 "Entry into EU via the Netherlands can lead to cash flow optimisation")
Over 800 multinationals supply their clients in Europe, Africa and the Middle East centrally from the Netherlands. Indian companies, such as Godavari Biorefineries, Sudarshan Chemicals, Laxmi Organics, Aquapharm Chemicals and Aspinwall benefit from Dutch logistics expertise as well. The Netherlands is the ideal base for pan-European logistics operations.
Indian companies are increasingly active in the European market. As a consequence of this sales and marketing channels and therefore supply chains are moving from indirect to (more) direct. In many cases, Indian companies consider holding stock in the European market to cater to their European clients needs, ie being able to deliver smaller order quantities more frequently with a shorter lead time (just in time).
ALSO READ: India, an emerging hub for specialty chemicals?
When setting up or restructuring your company’s direct tax effective European supply chain, there are numerous considerations. Factors such as production/sourcing locations, inbound transport strategy, scale of the business, type of product, sales channel, location of customers, required lead-time to market and taxation influence the supply chain set up.
Tax effectiveness in the European supply chain
In a period of recession and stagnant economic growth, companies have to work even harder to retain their profits and market share. High levels of competition in the quest for market growth are forcing companies to scrutinise their costs and business processes. In some cases, this results in a strategic reorientation in terms of business location and logistic flows.
The Dutch tax and customs authorities are known for being practical and proactive about facilitating international trade and optimising procedures. This approach includes the opportunity for provisional court rulings, which may result in binding agreements that give foreign and domestic companies businesses clear information and certainty.
The Netherlands is known for its highly competitive tax structure, resulting from a corporate income tax rate of 25% (20% until Euro 200.000,-), an extensive tax treaty network, a system of bonded warehousing and a VAT deferment option at the time of import. Compared to neighbouring countries, the Netherlands has one of the most favorable arrangements for cash flow optimisation in relation to indirect taxes (ie duties and VAT).
ALSO READ: Green manufacturing leading to economic and ecological gains
Another example of a negative impact on cash flow can occur when companies import goods into the EU. These companies are faced with paying import VAT that they can only reclaim in their VAT return (retroactively) or via a refund application. The consequence is that companies must pre-pay import VAT, which adversely affects their cash flow. In this context, some EU member states have introduced arrangements to defer payment of import VAT.
Companies that are established in the Netherlands can apply for a so-called ‘Article 23 license’, which allows them to defer the payment of import VAT until the moment of filing the periodical VAT return. The VAT can then be declared as payable on the return, whereby the same amount is immediately deducted as input tax. In sum, VAT does not have to be pre-financed. Without this license, import VAT would have to be paid immediately at the border, after which this VAT can be reclaimed via a refund application or via the periodical VAT return. As mentioned above, it can take weeks, months or sometimes even a year for this VAT to be refunded. An Article 23 license can be granted to businesses established in the Netherlands, and also to businesses that are not established in the Netherlands but have appointed a fiscal representative for VAT purposes in the Netherlands.
Only Belgium provides for an arrangement similar to the one in the Netherlands, where the payment of VAT can be deferred to the time when the VAT return is filed.
The European VAT Directive gives EU member states the option of granting a VAT exemption on importation of goods that will be transported to another EU member state immediately after importation. For goods that will be stored or sold in the EU member state into which they are imported, there is no VAT exemption on importation. However, it is possible to (temporarily) suspend payment of import duties and VAT upon import.
ALSO READ: Brands must play proactive role in consumer safety and eco-compliance
When goods arrive in the EU, a company can decide to store the goods in a ‘customs warehouse’. Customs warehousing is available in all EU member states, but the practical formalities vary per country. In this scenario, payment of import VAT and import duties is suspended until the moment of removal from the warehouse. The temporary suspension of duty and VAT payment will result in a cash flow advantage but ultimately, these charges become due. However, if the destination of goods in question is not known upfront, storing the goods under customs bond could be beneficial. If these are shipped to non EU destinations, no customs duties and import VAT become due at all.
It can be concluded from the above that geographical and logistic factors are not necessarily the only valid reasons for importing via the Netherlands. The fact that import VAT does not have to be pre-financed can play a major part in the decision to route a flow of goods via the Netherlands. An additional factor, the importance of which should not be underestimated, is the difference in the interaction with the various tax and customs administrations amongst the EU.
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The author is the Senior Manager Supply Chain Solutions (APAC & MEA) at Holland International Distribution Council (HIDC) - a private, not-for-profit, publicly/privately financed logistics council offering free of charge European supply chain advice to foreign companies.
Indian companies are increasingly active in the European market. As a consequence of this sales and marketing channels and therefore supply chains are moving from indirect to (more) direct. In many cases, Indian companies consider holding stock in the European market to cater to their European clients needs, ie being able to deliver smaller order quantities more frequently with a shorter lead time (just in time).
ALSO READ: India, an emerging hub for specialty chemicals?
When setting up or restructuring your company’s direct tax effective European supply chain, there are numerous considerations. Factors such as production/sourcing locations, inbound transport strategy, scale of the business, type of product, sales channel, location of customers, required lead-time to market and taxation influence the supply chain set up.
