Do Distributors pay customs tax and excise duty on imported products?

Discussion in 'International Business' started by rilojag, Jun 19, 2009.

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  1. rilojag

    rilojag UKBF Newcomer Free Member

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    Hey Guys, I would like to know this as I have just become a distributor and have run into some new problems with my first order with a online store. Does the distributor pay the customs tax and excise duty when the container comes in to the port of entry? It's always been my understanding that the distributor pays, but now I have been in talks with some people and they say it's not my responsibility but the buyers. which is right?
     
    Posted: Jun 19, 2009 By: rilojag Member since: May 30, 2009
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  2. JamieM

    JamieM UKBF Ace Free Member

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    Hi,

    It is generally the responsibility of the person importing the goods. So yes, the buyer.

    Hope this helps.
     
    Posted: Jun 19, 2009 By: JamieM Member since: Mar 22, 2006
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  3. Beachcomber

    Beachcomber UKBF Newcomer Free Member

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    Short answer is that you are liable for all importation taxation and expenses - I have never heard of a shipper paying the importation costs of the buyer.

    For a bit more info, heres a post I made in a recent thread about importation of goods - hope it provides some useful info:


     
    Posted: Jun 19, 2009 By: Beachcomber Member since: Apr 29, 2009
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  4. i234i

    i234i UKBF Ace Free Member

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    If you are buying products from a distributor and are not the distributor i'd imagine you'd pay a wholesale price + vat or inc vat depending on the distributor.

    If you are importing the product you will pay any costs (inc the cost of goods) from the company's warehouse until they land on your doorstep, these costs would obviously take effect on your wholesale price to shops etc.
     
    Posted: Jun 19, 2009 By: i234i Member since: Jul 16, 2007
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  5. rilojag

    rilojag UKBF Newcomer Free Member

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    Many thanks for all of your replies guys,

    Lot's of useful information posted. Hi Beachcomber, You seem to know a lot about the whole importing process and the information posted is paramount. Please tell me more. Firstly, I originally planned to sell to big retail stores but as they won't sign NDA's I have gone to smaller stores such as online stores who have agreed to signing NDA's. Now I have this one online store who has seen the product and wants to know prices and the set street price. At this point I don't know quite what to tell the store, my supplier is selling to me each unit at $120 + shipping. If I was to place a container order of 500 units there would be a 6 week lead time (4 weeks manufacturing - 2 weeks delivery by sea freight). Anyway this small online store would no way buy a container. My supplier was only offering minimum orders of 1 container, now they have changed their stance for their distributors and offering orders anywhere from 1 unit to however many you want. They said they have several delivery methods such as 48 hour air service, 72 hour service, 5 day air service, or sea freight. They also mentioned the delivery prices are affordable. Anyway they said order more than 500 units and they can offer a cheaper price than the current $120 per unit. Now this is what I would like to know, with the above prices and order quantities do you think at this point I should add my markup on each unit and then tell the store that I am in contact with the price that I would sell to them at? The problem with this idea is the fact that if I give the store a certain figure and later find that when I do import the product and the tax boosts up the product values then I am left screwed as this would cut into my profits. So how should I go about this? Do you think I should call HMRC and find out just how much tax would be charged, I was hoping if there way to do this without going first through HMRC. These last few weeks I have given my self an average estimate of what the price would be per unit once imported paying delivery, tax, excise duty and I believe it would boost the cost of each unit to around 200 dollars a unit. Then I would put my markup on that and sell to the store. I have put a little extra on that figure in case I find that the product is a little more when imported. Anyway please can you offer me any help on what I should be doing? Many thanks in advance
     
    Last edited: Jun 21, 2009
    Posted: Jun 21, 2009 By: rilojag Member since: May 30, 2009
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  6. rilojag

    rilojag UKBF Newcomer Free Member

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    One other thing is it not possible to place the order with my supplier but then have the shipment sent direct to the reseller who is the online store that I am in contact with? The only problem with this is the fact that my supplier will then have the contact details of my online store, so he could just cut me out and offer a better price to the online store and I would be out of the loop unless I was to get my supplier to sign an NDA which I doubt they would do.

