((EXPERTISE NEEDED))

BizzyBlog

Would really appreciate if you guys would lend your experience/expertise towards our new business which we launch in 2012.

We have just secured exclusive distribution for Ireland/UK/France/Spain/Holland/Germany; of a completely new product which is doing very well in the US and Australia since its launch in 2009. The product is being sold mainly in Pharmacies for circa €6 alongside holiday essentials.

We have renamed + re-branded the product and secured the .com domain

The product is costing us €1 from our manufacturer in China of which we plan to wholesale only for circa €2.80 - €3.00 (ex vat)

SETTING UP: I plan moving to mainland Europe with the family while my business partner will be living in Ireland. Should we set the company up in Ireland, UK or Europe? With VAT rates in Ireland and the UK set to rise; it makes economic sense that while living and having the company registered in Europe it enables us to legally waive VAT to companies in Ireland and the UK therefor freeing up their initial cash outlay. But what are the implications of a business partner living in Ireland? I assume if im living in Germany I'm subject to paying income tax through the German system?

DISTRIBUTIONS COMPANIES: What are your experiences using a distributions company in getting your products to market? What percentage do they take and would you recommend using one/two or none at all? Our other option is to use a directory such as http://www.thewholesaler.co.uk for the UK..take orders and distribute ourselves. On the other hand, a distributions company would have the contacts and knowhow of getting your product into the right places quick and efficiently.

What is the general deal when using a distributions company in terms of credit/when you get paid etc?

For example: Distributions company have 500 Pharmacy stores on their books who wish to purchase 100x items per store.
Stock costs €50,000
Wholesales @ €150,000 (€3 per item)
Retails @ €300,000 (€6 per item)

Is it expected that you provide credit on the €50,000 for a period of time or can you request a deposit on the €150,000?

Many thanks for reading.. Looking forward to your replies!

B

Nuttzz

You're probably going to have to provide more credit than 50k and no distributor is going to give you the 150k up front.

The distributor may have 500 pharmacy's on its books but it may not sell to them, the pharmacy would come looking for what they want to stock rather than the distributor telling them what to stock.

Does the retail price €6 include VAT? The distributor will look for a 40-50% Margin not markup. if it does include VAT expect that €3 ex vat price to come down

The distributor may ask for supplies on a sale or return basis. i.e. if we dont sell them we send them back to you and you credit us for them.

BizzyBlog

You're probably going to have to provide more credit than 50k and no distributor is going to give you the 150k up front.

The distributor may have 500 pharmacy's on its books but it may not sell to them, the pharmacy would come looking for what they want to stock rather than the distributor telling them what to stock.

Does the retail price €6 include VAT? The distributor will look for a 40-50% Margin not markup. if it does include VAT expect that €3 ex vat price to come down

The distributor may ask for supplies on a sale or return basis. i.e. if we dont sell them we send them back to you and you credit us for them.

Thank you for that

Yes the €6 includes VAT. We were thinking of running with a distributions company more so that they have the multiple accounts already in place. Also being a completely new product we feel that we have a great chance of getting onto the shelves before/if others follow. The credit terms on 50k would not be possible though. Looks like we will just distrubute ourselves for the time being.

Anybody got any experience/thoughts on the following..

SETTING UP: I plan moving to mainland Europe with the family while my business partner will be living in Ireland. Should we set the company up in Ireland, UK or Europe? With VAT rates in Ireland and the UK set to rise; it makes economic sense that while living and having the company registered in Europe it enables us to legally waive VAT to companies in Ireland and the UK therefor freeing up their initial cash outlay. But what are the implications of a business partner living in Ireland? I assume if im living in Germany I'm subject to paying income tax through the German system?

RUDOLF289

BizzyBlog wrote: »

Would really appreciate if you guys would lend your experience/expertise towards our new business which we launch in 2012.

We have just secured exclusive distribution for Ireland/UK/France/Spain/Holland/Germany; of a completely new product which is doing very well in the US and Australia since its launch in 2009. The product is being sold mainly in Pharmacies for circa €6 alongside holiday essentials.

We have renamed + re-branded the product and secured the .com domain

The product is costing us €1 from our manufacturer in China of which we plan to wholesale only for circa €2.80 - €3.00 (ex vat)

SETTING UP: I plan moving to mainland Europe with the family while my business partner will be living in Ireland. Should we set the company up in Ireland, UK or Europe? With VAT rates in Ireland and the UK set to rise; it makes economic sense that while living and having the company registered in Europe it enables us to legally waive VAT to companies in Ireland and the UK therefor freeing up their initial cash outlay. But what are the implications of a business partner living in Ireland? I assume if im living in Germany I'm subject to paying income tax through the German system?

