entered into force per July 1st, 2021 which increased compliance obligations for those involved in cross-border B2C sales.

As we go further in this post-Brexit world, various new challenges arise. These challenges especially arise when customers are not happy with their products and decide to return the goods to sender. Prior to Brexit, this process was relatively simple in relation to the UK/EU goods-flow. Post-Brexit, unfortunately not. The new indirect tax E-commerce legislation adds another layer of complexity.

The possibility to return goods is commercially friendly but could lead to substantial costs for retailers. When UK customers for example decide to send back their goods to the EU seller, this could lead to the obligation for the seller to pay import duties and import VAT on the returned goods. In order to avoid this, EU legislation allows an exemption for import duties for returned goods, provided that strict conditions are met. For the import VAT, this exemption only applies if exceptional conditions are met. If no import VAT exemption is applicable for the returned goods, the import VAT may still be recovered if is the (re)imported goods are used for VAT taxable activities.

Considering the aforementioned it is key to have a good understanding of the indirect tax consequences in order to implement a process for returned goods that mitigates additional costs in terms of import duties and/or import VAT. In addition to a good understanding of the aforementioned implications, it is also of the utmost importance as to make clear contractual arrangements with your customs agents and couriers an online retailer. In order to set up an efficient process, one of the options is to have a central point in the EU for the returned items. In this respect, the Netherlands is a very good option as a result of its historical position as gateway to the rest of the European continent as well as its indirect tax benefits such as the returned goods relief, the so called article 23 (VAT deferment) license for deferment of import VAT and limited fiscal representation.

The E-commerce team of RSM has a very strong knowledge in this area and helps companies with various challenges in relation to cross-border trade. In case of any questions, please contact us: : [email protected].