    Even if I did get the shipment to be sent direct to my reseller then I guess I wouldn't have to pay any tax as it would be down to them, is that right?

    Lastly, I have another online store who are based and operate out of Guernsey, now a lot of companies are based there because out there you pay no tax or I think it's very low tax. So it is quite difficult for me as once the shipment comes into the UK I will then have to arrange further delivery by ferry to get into Guernsey which is going to be expensive, so if only I could deliver direct to them from the china which is where the factory is based.

    Anyway please can you offer me any help on what I should be doing? Many thanks in advance and sorry for all the questions.
     
    Posted: Jun 21, 2009 By: rilojag Member since: May 30, 2009
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  7. Beachcomber

    Beachcomber UKBF Newcomer Free Member

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    Formulating an effective mark up calculation is half skill half art form!

    There are so many variables to take into account you just have to make sure you are allowing yourself a decent margin so any unforseen costs can be absorbed. With an order of several thousand pounds, a slight shift in the £/$ exchange rate can have quite an impact on costs.



    As for shipping direct to Guernsey - I may be wrong but I don't think Guernsey has an international shipping post so no container ships from China will go there - they certainly wouldn't make the stop to drop off one container.

    It may not be a good idea to ship directly to the online stores from China - not only will they get the suppliers details (unless they agree to ship the items 'white label' or with your company details on the invoice - alot of dropshipping companies will do this) but they may not want the hassle of customs clearance, payment of charges and taxes and arranging couriers / transport from the post to the warehouse. The less work and hassle involved for the buyer, the more attractive your product and service will be. I really would reccomend offering a service where the item cost is set and includes delivery to their door.

    It is hard to suggest a possible mark up without knowing the type of product - it really depends on what kind of retail price the market will stand. If they are $120 high spec laptops then there is planty of scope for profit, if they are $120 ball point pens you may struggle!

    Again, I'd say work backwards to find your wholesale price. Look at the current retail price this kind of item is currently commanding - both high street and online. Then see what you can undercut that by to make the item attractive buyers. Then consider what kind of mark up the retailer will want to add - you should then end up with an idea of wholesale price. For example:

    Current price on the high street for the item you are offering - $450
    Recommend your retailers sell them for $410
    Offer them wholesale to your retailers for $320

    This will give you a $200 profit on the cost price - from this you will need to deduct taxes / shipping etc.

    If you order a pallet of 500 units then the added costs Per unit, roughly speaking could be approx:

    Shipping (sea freight) inc. port fees etc. approx. $3
    VAT @ 15% - $18
    Import duty (exact % depends on type of goods) approx. $10
    Delivery of items from port to you $1
    Misc. costs $.5

    So costs per unit could be expected to be around $32.50

    Take this off of the $200 profit above and you could be looking at a nett profit of $167.50

    Of course - if the high street retail price is less than $500 you need to adjust the figures above accordingly - you can also vary the levels of mark up available to the retailer etc. until you get a set of figures that will allow you to make maximum profit while remaining competitive and an attractive proposition to your retailers.

    Remember - these above figures, although based on experience, are subject to many variables as mentioned. The only way to ever know the total end cost of these items delivered to your door is to do it and see!

    It may be worth shipping in a smaller order - say 100 units and sell these to 10 retailers as sample stock lots of 10 units. If they sell well they cn place a larger order, if you / they can't shift them you haven't got 500 units hanging about. You won't get the best price from your supplier for a small order but it may be worth it for the dramatically lower risk / initial invenstment. It will also allow you to assess product quality, shipping times, supplier communication etc, etc so when the big orders come in you can give firm delivery times and make assurances on quality and packaging etc. based on the product in hand rather than images.