DISTRIBUTIONS COMPANIES: What are your experiences using a distributions company in getting your products to market? What percentage do they take and would you recommend using one/two or none at all? Our other option is to use a directory such as http://www.thewholesaler.co.uk for the UK..take orders and distribute ourselves. On the other hand, a distributions company would have the contacts and knowhow of getting your product into the right places quick and efficiently.

What is the general deal when using a distributions company in terms of credit/when you get paid etc?

For example: Distributions company have 500 Pharmacy stores on their books who wish to purchase 100x items per store.
Stock costs €50,000
Wholesales @ €150,000 (€3 per item)
Retails @ €300,000 (€6 per item)

Is it expected that you provide credit on the €50,000 for a period of time or can you request a deposit on the €150,000?

Many thanks for reading.. Looking forward to your replies!

B

Hello Bizzyblog,


My expertise is in international transportation, logistics, customs and VAT matters, so I will limit my response the the first part of your post. I have to warn you in advance, this is going to get detailed, based on some assumptions !


The decision on where to locate your business in my view should be driven by the corporate tax rate. Ireland has one of the lowest tax rates corporate tax rates in the EU (12.5%). Germany's corporate tax rate is 33.3% (I believe). That is a difference of over 20% and that should be a good indicator as to where to locate your business. VAT, as explained below is cost neutral throughout the supply/distribution chain upto the time it is bought by the consumer / final customer. So to base your decision on where to locate the business on the basis of VAT rate could be flawed.


To elaborate a little about VAT, herewith a quick outline.


[FONT=verdana, sans-serif]What is VAT?[/FONT]
[FONT=verdana, sans-serif]VAT is a consumption tax, charged on most goods and services traded for use or consumption in the EU. It is levied on the "value added" to the product at each stage of production and distribution. The "value added" means the difference between the cost of inputs into the product / service and the price at which it is sold to the consumer. VAT is charged when VAT-registered (taxable) businesses sell to other businesses (B-2-B) or to the final consumer (B-2-C). VAT is intended to be "neutral" in that businesses are able to reclaim any VAT that they pay on goods or services. Ultimately, the final consumer should be the only one who is actually taxed. Businesses are given a VAT identification number and have to show the VAT charged to customers on the invoices.[/FONT]
[FONT=verdana, sans-serif]How does the current EU VAT system work?[/FONT]
[FONT=verdana, sans-serif]Currently, a transitional system is in place for VAT on intra-EU transactions. Under this system, when it comes to cross-border sales between businesses, VAT is collected in the Member State of destination (i.e. where the goods are sent to or where the recipient of services is established), in line with the rate and conditions of that country.[/FONT]
[FONT=verdana, sans-serif]This means that the supplier of goods or services does not charge VAT, but the recipient is responsible for paying it. Both the supplier and recipient must conform to special reporting obligations. It should be noted that there are many exceptions to these rules. For example, VAT on transport is paid where the transport occurs and VAT on cultural events occurs where the show takes place.[/FONT]
[FONT=verdana, sans-serif]The rules for intra-EU transactions differ from purely domestic transactions, where the supplier charges VAT and is responsible for paying it to the Treasury.[/FONT]
[FONT=verdana, sans-serif]For goods or services provided to private individuals (i.e. business to customer), the VAT is paid by the supplier in the Member State where the sale occurs or where the supplier is established. However, there are certain supplies for which different rules apply e.g. distance sales, new means of transport, certain services etc.[/FONT]
[FONT=verdana, sans-serif]What is the principle of taxation at destination?[/FONT]
[FONT=verdana, sans-serif]Taxation at destination means that the supplies are in principle taxed in the Member State where the goods arrive or where the recipient of the services is located. Compared to the origin system, the main feature is that VAT revenues accrue directly in the Member State of consumption according to its domestic rates, exemptions and conditions.[/FONT]


First of all, I assume you are going to register for VAT (either in Ireland or in Germany) and your clients will be VAT registered entities. Either way the same principles apply. Secondly, as outlined above, the only person who at the end of the chain of transaction pays VAT is the consumer who buys your product in the shop / pharmacy. Everybody else (you, your clients / distribution companies, even the shops) either are accounting for VAT through their VAT return if they bought the goods in another EU member state (EU Acquisition, accruing a liability and in the same VAT return claim a deductible), or, if they bought the goods domestically, pay VAT to the domestic supplier and claim back the VAT paid in their VAT return. It is important to realise that VAT charged throughout the distribution channel is cost neutral and that the only person that ultimately pays VAT is the consumer.