Tax effectiveness in the European supply chain
In a period of recession and stagnant economic growth, companies have to work even harder to retain their profits and market share. High levels of competition in the quest for market growth are forcing companies to scrutinise their costs and business processes. In some cases, this results in a strategic reorientation in terms of business location and logistic flows.
The Dutch tax and customs authorities are known for being practical and proactive about facilitating international trade and optimising procedures. This approach includes the opportunity for provisional court rulings, which may result in binding agreements that give foreign and domestic companies businesses clear information and certainty.
The Netherlands is known for its highly competitive tax structure, resulting from a corporate income tax rate of 25% (20% until Euro 200.000,-), an extensive tax treaty network, a system of bonded warehousing and a VAT deferment option at the time of import. Compared to neighbouring countries, the Netherlands has one of the most favorable arrangements for cash flow optimisation in relation to indirect taxes (ie duties and VAT).
ALSO READ: Green manufacturing leading to economic and ecological gains
The Port of Rotterdam; Photo Courtesy: Bureau Voorlichting Binnenvaart
VAT has a major impact on the cash flow of companies. In principle, a company is entitled to a refund of the VAT amount it incurred. However, several weeks can elapse before this VAT can be reclaimed via the periodical VAT return. Refund of foreign VAT can even take more than a year, depending on the EU member state that receives the refund application. Even though a company is entitled to interest if it has to wait a long time for the refund, this does not – in this context – alter the fact that the long wait for payment can have a major impact on one’s cash flow position. Another example of a negative impact on cash flow can occur when companies import goods into the EU. These companies are faced with paying import VAT that they can only reclaim in their VAT return (retroactively) or via a refund application. The consequence is that companies must pre-pay import VAT, which adversely affects their cash flow. In this context, some EU member states have introduced arrangements to defer payment of import VAT.
Companies that are established in the Netherlands can apply for a so-called ‘Article 23 license’, which allows them to defer the payment of import VAT until the moment of filing the periodical VAT return. The VAT can then be declared as payable on the return, whereby the same amount is immediately deducted as input tax. In sum, VAT does not have to be pre-financed. Without this license, import VAT would have to be paid immediately at the border, after which this VAT can be reclaimed via a refund application or via the periodical VAT return. As mentioned above, it can take weeks, months or sometimes even a year for this VAT to be refunded. An Article 23 license can be granted to businesses established in the Netherlands, and also to businesses that are not established in the Netherlands but have appointed a fiscal representative for VAT purposes in the Netherlands.
HIDC's Mathijs Benink
In almost all EU countries, VAT on importation must be paid to the customs officials at or around the moment of importation. Postponed accounting does not apply in countries like France, Germany, Ireland, Italy, Spain, Sweden and the UK. It applies in some other countries, but only under very strict conditions and in specific situations.Only Belgium provides for an arrangement similar to the one in the Netherlands, where the payment of VAT can be deferred to the time when the VAT return is filed.
The European VAT Directive gives EU member states the option of granting a VAT exemption on importation of goods that will be transported to another EU member state immediately after importation. For goods that will be stored or sold in the EU member state into which they are imported, there is no VAT exemption on importation. However, it is possible to (temporarily) suspend payment of import duties and VAT upon import.
ALSO READ: Brands must play proactive role in consumer safety and eco-compliance
When goods arrive in the EU, a company can decide to store the goods in a ‘customs warehouse’. Customs warehousing is available in all EU member states, but the practical formalities vary per country. In this scenario, payment of import VAT and import duties is suspended until the moment of removal from the warehouse. The temporary suspension of duty and VAT payment will result in a cash flow advantage but ultimately, these charges become due. However, if the destination of goods in question is not known upfront, storing the goods under customs bond could be beneficial. If these are shipped to non EU destinations, no customs duties and import VAT become due at all.
It can be concluded from the above that geographical and logistic factors are not necessarily the only valid reasons for importing via the Netherlands. The fact that import VAT does not have to be pre-financed can play a major part in the decision to route a flow of goods via the Netherlands. An additional factor, the importance of which should not be underestimated, is the difference in the interaction with the various tax and customs administrations amongst the EU.
| Advantage Netherlands Central location: The Netherlands is ideally located in Northwest Europe, strategically in the middle of Europe’s main markets Germany, France and the UK and optimally situated to serve the pan-European market. Home to Europe’s largest seaport (the Port of Rotterdam) and Europe’s third-largest cargo airport (Amsterdam Airport Schiphol), the country features excellent multimodal access to the hinterland. Did you know that the Netherlands is the largest port for Germany, and that the city of Venlo in the Southeast part of The Netherlands serves as the main access point to the German market for countless multinationals? Excellent infrastructure: No other country in Western Europe offers such a convenient combination of both seaport and airport locations. Via the extensive network of inland connections, goods find their way quickly and efficiently to and from the European market at competitive rates by road, inland shipping, rail, pipeline, short sea or feeder. This, combined with the vast number of logistic service providers, ensures frequent onward connections, short transportation lead times and competitive pricing from the seaports, airports and distribution centers in the Netherlands to all the main destinations within Europe and beyond. |
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The author is the Senior Manager Supply Chain Solutions (APAC & MEA) at Holland International Distribution Council (HIDC) - a private, not-for-profit, publicly/privately financed logistics council offering free of charge European supply chain advice to foreign companies.