    Finally, I'd say don't avoid talking to HMRC - they are really quite helpful. It may take a call or two to get through to the right person but I've always found them very nice to deal with and happy to help out. You'll need to get in touch with them anyway for the TURN number mentioned in my earlier post (unless you are already VAT registered - and if you are selling 500 units at around $320 per unit you will need to look at getting VAT registered)

    Hope this helps.
     
    Posted: Jun 21, 2009 By: Beachcomber Member since: Apr 29, 2009
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  8. rilojag

    rilojag UKBF Newcomer Free Member

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    Beachcomber Once again, many thanks for your excellent and highly detailed response, your information is bringing one step closer to closing this deal.

    You mentioned to look at the current retail price this kind of item is currently commanding - both high street and online. This is difficult as the item is not selling here in the UK. This is a brand new product, unique, can't be copied as it's highly patented.

    I have already set a price that I would like resellers to sell at. I also have already set a price that I will sell to wholesalers. My profit will be $82.50 which I believe is enough. Getting more than that will raise the cost up and I don't want to be greedy. If I am too greedy then resellers may not be interested in purchasing a product that's too expensive and sell something where there markup is very high. So I think $82.50 is an excellent price for now, at least until I can go back to my supplier and ask for a lower price when I order a few containers.

    The problem I am having is that at this point I don't know quite what to say to my reseller. I don't want to keep him waiting, I would like to get back to him tomorrow morning. But at the same time if I price this product incorrectly and then find later once I do place an order for say 25 units with my supplier and find that the import duty and tax is far more than I thought then this would dig into my profits with the wholesale price I set with the reseller. So I was wondering if it's possible currently to tell my reseller that any prices I offer them are only estimates/indications only and full pricing will be offered at time of ordering. But my thoughts are they would want a definitive price otherwise they would probably not see how they could do business with me without a final price. What can I do?

    Any help much appreciated

    Many thanks in advance
     
    Posted: Jun 21, 2009 By: rilojag Member since: May 30, 2009
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  9. rilojag

    rilojag UKBF Newcomer Free Member

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    To add a little more to the above:

    the product is a consumer electronic device

    my supplier sells to me at $120 per unit I put a markup profit of $82.50 on to it that's $202.50

    Then I have to add duty and excise, shipping and brokerage fees. Which I don't know what will become. from estimates I believe the product will come to 297 dollars per unit including my profit. Then the resellers can sell to their customers at the same profit as me of $82.50. Which would bring the total price of the product in the UK to $379.50. Now from your first post in this thread with the price breakdown I did further calculations and it seems that the resellers could actually make about $107 profit. This is the problem you see, without an actual definitive price of what the importation costs are I can't seem to offer the right price to my resellers as I don't know what the right price is, and if I set it too low then it may cut into my profits.

    Also please tell me I am right in thinking that when you import the product you pay customs tax which is not VAT, and excise duty?

    So I don't pay VAT, and if my reseller is VAT registered then I don't charge them VAT either, they charge VAT to the customer?

    Lastly, if I pay for delivery from my supplier by air freight or sea freight can the delivery go directly to my door, or will it come to the port and then I have to arrange further delivery from the port to my door?

    Sorry for all the questions

    Many thanks in advance
     
    Posted: Jun 21, 2009 By: rilojag Member since: May 30, 2009
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  10. JamieM

    JamieM UKBF Ace Free Member

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    Rilojag, I am a bit confused at what you plan to do here.

    Are you selling to wholesalers or retailers or both? Will you be selling direct to consumers at all?

    Do you know what the typical profit margin is in the consumer electronics sector?