If you bring your products in from China to Ireland or Germany directly (i.e. clear them in Dublin/Cork or Hamburg/Bremen), you would be obliged to pay VAT at time of importation (on top of duty on your product). In Ireland that would be 23% (w.e.f. 1st January) in Germany that would likely be 19% (I am assuming that the standard rate of VAT applies to your products). The VAT payable at time of import is a deductible in your VAT return, i.e. you claim it back. Ideally you should structure your imports in such a way that you avoid the outlay at time of importation. If you are bringing in container loads of product from China to Ireland, the goods will naturally tranship through another EU member state (likely to be the Netherlands, Belgium or the UK) before they arrive in Ireland. It is increasingly common to clear the goods into the EU at the point of transhipment. That way you can account for the VAT as an intra EU acquisition and avoid the cash outlay (which you then would claim back through your VAT return). Depending on the frequency of your VAT return, you could be out of pocket for upto 60/120 or 180 days. Any duty due would be payable at time of importation.


If you were bringing in goods to Germany from China, consider clearing them in Antwerp or Rotterdam and apply the same principle. I am attaching an outline on how to eliminate VAT at the point of entry which you may find helpfull in relation to your imports from China.


I would recommend to sit down with both a good accountant and a logistics service provider. I can recommend some good people in case of he former and I am available to give advice on logistics matters.


Send me a PM if I can help you any further.

Cheers,
Rudolf289

BizzyBlog

Originally Posted by Rudolf289

My expertise is in international transportation, logistics, customs and VAT matters, so I will limit my response the the first part of your post. I have to warn you in advance, this is going to get detailed, based on some assumptions !


The decision on where to locate your business in my view should be driven by the corporate tax rate. Ireland has one of the lowest tax rates corporate tax rates in the EU (12.5%). Germany's corporate tax rate is 33.3% (I believe). That is a difference of over 20% and that should be a good indicator as to where to locate your business. VAT, as explained below is cost neutral throughout the supply/distribution chain upto the time it is bought by the consumer / final customer. So to base your decision on where to locate the business on the basis of VAT rate could be flawed.


To elaborate a little about VAT, herewith a quick outline.


What is VAT?
VAT is a consumption tax, charged on most goods and services traded for use or consumption in the EU. It is levied on the "value added" to the product at each stage of production and distribution. The "value added" means the difference between the cost of inputs into the product / service and the price at which it is sold to the consumer. VAT is charged when VAT-registered (taxable) businesses sell to other businesses (B-2-B) or to the final consumer (B-2-C). VAT is intended to be "neutral" in that businesses are able to reclaim any VAT that they pay on goods or services. Ultimately, the final consumer should be the only one who is actually taxed. Businesses are given a VAT identification number and have to show the VAT charged to customers on the invoices.
How does the current EU VAT system work?
Currently, a transitional system is in place for VAT on intra-EU transactions. Under this system, when it comes to cross-border sales between businesses, VAT is collected in the Member State of destination (i.e. where the goods are sent to or where the recipient of services is established), in line with the rate and conditions of that country.
This means that the supplier of goods or services does not charge VAT, but the recipient is responsible for paying it. Both the supplier and recipient must conform to special reporting obligations. It should be noted that there are many exceptions to these rules. For example, VAT on transport is paid where the transport occurs and VAT on cultural events occurs where the show takes place.
The rules for intra-EU transactions differ from purely domestic transactions, where the supplier charges VAT and is responsible for paying it to the Treasury.
For goods or services provided to private individuals (i.e. business to customer), the VAT is paid by the supplier in the Member State where the sale occurs or where the supplier is established. However, there are certain supplies for which different rules apply e.g. distance sales, new means of transport, certain services etc.
What is the principle of taxation at destination?
Taxation at destination means that the supplies are in principle taxed in the Member State where the goods arrive or where the recipient of the services is located. Compared to the origin system, the main feature is that VAT revenues accrue directly in the Member State of consumption according to its domestic rates, exemptions and conditions.


