Partnership question?

[Mark_87]

Hi there, this is my first post on the site!

I had an idea today and I have no idea whether it has any merit or not, or is even legal but it threw up some questions.

I am looking at Chinese manufacturers of a particular product. I was doing the usual "here is the cost to me, plus duty, plus VAT, plus shipping" etc etc. I wondered whether going into partnership with a manufacturer whereby you were their UK representatives would work, and instead of a transaction with the goods passing into your ownership from theirs, you shared profits once sold domestically?

If this is possible, how does this work at the import stage? What value do the items have if there is no actual transaction to speak of? How is the duty & VAT calculated?

Any information would be greatly appreciated.

Kind regards,

Mark

 

[3equality]

Hi Mark,

I think that is possible, but first you need find a factory who can accept your proposal. You need discuss with them directly. Do you already have some candidates in mind?

 

[Directimport]

Hi Mark,

Such exclusive distributor rights are extremely hard to come by, and they are fraught with risks.

A common scenario is that you will get answers from Chinese businesses willing to "Cooperate" with you. To gain those exclusive rights all you need to do is place a big initial order.

If on the other hand a supplier is willing to appoint you without you placing an upfront order, and you actually make sales, don't forget that the customers belong to the Chinese company. I have seen a number of cases where overseas manufacturers use this process to evaluate the market potential and then set up their own local branch ..... bye, bye Mark

 

[Mark_87]

Thanks 3equality & Directimport for your responses.

I do have one specific company I have imported from, who are keen to enter into an exclusive business relationship but I need more advice on how this relationship works at a tax level - if we are basically one entity how does this work when, for example, declaring value of the goods for the purpose of import duty and VAT? I am not purchasing the goods per se, so how is the value calculated?

Also, further to your advice Directimport I would be extremely vigilant before entering any agreement as I have too heard a number of horror stories.


Kind regards,

Mark

 

[GraemeL]

So in effect you are acting as their sales agent? They sell directly to the customers you find and your customer pays them directly. The Chinese company then gives you a payment. Your first post does not make it clear but that's what is feels like you mean.

Then I was confused by "if we are basically one entity", which does not mean to me the same as being a representative. What exactly do you mean?

Who invoices the UK customer?

G

 

[Mark_87]

Hi Graeme,


Thanks for your post. Well if we look at agency, for example, how does this affect the tax issue? If I am not buying the items but am selling them for another company, how is import duty and import VAT calculated?


The original idea I had was more along the lines of entering a partnership, whereby I would act as the UK arm of the Chinese business, so we were not trading between the two of us. In essence I just want to figure out how taxes are calculated in instances where no goods have actually been bought by me.

Kind regards,

Mark

 

[GraemeL]

OK, so if no goods are bought or sold by you, the sale and purchase process is between the Chinese Factory and the UK Customer. Nothing to do with you - all you are doing is introducing the two parties to each other.

The cost of the goods (plus shipping etc) will be paid to the Chinese company by the customer in whatever currency they agree.

The 20% VAT and and applicable Duty must be paid to HMRC by someone before the goods will clear customs. Usually this would be by the customer named on the transit documents. I would think it was somehow possible for the Chinese supplier to pay HMRC in GBP or refund the customer if they wanted to - but getting complex.

Any monies you earn is a separate transaction.

 

[Directimport]

OK, so if no goods are bought or sold by you, the sale and purchase process is between the Chinese Factory and the UK Customer. Nothing to do with you - all you are doing is introducing the two parties to each other.

The cost of the goods (plus shipping etc) will be paid to the Chinese company by the customer in whatever currency they agree.

The 20% VAT and and applicable Duty must be paid to HMRC by someone before the goods will clear customs. Usually this would be by the customer named on the transit documents. I would think it was somehow possible for the Chinese supplier to pay HMRC in GBP or refund the customer if they wanted to - but getting complex.

Any monies you earn is a separate transaction.

Spot on Graeme.

As described by Mark, the transactions would amount to selling on indent if the orders are large for individual customers, but if the sales are essentially one-offs to each customer that would amount to dropshipping. The difference between Mark's plan and ordinary dropshipping is the proposed exclusive nature of the arrangement.

To avoid inconvenience and nasty cost surprises for the customers, the supplier would have to agree to Delivered Duty Paid (DDP). Few Chinese suppliers are happy to offer those terms for obvious reasons, but otherwise customer dissatisfaction will be high.