Many forwarders, ourselves included, offer a service for exporters to the EU called Regime 42. It was originally a little known EU rule which some time previously was known as Onward Supply Relief (OSR). This was given bad exposure a few years ago when a £2.3b case was brought by the EU to the UK for fraud. This was settled by the UK this year and the EU has since applied a minimum set of conditions under which this exemption applies. After Brexit there has been a resurgence of what is now known as Regime 42 (taken from the first 4 digits of the customs declaration code) to help avoid delays at the EU border, often helping in multi-shipment groupage loads.
But who is best placed to use it and what happens to the VAT. Steve Townley is our in-house customs expert and has previously run large customs teams for over 25 years. We asked him a few questions about Regime 42.
Q. Steve, what exactly is Regime 42?
ST. Using traditional EU Import Customs procedures, duties and VAT need to be settled when the goods first arrive at the EU border. Regime 42 is a customs procedure designed for EU importers to obtain VAT exemption for goods arriving from outside the EU into a member state, that will be transported to another EU member state – the state of destination.
Thus, Regime 42 consists of 2 parts:
- The importation of the goods from a non-EU State to a Member State 1, which is VAT exempt; and
2. The subsequent intra-Community supply of the goods from Member State 1 to Member State 2, which is taxed at a 0% VAT rate
It must be noted though that Regime 42 doesn’t remove customs procedures altogether and goods declared under procedure 42 are still subject to customs clearance and checks.
Q. So what are the benefits of Regime 42?
ST. Regime 42 can offer UK Exporters significant benefits when supplying goods to the EU. This includes the simplification of import clearance formalities and the inherent cost saving as there is no cash outlaid when the goods arrive in the EU, helping cashflow.
Q. Can everyone use it?
ST. Regime 42 is accessible to any VAT registered exporter providing the EU importer has an EU EORI number, has a valid VAT ID and uses a company approved to make declarations to French Customs under Regime 42. This is the important part where the setting up takes place to enjoy a trouble-free continous experience later on.
Q. Any drawbacks?
ST. There is an administrative element that the importer needs to do upfront and also keep on top of. But once this is done and the system beds in it works very well.
Q. What happens to the VAT?
The importer would be expected to provide evidence of VAT and transport intentions (CMR/BofL) that meet the EU’s strict criteria to use Regime 42. Under this procedure the VAT obligation does not arise at the time of importing into the EU. Instead, VAT is accounted for by the purchase in member state 2 under their national VAT rules. Improved cashflow is a key benefit of using this procedure.
We are very experienced in working with both the shipper and importer to ensure all boxes are ticked at the outset of this process. Whilst Regime 42 is designed to make the customs process simpler it is important anyone who opts to use it has a full understanding before they start of the obligations the importer has with regards to intrastat record keeping and legal obligations.
Q. Are there any issues?
ST. While Regime 42 offers a quick and simple clearance solution for some goods entering EU jurisdiction, it doesn’t mean all goods can move to the EU uncontrolled. Certain products that are subject to restrictions such as animal origin and plant products can still be subject to normal checks and delays at the EU border. Many transport companies offer regime 42 as the equivalent of the free movement experienced “pre-Brexit”.
This may be the case for some products but certainly not all. Goods may be VAT exempted at the border but as mentioned the EU importer should always check their local requirements for Import VAT and intra-stat reporting before using regime 42. This will ensure they fully understand their responsibilities and avoid any disputes in the future.
It foes without saying that should the importer applying Regime 42 fail to obtain all the documentation, the value added tax becomes chargeable by the importer and is charged using a protocol.
Q. Does Jordon offer Regime 42?
ST. Yes for sure. We have worked succesfully with our partners in Belgium and France delivering Regime 42 as a solution since the beginning of Brexit for shipments destined for all over Europe. We first provide product checks in advance so our customers can understand if Regime 42 is right for them. Then if happy, we work with all parties involved to get the important administration aspects in place. If we identify products are subject to restrictions, we deploy services to combine Regime 42 with other such as CHED and veterinary checks.
If you would like to discuss whether Regime 42 is suitable for your business check out our call us now on 01394 286644 to discuss or email Steve directly here: steve.townley@jordonfreight.com
Also for other customs advice do check out our customs page here on our website