Introduction.
Currently, there is a great deal of information on tariffs available on the Internet.
However, such information often does not accurately capture the European customs system, or is only expressed in abstract terms, and is often insufficient as knowledge that can be applied in practice.
IN PARTICULAR, WE SEE CASES OF CONFUSION BETWEEN "CUSTOMS DUTIES" AND "LOCAL TAXATION (TVA)".
This article will provide a clear explanation of the correct tariffs, cautions, and strategic points necessary for exporting to and expanding in Europe, while also taking into account the impact of the Trump tariffs.
Conclusion
Tariffs are essentially non-existent between Japan and Europe
THE FIRST POINT TO PRESS IS THE FACT THAT TARIFFS BETWEEN JAPAN AND THE EUROPEAN UNION (EU) HAVE ESSENTIALLY BEEN ELIMINATED UNDER THE EU-JAPAN ECONOMIC PARTNERSHIP AGREEMENT (EPA), WHICH CAME INTO EFFECT IN 2019.
IN OTHER WORDS, WHEN GOODS ARE EXPORTED FROM JAPAN TO EU MEMBER COUNTRIES THROUGH REGULAR PROCEDURES, NO CUSTOMS DUTY IS CHARGED IN PRINCIPLE.
However, it is important to note that there is a " local taxation (TVA) " here.
This is a value-added tax (consumption tax) imposed on imported goods and is payable by the recipient. There are so many cases where this TVA and customs duty are confused, causing confusion.
Points to keep in mind when developing sales strategies for entering the European market
The following three points are of particular importance in developing a sales strategy for Europe:
Tariffs
CALCULATION OF LOCAL TAXATION (TVA)
Additional costs such as warehousing fees in case of customs clearance delays
Failure to properly understand these three factors can lead to problems such as incorrect assumed break-even points, unsuccessful business negotiations, lack of profits, or failure to develop long-term transactions.
In addition, it may be difficult to revise prices if the company has an exclusive local distribution agreement or other arrangements.
Since price changes often require the agreement of the local partner, we recommend that you carefully review the contract and consult with a specialist. Legal confirmation at the initial stage, including terms and conditions of sale and exclusive distribution rights, is essential.
Regarding item 3, it is necessary to promptly contact the customs office, confirm the reason, and submit additional documents.
Every time there is a delay, warehousing fees will be added, causing inconvenience to the other company, and in the worst case scenario, it is not uncommon for the transaction to be suspended.
In this case, local language support is essential and requires the assistance of local expert firms.
Definitions and Misunderstandings of Tariffs and Free Trade Agreements
AS MENTIONED EARLIER, THERE IS AN ECONOMIC PARTNERSHIP AGREEMENT (EPA) BETWEEN JAPAN AND EUROPE. HOWEVER, THIS COVERS GOODS EXPORTED "FROM JAPAN TO THE EU.
In other words, if, for example, the manufacturer is in a third country, such as China, and the goods are transported directly to Europe, they are not covered by the EPA. In this case, tariffs will be charged as usual. Please note that the condition is that the goods must be transported from Japan.
Since tariffs vary greatly depending on the manufacturing and transportation routes, logistics planning should be done carefully.
WHAT IS LOCAL TAXATION (TVA)?
Each European country has its own value-added tax (TVA) rate, which is a separate tax from customs duties. Below are the TVA tax rates for major countries:
France: 20%.
Germany: 19
Italy: 22%.
Spain: 21%.
THIS TVA IS TAXED ON THE TOTAL OF THE PRODUCT PRICE, INSURANCE PREMIUMS, AND SHIPPING CHARGES.
For example, if the product price is 1,000,000 yen, shipping costs are 50,000 yen, and insurance costs are 10,000 yen: TVA (France) = (1,000,000 yen + 50,000 yen + 10,000 yen) x 20% = 211,200 yen
THIS TVA BURDEN IS NOT SMALL FOR B2B TRANSACTIONS IN THE HUNDREDS OF THOUSANDS TO MILLIONS OF UNITS.
TVA IS REFUNDABLE, NO REAL COST
However, there is a refund system for this TVA.
In most cases, a company's locally taxed TVA can be applied for a refund on a monthly or quarterly basis, which ultimately amounts to virtually zero.
THEREFORE, THE IMPORTER ONLY NEEDS TO "TEMPORARILY REPLACE" THE TVA; THERE IS NO NEED TO WORRY ABOUT AVOIDING THE TRANSACTION DUE TO THE TVA BURDEN.
In order to take advantage of this refund system, the recipient must have an EORI number (Economic Operators Registration and Identification), which is a mandatory identification number for companies importing or exporting within the EU. The EORI number is required for all companies importing or exporting within the EU.
OF COURSE, WE ALSO HAVE AN EORI NUMBER TO ENSURE SMOOTH IMPORT/EXPORT PROCEDURES.
Advantages of Expanding into Europe and France
Many companies have found that the additional tariff policies introduced under the Trump administration in the U.S., the so-called "Trump tariffs," have made exports to the U.S. more costly.
In addition, the complexity of trade can be a bottleneck for exports to Southeast Asian countries, with different tariff and non-tariff barriers in each country.
On the other hand, the European market, which benefits from zero tariffs under the EU-Japan EPA, is a stable and attractive long-term market.
In particular, expansion into large consumer countries such as France is of great value in terms of brand building.
summary
WHEN CONSIDERING EXPORT BUSINESS IN EUROPE, IT IS EXTREMELY IMPORTANT TO CORRECTLY DISTINGUISH BETWEEN "CUSTOMS DUTIES" AND "LOCAL TAXATION (TVA)".
In principle, there are no tariffs on exports from Japan.
LOCAL TAXATION (TVA) IS THE RESPONSIBILITY OF THE RECIPIENT AND IS REFUNDABLE
OBTAINING AN EORI NUMBER IS A PREREQUISITE FOR IMPORT/EXPORT
Need to design a strategy that includes dealing with customs clearance problems and storage fees.
With these points in mind, carefully and strategically advancing into Europe is the first step toward building a sustainable business.