EXPLAINED: Why people in Germany are being charged to receive small parcels from outside the EU

Over the past few months, The Local has heard reports from Brits and their families that they've suddenly been faced with eye-watering costs for receiving parcels from the UK within the EU. 

"Our great grandson wanted to send us a small gift to say thank you," Lindsey Troester, who lives in Baden-Württemberg, told The Local.

"Out of the blue a small parcel arrived. The DHL driver demanded a cash payment of just over €13 for import tax and handling charges, on the doorstep, so I had to find the correct money - which was a nightmare - or he would have taken it back to the Post Office.

"In the parcel was a mug, which was designed by our great grandson for a school project and a pair of men’s socks, about £10 in value. Back in the UK, my husband's daughter was not very happy about it either. We all agreed that it was a rip off."

As in Lindsey's case, others have been taken by surprise by suddenly being asked to pay a fee on their doorstep - and some have been caught without the necessary cash needed to pay it.

READ ALSO: How sending parcels in Germany changed in January 2021

What exactly is going on?

Until June 30th, 2021, packages imported into the EU with a value of less than €22 were exempt from import VAT charges. That exemption was abolished on July 1st, meaning that VAT is now due on all goods imported into the bloc.

The EU says the change was made to combat fraud via the widespread under-reporting of the value of goods to dodge the tax, and to make things fairer for companies trading within the EU.

An employee of Deutsche Post sorts parcels in a warehouse. Photo: picture alliance/dpa | Christoph Schmidt

It was supposed to come into effect from the start of January, but was pushed back to July because of pandemic-related delays.

The rule is just part of a raft of reforms designed to update the EU’s systems and bring them in line with 21st-century global trading practices, where international e-commerce accounts for a large chunk of the market.

What does this have to do with Brexit?

In one sense, the changes have everything to do with Brexit, since if the UK hadn’t left the EU customs union it wouldn’t be a non-EU, or ‘extra-EU’ country.

It’s important to bear in mind, however, that the abolition of the €22 ‘low value consignment’ threshold that kicked in from July is an EU-wide regulation that applies to imports from every extra-EU country, not just the UK.

Nevertheless, the added fees are yet another consequence of Britain's sudden transition to being a third-country nation, which has come as a nasty shock to many living abroad. 

READ ALSO:

• How the Brexit deal has changed daily lives of British residents in Europe
• Three becomes latest UK phone operator to introduce post-Brexit roaming charges in Germany

"Brexit is the biggest pain in the neck," said one reader "Free Trade, what free trade?"

Confusingly, after the UK left the EU customs union on December 31st, 2020, there was a brief six month window where EU residents were required to pay VAT on only those packages received from the UK that had value of over €22 – a threshold which was then reduced to zero on July 1st.

Until now I haven’t had to pay import VAT on any packages from outside the EU, regardless of their value. How is this possible?

It might simply be the case that your package slipped through the net – you technically should have been asked to pay the import VAT, but the customs authorities let it slide because they didn’t have the capacity to check every item.

Philip Munn, a VAT partner at the international tax and auditing firm RSM, also points out there is also a longstanding exemption for ‘personal imports’ (i.e., items you already owned) which remains in place with the new rules – so you shouldn’t be charged VAT, for example, to bring your existing furniture over to Germany from the UK when moving house.

I’ve noticed I’m also suddenly being charged import VAT for packages sent within the EU. What’s that about?

Sarah Shears, who heads up the VAT Group at the UK office of the global tax firm Andersen, says the changes that came in on July 1st also abolished what was known as the ‘distance selling threshold’ within the EU.

Previously, if EU suppliers selling to EU consumers imported goods with a total value of less than €35,000 per year into most EU countries (or €100,000 for Germany, Luxemburg and the Netherlands), they weren’t required to register for VAT in the buyer’s country, and could instead pay the VAT in the seller’s country.

A Deutsche Post employee loads a van with parcels during a night shift. Photo: picture alliance/dpa | Christoph Schmidt

This meant that a savvy customer in, say, Sweden could buy products from a supplier in an EU country with a much lower VAT rate (e.g., Luxemburg), to shave off costs.

