Offset scheme for import VAT

Background

At present, import VAT is assessed and levied in accordance with customs regulations. As a rule, it is therefore due 10 days after notification of the customs debt and must be paid to the customs authorities. The input VAT deduction is then claimed via the VAT return. If this results in a refund, the taxable person must, in principle, wait until the tax office approves the VAT return and transfers the amount; in other words, the import VAT must then be pre-financed. An amendment to § 15 of the German Value Added Tax Act (UStG) already provides some relief in this regard: unlike in the past, the import VAT no longer needs to have been paid in order to be deductible as input VAT. It can be deducted as soon as it has arisen. This alone often helps to avoid a cash flow disadvantage. In the case of an import in January, for example, the taxable person submits the preliminary VAT return by 10 February and can deduct the import VAT there, even though he is not required to pay it until the 10th day after notification of the customs debt. If the taxable person uses a deferral account, the payment deadline for the import VAT does not even end until the 26th day of the second month following the month in question, § 21(3a) of the German Value Added Tax Act (UStG). This provides further flexibility in terms of cash flow. Nevertheless, unlike in the Netherlands, for example, the import VAT must first be paid in Germany.

Proposed change – the offset scheme

The core of the offset scheme is that the importer does not have to pay import VAT to the customs authority if they have declared their participation in the scheme, but can instead offset the import VAT against the corresponding input VAT deduction in their preliminary VAT return. Upon importation, the customs authority issues an import duty assessment notice in which only customs duties and, where applicable, excise duties are assessed and levied. As regards import VAT, however, only the taxable amount and the VAT rate are determined (or a reference to an import VAT exemption in accordance with § 5 of the German Value Added Tax Act [UStG] is included) if the customs authorities have established, via the EORI number, that the importer is participating in the offset scheme. With regard to import VAT, this then constitutes a basis assessment notice, in which the tax base and the import VAT rate are automatically transmitted electronically to the relevant tax office. The notice is also served on the trader electronically. The tax office totals the import VAT amounts separately by VAT rate for the respective preliminary VAT return period. The import VAT amount calculated in this way is transferred via ELSTER into the preliminary VAT return form in a non-editable format. The taxable person then claims the import VAT deduction there, provided he is entitled to input VAT deduction.

The offset scheme is voluntary. To take part, businesses must submit a one-off declaration via ELSTER, which remains valid until revoked. For businesses using DATEV, the pre-entered import VAT value should be transferred via the interface to ELSTER; the technical implementation still needs to be clarified. The tax office may exclude businesses from the scheme and impose a suspension period. The reasons for exclusion are not yet known.

The requirements for participation in the offsetting scheme are:

• The taxable person is entitled to full input VAT deduction and is registered for VAT in Germany.
• The small business scheme does not apply to him.
• He must have a business identification number.
• He is making use of the permanent extension for the preliminary VAT returns.
• There is no record of the taxable person being excluded from the offset scheme.

The solution set out in § 21(3a) of the German Value Added Tax Act (UStG), as described above, is to be repealed with the introduction of the offset scheme.

Analysis

The existing rules – namely, the deduction of import VAT at the time it arises and the deferral account – already resolve the cash flow problem in many cases. However, the offset scheme, under which no import VAT payment is required at all, nevertheless represents a welcome additional relief. But: the new rules under discussion will not help businesses that import goods into Germany which are not required to register for VAT here, and which can only reclaim import VAT through the lengthy refund procedure, as anyone wishing to make use of this scheme must be registered for VAT. In practice, however, such cases are likely to be rather rare, as imports are usually followed by a supply, which necessitates registration.

The abolition of § 21(3a) German VAT Code is a disadvantage for businesses that do not wish to, or are not permitted to, make use of the offset scheme. It will then no longer be possible to defer the due date for import VAT until the 26th day of the month after next. The import VAT is therefore generally due 10 days after notification of the customs debt, or on the 16th day of the month following the import, if a deferral account is used. This applies, for example, to taxable persons that (also) carry out VAT-exempt transactions without input VAT deduction. They are excluded from the offset scheme. By the way, it remains unclear how taxable persons are to provide evidence of their full entitlement to input VAT deduction.

The rules outlined here are still under discussion. They are therefore not final and may still be subject to change.

 Autorin: Nadia Schulte