Import procedure 42: VAT-exempt supply in EU

What is customs procedure 42?

Customs procedure 42 is a mechanism that an EU importer can use to obtain a VAT exemption. It is applied when goods imported from outside the EU into a Member State will be transported to another EU Member State. In such cases, the VAT is due in the latter - the Member State of destination.

The customs procedure 42 consists of two parts:

• the importation of the goods from a non-EU State to a Member State 1, which is VAT exempt; and 
• the subsequent intra-Community supply of the goods from Member State 1 to Member State 2, which is taxed at a 0% VAT rate.

Consequently, the import of goods to Member State 1 (country of import) is VAT neutral.

What are the conditions?

To apply for VAT exemption under customs procedure 42 the importer has to provide the competent authorities of Member State 1 with at least the following information:

• their VAT identification number issued in the Member State 1 or the VAT identification number of their tax representative (fiscal agent), liable for payment of the VAT, issued in the Member State 1;
• the VAT identification number of the customer (to whom the goods are supplied), issued in Member State2, or their own VAT identification number issued in the Member State 2;
• the evidence that the imported goods are intended to be transported or dispatched from Member State 1 to Member State 2.

What are the advantages of customs procedure 42?

Under customs procedure 42, VAT obligation does not arise at the time of importing into the EU. Instead, VAT is accounted for by the purchaser in Member State 2 under the national VAT rules. That improves the importer’s cash flow.

What is the legal title for ‘customs procedure 42’?

‘Customs procedure 42’ title comes in colloquial speech from the first digits of the code to be entered in the customs declaration. The legal title is ‘Simultaneous release for free circulation and home use of goods which are the subject of a VAT-exempt supply to another Member State and, when applicable, an excise duty suspension’.

What is the legal background for applying customs procedure 42?

Such a supply might be VAT exempted under certain conditions, which are regulated by the EU VAT Directive (Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax), national law and extensive court practice.

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For more information see video course Exemption from import VAT under the 'Customs Procedure 42'