How do I ensure that I do not have to pay import duties?
Do you import products or parts of end products from the UK? And do you not want import duties to be levied on your products? Then it is important for you to know how you can make use of the EU-UK agreements. An important part of this is preferential origin. If you are not yet familiar with this, it is good to learn more about it.
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First of all: what is preferential origin and how do I use it?
Preferential origin means that goods must either be manufactured from raw materials or components which have been grown or produced in the beneficiary country or, should that not be the case, at least undergo a certain amount of working or processing in the beneficiary country. Such goods are considered to be "originating".
When countries close a trade agreement, they often agree to award each other’s products preferential origin status. This means that countries give each other a discount (or even an exemption) on import duties when there is mutual import of goods. Lower import tax means cheaper products: you can sell your product at a lower price. And you can sell more in that country. Or buy at a lower price. A trade agreement specifies exactly which requirements must be met when manufacturing a product in the EU to make use of the lower import tax. The EU has agreements on preferential origin with many countries, such as Switzerland, South Korea, Norway, and Japan. And now also with the UK.
Can you give me a practical example of this for import?Suppose your Dutch company imports felt bowler hats. Within the EU, this is not too complicated, because free movement of goods applies. But if you import from countries outside the EU, your importer (and therefore you) will have to deal with the normal import tariffs. As of 1 January 2021, the import duty on bowler hats (with HS code 6501) in the EU is 2.7%. Unless the EU has made agreements about a discount on import tariffs through a trade agreement. This is the case if you import your hats from, for example, Japan, Mexico, Mozambique or Canada, but also from other countries. In the case of the UK, this means that you don't have to pay any import duties. Find more examples here.
What exactly has been agreed in the trade agreement and what does that mean for my imports from the UK?The agreement stipulates that, in principle, trade in goods of preferential origin between the EU and the UK will take place without tariffs. To qualify for this tariff exemption, companies must prove that their goods meet the rules of origin. The rules of origin are laid down in the agreement. In order to reach the threshold for tariff and quota-free market access in the UK or in the EU, materials of UK origin count as components of preferential origin and vice versa in the EU. For example, the rules of origin specify per product (group) the maximum of materials from third countries that may be used without losing the preferential origin status. The specific rules per product (group) are included in an annex [ORIG-1 to 6].
How exactly do origins and imports from the UK work?While the UK was an EU member state, importing from the UK was not a problem: the EU internal market rules applied. But now the UK is out of the EU. If you do not comply with the rules, you will have to pay import duties again when importing a product from the UK. The import duties that apply when you bring goods into the EU can be found on the Access2Markets portal of the EU (enter your HS code first). Note: import duties may vary per country. Do you want an exemption from import duties as agreed in the trade agreement between the EU and the UK? From 1 January 2021, you will need to prove for your imports from the UK that they meet the conditions for preferential imports, and therefore prove that they are of UK origin. You can do this by means of an origin declaration drawn up by your exporter (which is completed on the basis of supporting documents). Only if you can prove the preferential origin of the product you have imported can you qualify for exemption from import duties as agreed in the agreement. Are you unable to prove that your imports are of UK origin? Then you will have to pay the import duty for third countries. Back to the bowler hats example: you need to be able to prove that the bowler hats come from the UK. Or in legal language: 'Prove that the product components are of preferential UK origin'.
How do I meet the requirements for EU origin?You do this by means of a statement on origin drawn up by your exporter.
What steps do you need to take to prove origin?It is up to you, as an importer, to request preferential tariff treatment. The importer is responsible for the correctness of the request for preferential tariff treatment and for compliance with the conditions. A request for preferential tariff treatment can be based on:
- an origin declaration stating that the product is of UK origin, issued by your exporter; or
- information known to the importer that the product is of UK origin (importer's knowledge). The importer's knowledge must be based on information showing that the product is originating and meets the conditions of the agreement.
- For seven years from the date of import of the product, you, as an importer that requests preferential tariff treatment, must keep the following data:
- in case the request was based on an origin declaration, the origin declaration drawn up by the exporter; or
- in case the request was based on the importer’s knowledge, all data showing that the product meets the conditions for obtaining origin.
Will Brexit also affect my exports to other countries?
That depends. Does your hat contain parts made in the UK? Then this may affect your exports to countries such as Canada, Japan, Argentina and Mozambique. The EU has trade agreements with these countries saying that for certain goods, at least a certain proportion of the materials used must be of EU origin. For example, if you bought the brim and lining in the UK and then exported the complete hat to Japan, you may no longer meet the EU origin requirements that the EU has agreed with Japan. You can still export your hat to Japan, but the hat will be taxed higher at the border, and you will probably sell fewer of them because of the higher price. In that case, you may need to adjust your production process to meet the EU origin requirement in the trade agreement with Japan.
Read this article (in Dutch) about the fictional example of a packaging materials manufacturer from Delft who imports an electric motor from Leeds (UK).
Where can I go for more information?
- The website of the Tax and Customs Administration tells you everything about preferential origin.
- The KVK website (in Dutch) also provides more information.
- Also check the other Brexit articles on our website.
Q&A about the TCA
There is an extensive Q&A about the Brexit Trade Agreement available on the website of the European Commission. It explains what the new rules mean for different sectors, such as trade in goods, fisheries and road transport. There are nine chapters in total and you can search per sector. At the top you can choose your language. You can find answers to questions such as: What was agreed to facilitate trade in automotive? How does the Agreement contribute to trade and sustainable development? Will air carriers still have the same rights to operate between and within the EU and the UK? Note that this Q&A was published in December 2020 and therefore speaks of a draft agreement.