How Food Sellers Can Use the VAT Exemption In An Age of Tariffs
The European Union (EU) stands as a global culinary leader, a mosaic of diverse food traditions and a hub for high-quality, artisanal products.
From artisanal cheeses and fine wines to cured meats and specialty chocolates, EU food producers have a global reputation for craftsmanship and flavor.
American consumers are especially in loved with European food products.
As EU sellers look to expand their horizons and tap into new markets, navigating the complexities of international trade and ensuring profitability can be a challenge.
However, despite its recent tariff increases, the United States presents a particularly attractive and lucrative opportunity. This article explains why.
The VAT Exemption for Exports
One of the most powerful and often-underutilized tools available to EU food sellers looking to expand into the lucrative U.S. market is the exemption from Value-Added Tax (VAT) on exports. This often-overlooked tax benefit provides a powerful tool for maximizing profit margins and gaining a competitive edge.
In the EU, VAT is a consumption tax applied to goods and services at each stage of the supply chain, with the final burden falling on the end consumer. For many food products, which are considered essential goods, EU countries apply reduced VAT rates, but these rates still add a cost to the final price.
For example, a bottle of olive oil or a block of artisanal cheese sold in Italy or France would have VAT added to its price, a tax that the producer must collect and remit to the government.
However, according to EU tax regulations, goods exported to countries outside the European customs territory, such as the United States, are “zero-rated” for VAT. In other words, food and other products sold to customers outside the EU are exempt from VAT.
This is a crucial distinction that can dramatically impact a company’s bottom line.
This means that EU food sellers do not have to charge or collect this tax on their sales to their American customers.
When an EU company sells and ships their products to a customer located in the United States, the transaction is considered an export and is exempt from VAT.
More specifically, even reduced VAT rates for food products in EU member states can range from as low as 5% to as high as 25%. For example, for a product priced at €100 before tax, a 10% VAT would add €10, bringing the final EU consumer price to €110.
However, when that same product is sold to a customer in the U.S., the producer sells it for €100, and no VAT is added. The difference of €10, which would have been a tax, can now be converted into pure profit or used for other purposes.
The Benefits of the VAT Exemption for Exports
By removing this cost from the transaction, EU sellers can price their products more competitively in the U.S. market, offset tariff and shipping costs, offer a more attractive value proposition to American consumers, and perhaps most importantly increase their own profit margins.
This is a game-changer for profitability. The VAT exemption policy for exported products offers a profound financial benefit.
Instead of collecting and remitting the tax to their national government, the EU seller can keep that amount as pure profit or reinvest it into their business. Instead of acting as a tax collector for their government, the food seller can fully capitalize on the potential profit margin that would have otherwise been a tax obligation.
For business-to-consumer (B2C) sales, where an EU company sells directly to an American customer through their website, the process is straightforward.
The producer could simply ensure that their e-commerce platform recognizes the U.S. shipping address and automatically deduct the VAT. This would provide an immediate price advantage.
For business-to-business (B2B) sales to U.S. distributors or retailers, the VAT exemption simplifies the transaction and provides a clear cost benefit to the U.S. partner, making the EU product a more attractive option for them to stock.
Alternatively, whether for a business-to-consumer (B2C) sale or for commercial (B2B) transactions, the producer could simply charge the full price including the VAT, and keep the difference as profit or use it for other purposes.
Beyond profits, the VAT exemption also allows for significant strategic uses, including financial flexibility to help account for tariff costs and shipping expenses, consider offering lower prices, or enhance product quality or packaging.
Depending on the exact VAT rate that would otherwise by applied to sales in the seller’s home country, the seller might decide to absorb American tariff costs, or offer free or subsidized shipping to U.S. customers – both of which are powerful marketing incentives in the e-commerce age.
The savings could also be directed toward improving product packaging for safe and appealing international transit, investing in targeted digital marketing campaigns to reach American consumers, or even scaling up production to meet growing U.S. demand.
Documentation and Record-Keeping
Of course, the seller should maintain clear records, including proof of export such as shipping documents and customs declarations, to demonstrate that the goods have left the EU’s customs territory.
Adherence to these regulations is key to avoiding penalties and fully realizing the financial benefits.
One such item of documentation would be the “prior notice” confirmation required for food and drink shipments to the United States.
This requirement allows the US government agencies to track potentially faulty, diseased, or otherwise dangerous food products that might be sold into the US market. Food or drink shipments without a prior notice will likely be refused at the border and denied entry.
For each type of food or drink product included in each shipment to the United States, the customs authorities and US Food and Drug Administration (FDA) require prior notice to be provided through special online portals set up by the US government.
The “prior notice” requirement might seem difficult. However, PriorNotify makes the process very easy.
The manual process of submitting prior notices takes several minutes for each product in each shipment. But PriorNotify allows producers to make the required submissions automatically. This streamlines the export process, and saves significant time, effort, and expense.
PriorNotify was designed specifically for international food and beverage producers, merchants, wholesalers, drop shippers, and fulfillment and shipping services. With PriorNotify, international food and beverage enterprises can now easily sell and transport consumables to Americans retailers, distributors, and consumers.
PriorNotify integrates with Shopify, WooCommerce, Magento, PrestaShop, and WiX to automatically complete FDA Prior Notices when a product is purchased.
This eliminates the time-consuming manual “prior notice” submission process.
PriorNotify also works smoothly with sales platforms like Amazon by allowing users to easily transfer order data to dramatically help food and drink producers work more efficiently.
You can find out more here: Link to PriorNotify
The “prior notice “confirmation documents provided by PriorNotify show each food or drink item, the name and address of the US buyer, and the tracking number for the shipment.
Therefore, the “prior notice” confirmation documents provide clear evidence of the sale and delivery outside the EU.
Conclusion
The VAT exemption on exports allows EU food sellers to look beyond the single market for growth. By understanding and actively leveraging this tax benefit, EU companies can transform what might seem like a complex challenge into a golden opportunity for increased profitability and sustained business growth in the dynamic American market.
The VAT exemption on exports to the U.S. is not merely a tax detail. Instead, it is a fundamental pillar of a successful international growth strategy for EU food producers.
It allows them to bypass a significant tax burden, giving them the financial flexibility to increase profits, account for the new tariffs, offer competitive pricing, and strategically improve their business.
By embracing this tax advantage, EU sellers can transform what might seem like a complex and distant market into a highly profitable and sustainable avenue for long-term business success.
Clearly documenting the export shipments using PriorNotify is a key part of the strategy.