The replacement rules hold that EU suppliers who sell goods with a collective value of more than €10,000 per year across all countries throughout the EU must now pay VAT to the country where the buyer is based using the EU’s new VAT ‘One Stop Shop’.

But because the transaction is occurring within the EU, you can pay the import VAT up front at the point of sale and your goods won’t be held at customs (because, after all, you're trading within the customs union) - so it’s possible you may not even have noticed the change.

How is the VAT charge calculated? Does it vary depending on where the package is sent from?

Each country has its own VAT rates for different items. In Germany, shoppers pay seven percent VAT on everyday essentials such as coffee, tea and pet food, and 19 percent on most other goods and services (though the separation between 'essential' and 'non-essential' items is often quite arbitrary).

When an item’s subject to import VAT, you’re adding up the value of the item, plus things like transaction costs (how much you paid for shipping), insurance, and import duty, and then calculating the VAT based on the total sum – so you’ll be paying higher German VAT on a laptop imported to Germany from the UK than the exact same brand of laptop bought in Germany.

On the Deutsche Post website, the company also informs customers that they will also face a "service fee" of €6 in exchange for the company passing on your tax payment to the customs office. 

"Shipment goods from countries outside the European Union are registered for customs purposes by Deutsche Post DHL and checked by the customs authorities," they explain. "If duties are levied by customs for these shipments, these duties will be paid directly to customs by Deutsche Post DHL.

"When the consignment is delivered or handed over, Deutsche Post DHL then collects these charges from the recipient. Please note that Deutsche Post DHL currently charges a service fee of €6.00 (incl. 19% VAT) for the payment of the fee."

A postal worker delivers a parcel in Baltrum, Lower Saxony. Photo: picture alliance/dpa | Sina Schuldt

The Local has heard, anecdotally, that some people have felt they are paying more VAT on packages from some non-EU countries than from others. This shouldn’t be the case, say Munn and Shears.

“Anywhere outside the EU, one would expect them to be the same,” says Munn – although he points out that under the terms of the Trade and Cooperation Agreement between the EU and the UK, products manufactured and sent from the UK are exempt from EU customs duties.

Munn also notes that many sellers pass the responsibility of collecting the VAT on to the freight forwarding agent (i.e., courier or postal service) carrying out the delivery, in which case that company will charge an additional, separate, handling fee.

What about presents? Do I really have to pay VAT on those?

That all depends on the value of the gift. 

The EU’s taxation and customs union website reports that private packages with a value of up to €45 “are not subject to prohibitions or restrictions,” and Germany's customs and finance authority has also confirmed that gifts of up to €45 are not subject to customs duty or VAT charges.

That essentially means that, in Lindsey's case, the family seem to have been charged in error. 

In addition, letters and cards should definitely not be subject to any VAT charge, say Shears and Munn.

A man sorts letters in an office. Photo: CHRISTOF STACHE/AFP

So what can buyers in the EU do?

To go along with its new reforms, the EU introduced the ‘Import One Stop Shop’, or IOSS. Previously, non-EU sellers would have to register separately for VAT in each EU country they sold in. With the IOSS, they can now register for VAT just once, in whichever EU country they choose, in order to declare and pay VAT anywhere in the bloc.

The significance of this from a customer’s perspective, says Munn, is that with IOSS-subscribed suppliers the buyer can pay the import VAT at the point of purchase, avoiding the hassle of collecting the package from the courier or post office and paying an additional handling fee.

If you want to continue ordering products from a certain non-EU company, then, the first step is to ask them if they are signed up to the IOSS; and if they’re not, to ask them to do so.

Bear in mind that the IOSS can only be used for goods with a value of less than €150 – for items with a greater value, VAT will still need to be paid on delivery.

In those cases, says Munn, many sellers have calculators on their websites that give you an indication of what your total costs are going to be. “Essentially they’ll say you need to pay £1000 now, but don’t forget you’ve got €400-500 of duty and VAT and other things to pay before the goods arrive on your doorstep” he says.

For gift packages, The Local is continuing to look into the current rules in the EU, and will provide updates as we receive more information.