February 11, 2022
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Import procedure 42: VAT-exempt supply in EU

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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'

Comments ()

en
Does the duty rate always depend on the commodity code for the goods?
09-03-2023

Classification under a tariff subheading is not an end in itself but serves to determine which measures, tariff or other, should be applied to the goods concerned. However, in case of inward processing in the EU, the question has been raised, whether the duty rate of the processed goods at the time of release for free circulation must be applied in certain cases even though the tariff classification, customs value, and origin of the imported goods are the basis for the duty calculation.

Prof Dr Sandra Rinnert

taxes
en
Does the duty rate always depend on the commodity code for the goods?
09-03-2023

Classification under a tariff subheading is not an end in itself but serves to determine which measures, tariff or other, should be applied to the goods concerned. However, in case of inward processing in the EU, the question has been raised, whether the duty rate of the processed goods at the time of release for free circulation must be applied in certain cases even though the tariff classification, customs value, and origin of the imported goods are the basis for the duty calculation.

Prof Dr Sandra Rinnert

taxes
image en
Calculation of import charges in EU
26-02-2023

Anthony Buckley

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image en
Calculation of import charges in EU
26-02-2023

Anthony Buckley

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en
How to save on import taxes? or Which is the place where the goods are brought into EU?
15-02-2023

Reader's question: Goods FOB Singapore are shipped to Tallinn. Rotterdam is the port of transshipment (containers are only moved from one vessel to another). What transportation costs - Singapore-Rotterdam (€ 2,000) or Singapore-Tallinn (€ 3,000) - should be included into the dutiable value of goods upon their importation in Estonia?

Enrika Naujokė

taxes
en
How to save on import taxes? or Which is the place where the goods are brought into EU?
15-02-2023

Reader's question: Goods FOB Singapore are shipped to Tallinn. Rotterdam is the port of transshipment (containers are only moved from one vessel to another). What transportation costs - Singapore-Rotterdam (€ 2,000) or Singapore-Tallinn (€ 3,000) - should be included into the dutiable value of goods upon their importation in Estonia?

Enrika Naujokė

taxes
en
Inward processing in the UK: how a trivial compliance failure caused them to be taxed millions
12-02-2023

When you realise that the biggest threat to your business is neither the competition nor international event risk, but a seemingly minor compliance failure, you will have read this case study: According to a recent tribunal judgement, even a seemingly trivial compliance failure, such as an error or discrepancy in the information supplied to HMRC by the importer and their customs agent, may invalidate a customs tax remission for an entire time. We explain it all in-depth and provide valuable pointers on legally handling your customs clearances.

Arne Mielken

import
en
Inward processing in the UK: how a trivial compliance failure caused them to be taxed millions
12-02-2023

When you realise that the biggest threat to your business is neither the competition nor international event risk, but a seemingly minor compliance failure, you will have read this case study: According to a recent tribunal judgement, even a seemingly trivial compliance failure, such as an error or discrepancy in the information supplied to HMRC by the importer and their customs agent, may invalidate a customs tax remission for an entire time. We explain it all in-depth and provide valuable pointers on legally handling your customs clearances.

Arne Mielken

import
en, lt
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In mid-December 2022, negotiators of the Council and the European Parliament reached an agreement of a provisional and conditional nature on the Carbon Border Adjustment Mechanism (CBAM). The agreement needs to be confirmed by ambassadors of the EU member states, and by the European Parliament, and adopted by both institutions before it is final. However, according to the agreed timetable, the transition period for its implementation is set to come into force in October 2023. What should companies do?

Dr David Savage

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In mid-December 2022, negotiators of the Council and the European Parliament reached an agreement of a provisional and conditional nature on the Carbon Border Adjustment Mechanism (CBAM). The agreement needs to be confirmed by ambassadors of the EU member states, and by the European Parliament, and adopted by both institutions before it is final. However, according to the agreed timetable, the transition period for its implementation is set to come into force in October 2023. What should companies do?

Dr David Savage

import, taxes
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