Selling fashion online to Europe
Trading with the largest economy on the planet is challenging – but definitely worth it. A suitable allegory for accessing this heavily protected fortress of Europe is the Story of Troy. The biggest hurdle is to get inside. But once you are in, you can move freely and open up new markets step by step.
The solution is obvious: You need a Trojan Horse. But what would it look like and, more importantly, where would you get one?
Say, you are an ecommerce seller of fashion from the UK or any other non-EU country. The products you sell are probably made in Asia. And this is where you would encounter the first problem; double duties.
If goods are made outside of the UK, they will attract duties (and import VAT) when crossing the border into the EU. For your business this means that you have to pay duties twice – once when importing to the UK (or any non-EU country) and again when goods enter the EU. The VAT can be retrieved. However, the duties must always be paid.
There are two ways to circumvent this: You could import the goods from your Asian suppliers directly to the EU. Alternatively, you can import them to the UK (or any other non-EU country), keep them in a bonded warehouse and only send a contingent to Europe that is destined for EU sales. This would save one duty payment (of course, fees for the bond need to be considered). Also, it allows you to be more flexible with the times and volumes of your EU imports, which will help with your cash flow.
Where and how would your goods enter the EU?
Before you start wheeling your Trojan Horse into Europe, carefully select your best gateway. In other words, choose a country that you can use as a bridge for your EU imports and also as a distribution hub for all 27 EU member states. A popular choice for this is the Netherlands, as it provides an unequalled environment in terms of geography, modern ports like Rotterdam, number and professionalism of service providers, proportion of English speakers, business culture, and trade-friendly legislation (e.g., they even have a simple VAT deferment option, which practically means there are no import VAT payments – another great cash-flow advantage).
Once you have made your pick, proceed to create a foothold in this country. This can be done in two ways: Either by setting up your own EU company or by using a Fiscal Representation/Service. With regards to goods flow and sales both options offer very similar benefits.
Establishing a company in the EU means you would need a place of business (this could be a virtual office or your own premises), legal and tax advice, company set-up, an accountancy firm for all tax requirements, and solutions for administration and distribution. Please note that some EU countries demand that the managing director is a local resident. The sales of your EU company would be subject to business taxes (corporate tax plus possibly other taxes, e.g., Gewerbesteuer in Germany) and the legislation of your chosen foreign jurisdiction.
A Fiscal Representation would be comparatively simple to set up and run. You do not need a place of business and your Representative/Agent will liaise directly with the local tax authorities and cover all your tax requirements. Your only obligations would be to submit your sales data and pay the VAT (some countries also demand a plastic packaging tax). In layman’s terms, this solution means you do not have to set up a local company, but you can act like one!
The commonality both variants offer is key to what you need: They allow you to act as the Importer of Record.
What is an Importer of Record status and why do I need one?
The biggest hurdle for selling to European buyers is that they need to jump through various hoops (e.g., filling in customs forms) and probably have to pay unexpected fees/taxes to get their goods. This results in high returns rates, particularly with B2C sales.
The remedy for this is the Importer of Record (IoR) status. This allows you to send goods in the same way (e.g., on an Incoterm like DDP) as any local European business. Very soon your returns rate will be the same as that of your EU competition. In other words, the ability to act as the IoR is not a legal requirement – but it is an essential streamlining tool for successful EU trade.
What do I need for consumer sales?
The above solutions govern your VAT obligations for EU imports and B2B sales. For B2C sales you need an additional VAT service: The One-Stop Shop (OSS).
Before its introduction in 2021, sellers had to register for VAT in every EU country with B2C sales. The OSS provides a great simplification: Today you can fulfil all requirements for all your consumer sales in the entire EU with only a single VAT registration and VAT return.
Often this scheme is confused with the I-OSS (Import One-Stop Shop). However, the I-OSS was designed for a different strategy. Also, it is limited to a net-value of € 150 per consignment and, therefore, is not suitable for higher order values. The OSS has no such limit.
What else do I need?
Logistics. This means goods forwarding to a warehouse (your imports need to touch the soil of your chosen EU country) order fulfilment and a selection of courier and postal services. You would also need a customs agent in the country of import.
There are plenty of logistics providers out there and most of them compete on pricing. But be aware: Cross border goods flow is full of obstacles and variables, so a seemingly cheap offer might end up costly for you. Any negligence can determine success or failure.
To guarantee a smooth and reliable operation, all elements in your logistics supply chain must be under your control and run like a clockwork. It is vital to use tried & trusted partners and routes.
Best use a single fulfilment partner who can provide everything: Pick-up your goods from anywhere in the world, import them to the EU and fulfil any B2C and B2B orders. Good fulfilment partners would be able to offer you a web portal that allows you to monitor and manage all stock movements.
Will this strategy work for my business?
Generally speaking, yes. However, every business is different, and the devil is always in the detail. Therefore, any strategy should be customised to suit your individual needs. Periodically review your strategy and tweak it until everything runs as desired: Smooth and stable with a potential for growth.
For further information, advice or a complete strategy consultation for your business simply check https://www.tradewitheurope.com/
Marcus Broix is a Director of Trade with Europe Ltd.