Manufacturing and distribution EU: A French company decides to manufacture and distribute its products from another EU member state
VAT laws can vary enormously depending on whether trade is performed between EU countries or outside of the EU. Similarly, VAT rules change depending on the type of client; B2B, in which a company sells to another business and B2C, in which the company sells to a particular individual. One must therefore be attentive when dealing with international business relevant to these particular situations because there can be useful tax advantages for trade.
A French company who has its headquarters in France may decide to use both a foreign supplier and foreign distribution service provider. For example, let us take company X which is set up in France. The company decides to manufacture its products in Italy, call this supplier Y, and acquires a logistics service provider also in Italy, company Z, in which the goods are transferred, stored and ultimately distributed accordingly to the client.
The invoice for the purchases from company X in France from company Y in Italy is subject to Italian VAT. This is because the products are transferred from supplier Y to the distribution service provider Z but the goods do not actually move cross-border.
If the products are sold outside of Italy to another business, B2B, then the business is exempt from paying VAT as long as it holds an intracommunity VAT number. However, were this transaction to be solely to an individual person, B2C, VAT must be paid. Nevertheless, depending on the full turnover of sales of a good, there are varying thresholds within EU countries which determine which country receives the VAT (distance selling system). For example, if the Italian service provider distributed goods to France and the annual turnover was below the threshold, then the sale would be subject to Italian VAT; above the threshold the VAT becomes liable to France. Selling goods outside of the EU is equally viable and can be exempt from VAT upon request of an EORI (Economic Operator Registration Identification) number from French customs.
If you are selling goods cross-border in the EU, then you need to ensure an “Intrastat” declaration is correctly filled out. In France, the Intrastat for goods is referred to as a DEB (Déclaration d’Echanges de Biens). It is not something which will exempt you from VAT, however, it is useful if you are being audited and is often used in government calculations for the EU. Once again there is a threshold which determines whether or not you are obliged to complete the Intrastat declaration which is to be submitted on the 10th working day of every month. As soon as the threshold is passed, the company will have to complete and submit the Intrastat. Every missed or late DEB payment is subject to a €750 fine and therefore companies must aim to make sure this is completed within sufficient time, especially considering failure to correct the data within 30 days will lead to an increased fine of €1500.
It is also important to recognize that an EU Member State has the right to tax a company’s profit if the company holds a Permanent Establishment within that Member State. To be classified as a Permanent Establishment there are certain criteria which must be met. These include factors such as the independent activity of the firm from the headquarters, which implies the business has its own personnel in that country. If, however, the profits are not linked to the Permanent Establishment, then the tax on the profits is subject to decision from the country where the company’s headquarters is situated.
If you are currently looking to set up a supplier and distribution service provider in another EU Member State, it is important to ensure substantial understanding of all relevant information, facts and procedures. Here at Maupard we would be more than happy to advise you on this matter and show you how to make the most of these opportunities.
Do not hesitate to contact us by telephone on +33 (0) 1 53 93 94 20 or by e-mail to [email protected], so we can work out the needs of your business. Our team of experts is here to answer any questions you may have.