    Aside from this I strongly recommend that you import the goods yourself and then ship to your own customers within the UK. When you import you have to pay the duty, any handling fees and the VAT. If you are VAT registered you can claim the VAT back on your VAT return. If you are VAT registered then you must charge your customer VAT if they are in the UK. (other rules may apply for EU) If you are not VAT registered then you must NOT charge VAT. (but must pay it on import and won't be able to reclaim it)

    It looks like you will have to tell your current prospect that you are still finalising the pricing and will confirm later. You can indicate an approximate cost and retail price but I would only do so if you are confident it will be close.
     
    Posted: Jun 21, 2009 By: JamieM Member since: Mar 22, 2006
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  11. rilojag

    rilojag UKBF Newcomer Free Member

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    Hello Jamie, Many thanks for your reply I won't be selling to wholesalers or direct to customers. I am a distributor and I will be selling direct to resellers (online stores, retailers). They will then sell on to the customer. For this I believe I do not have to charge VAT, it's the retailers job to do so to their customers. But I take it you are saying that I have to pay VAT when importing the product into the UK?
     
    Posted: Jun 21, 2009 By: rilojag Member since: May 30, 2009
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  12. JamieM

    JamieM UKBF Ace Free Member

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    If you are VAT registered then you will pay the VAT when you import the goods. But you then reclaim the VAT when you submit your VAT return. You have to charge your customers VAT and pay the VAT to HMRC. (minus the amount you are reclaiming) The retailer must also charge their customers VAT in the same way.

    If you are NOT VAT registered then you pay the VAT when you import the goods and CANNOT reclaim it. You do NOT charge VAT to your customers.

    If you are selling business to business only you are best to voluntarily register for VAT before you start.

    Do you know the typical profit margin in the consumer electronics sector? From what you have said it looks like you will be making too much profit and the retailer too little. The retailer should make more profit per unit than you as you are selling in bulk and should have a minimum order quantity.
     
    Posted: Jun 21, 2009 By: JamieM Member since: Mar 22, 2006
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  13. rilojag

    rilojag UKBF Newcomer Free Member

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    Jamie, Many thanks for your reply I do not know the typical profit margin in the consumer electronics sector. But I do know that every product is different and has different product margins. The problem with my product is at the moment it costs a lot to manufacture and the retail price cannot be too expensive and if I am going to make any profit it would have to be set at the prices I have posted. For the first few thousand orders the retailers profits will have to be similar to mine until the cost of manufacturing becomes cheap enough then I can provide them with a cheaper bulk price so they can maximize their profits. I still don't understand, I should not have to pay VAT as I don't have customers, as in I am not selling direct to customers, that's the job of the retailer. I am just selling in built to the retailers. I am the distributor, the wholesaler.
     
    Posted: Jun 21, 2009 By: rilojag Member since: May 30, 2009
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  14. JamieM

    JamieM UKBF Ace Free Member

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    I think you will need to do some research on profit margins on other products.

    You might have to consider doing that the other way round. Cut your profit margins until the cost of manufacturing becomes cheap enough for you to make more money. Retailers are tough customers, you might find them wanting a 50% profit margin, i.e. if the RRP is £300 for example, they will want to buy at £130.43 plus VAT.

    You still need to charge the retailers VAT if you are VAT registered. It doesn't matter what your business type is. If you are VAT registered selling in the UK you will have to charge VAT. The retailers can reclaim it on their VAT return though so it isn't really an issue.
     
    Posted: Jun 21, 2009 By: JamieM Member since: Mar 22, 2006
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  15. Wavecrest Ltd

    Wavecrest Ltd UKBF Enthusiast Full Member

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    Hi Rilojag - I've read the messages in the post and you have been given some good advice.

    For your guidance I run a shipping and forwarding company called Wavecrest Ltd. We have been arranging shipments from China for the last fifteen years by both sea and air freight.

    I would like to add my advice as well. I would very strongly recommend that you do not allow the Chinese supplier to make the shipping arrangements.

    They have a habit of booking the shipment with whichever shipping company in China gives them the biggest kickback rather than the one with the best overall deal. We ALWAYS recommend our customers to get their suppliers in China to quote FOB terms of sale (this means that the buyer in the UK is free to make their own shipping arrangements and thereby have control over the costs).

    My second piece of advice is that you should act as the importer and pay the applicable import duty and VAT when the goods arrive in the UK. I would not recommend putting your clients in direct contact with your suppliers.

    In any case, I can imagine the on line shops you wish to sell to in the UK would not be keen on having to arrange customs clearance, pay duty/VAT etc especially if they are buying from a UK supplier (i.e. you).

    If you would like advice or assistance with shipping, import duty, customs clearance etc please feel free to send me a PM.

    Best regards,
    Glen
     
    Posted: Jun 21, 2009 By: Wavecrest Ltd Member since: Oct 31, 2007
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  16. rilojag

    rilojag UKBF Newcomer Free Member

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    Okay then, I could just sell to them at my set wholesale price and let the retailer set the UK street price as there is isn't one currently as this product isn't selling in the UK yet.

    I am not VAT registered. I used to be but closed down that old business and started this new one a lot later. So you say even though I am not VAT registered I still need to charge VAT to my retailers and I won't get it back even with a TURN number?

    Hi Wavecrest, Many thanks for your excellent information on the shipping. I do intend to buy FOB when I place a container order. When we get closer to finalizing the shipping arrangements I will contact you if I have any questions. Many thanks for your help.
     
    Posted: Jun 21, 2009 By: rilojag Member since: May 30, 2009
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  17. JamieM

    JamieM UKBF Ace Free Member

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    You could do that but it would be better to suggest a retail price.

    No. If you are not VAT registered then you do NOT charge VAT. You will pay it when you import the goods but CANNOT reclaim it.

    If you are operating business to business you should voluntarily register for VAT so you can reclaim it. It won't make a difference to your customers as most if not all of them will be VAT registered. If you want further clarification on this let me know.
     
    Posted: Jun 21, 2009 By: JamieM Member since: Mar 22, 2006
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  18. Wavecrest Ltd

    Wavecrest Ltd UKBF Enthusiast Full Member

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    Hi Rilojag - I would go along with Jamie's advice. You should register for VAT otherwise you will not be able to reclaim the VAT paid on importation if you only have a pseudo TURN.

    Glen
     
    Posted: Jun 21, 2009 By: Wavecrest Ltd Member since: Oct 31, 2007
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  19. rilojag

    rilojag UKBF Newcomer Free Member

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    Many thanks for your replies, I will look into this a bit more and then get back to my reseller.
     
    Posted: Jun 21, 2009 By: rilojag Member since: May 30, 2009
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  20. tdl

    tdl UKBF Newcomer Free Member

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    Rilojag, does the product sell anywhere else in the world? If so use that to base your RRP on.

    As mentioned Jamie is spot on with the VAT. You will pay all duties and VAT on the imported goods.

    I wouldn't send the items direct to your customer as again has been mentioned you do not want them to see your supplier for obvious reasons. You can have the goods shipped to your customer NDS (Neutral Delivery) where the paperwork is removed hence they can't see where the goods have come from but beware this usually comes with a surcharge of approx £25.00 per shipment and then you have to rely on the courier company seeing the NDS label and thus removing the paperwork. (Not sure if this applies to imports but it is certainly widely used by a couple of my customers who export to Europe). I'm sure Glen at Wavecrest could probably advise this as they specialise in this kind of movement. Obviously Sea Freight is the most cost effective.

    Just ring HMRC that is what they are there for and they can advise the import duty %rate. So once you have this all you need ot add is the VAT and shipping costs and then you have your total cost per item.

    Make sure you check the supplier out as because you mentioned they initially wanted a big order and then they came back to you saying they would ship individually sounds a bit dodgy to me.

    Anyway it's late now so good luck and hope everything works out.
     
    Posted: Jun 22, 2009 By: tdl Member since: May 18, 2009
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