First of all, I assume you are going to register for VAT (either in Ireland or in Germany) and your clients will be VAT registered entities. Either way the same principles apply. Secondly, as outlined above, the only person who at the end of the chain of transaction pays VAT is the consumer who buys your product in the shop / pharmacy. Everybody else (you, your clients / distribution companies, even the shops) either are accounting for VAT through their VAT return if they bought the goods in another EU member state (EU Acquisition, accruing a liability and in the same VAT return claim a deductible), or, if they bought the goods domestically, pay VAT to the domestic supplier and claim back the VAT paid in their VAT return. It is important to realise that VAT charged throughout the distribution channel is cost neutral and that the only person that ultimately pays VAT is the consumer.

If you bring your products in from China to Ireland or Germany directly (i.e. clear them in Dublin/Cork or Hamburg/Bremen), you would be obliged to pay VAT at time of importation (on top of duty on your product). In Ireland that would be 23% (w.e.f. 1st January) in Germany that would likely be 19% (I am assuming that the standard rate of VAT applies to your products). The VAT payable at time of import is a deductible in your VAT return, i.e. you claim it back. Ideally you should structure your imports in such a way that you avoid the outlay at time of importation. If you are bringing in container loads of product from China to Ireland, the goods will naturally tranship through another EU member state (likely to be the Netherlands, Belgium or the UK) before they arrive in Ireland. It is increasingly common to clear the goods into the EU at the point of transhipment. That way you can account for the VAT as an intra EU acquisition and avoid the cash outlay (which you then would claim back through your VAT return). Depending on the frequency of your VAT return, you could be out of pocket for upto 60/120 or 180 days. Any duty due would be payable at time of importation.


If you were bringing in goods to Germany from China, consider clearing them in Antwerp or Rotterdam and apply the same principle. I am attaching an outline on how to eliminate VAT at the point of entry which you may find helpfull in relation to your imports from China.


I would recommend to sit down with both a good accountant and a logistics service provider. I can recommend some good people in case of he former and I am available to give advice on logistics matters.


Send me a PM if I can help you any further.

Cheers,
Rudolf289

Just getting to read your reply Rudolf. Really appreciate your time on that.. thank you!

My feeling regarding VAT from a "cash flow" point of view; is that it may appeal more to businesses who do not have the initial outlay ie. Ireland's rate of 23%.
Even though a business may claim the VAT back - having to pay out €230 per €1000 might make businesses scale back on quantities per order. Would this affect the decision of other business owners here?

..

Originally Posted by Rudolf289
Ideally you should structure your imports in such a way that you avoid the outlay at time of importation. If you are bringing in container loads of product from China to Ireland, the goods will naturally tranship through another EU member state (likely to be the Netherlands, Belgium or the UK) before they arrive in Ireland. It is increasingly common to clear the goods into the EU at the point of transhipment. That way you can account for the VAT as an intra EU acquisition and avoid the cash outlay (which you then would claim back through your VAT return).

Could you please explain how to go about this?

Thanks again!

RUDOLF289

BizzyBlog wrote: »

Just getting to read your reply Rudolf. Really appreciate your time on that.. thank you!

My feeling regarding VAT from a "cash flow" point of view; is that it may appeal more to businesses who do not have the initial outlay ie. Ireland's rate of 23%.
Even though a business may claim the VAT back - having to pay out €230 per €1000 might make businesses scale back on quantities per order. Would this affect the decision of other business owners here?

..


Could you please explain how to go about this?

Thanks again!

Hello Bizzyblog,

If you are based here in Ireland and supply a VAT registered client in another EU member state, you do not apply VAT to your invoice. That is provided that you have proof that the VAT registration is valid. The client in the other EU member state accounts for the VAT liability in his VAT return. On the "debit" side of his VAT return he accrues a liability, at the rate that applies in that member state (in case of Germany - 19%) and on the "credit" side of the same VAT return he claims a deductible for the same amount. This means that he does not have a VAT outlay. There are some additional formalities to observe. For instance, you will have to file a VIES return to show the VAT authorities who you are supplying and by how much value. If you exceed the INTRASTAT threshold of € 635.000 of "INTRA EU Supplies" on an annual basis, you will also have to file INTRASTAT returns. Have a look at Chapter 5 of the attached VAT guide (NB : There are some changes to this version but this Chapter still applies in full)

Therefore, as stated before, it possibly would be to your advantage to operate from Ireland if the majority of your sales are to VAT registered entities in other EU member states. VAT in that case does not require any outlay and therefore should not be a consideration in where to locate your business. As an example, if you locate your business in Germany, and a lot of your clients are in Germany, you are obliged to charge your German clients VAT on your invoices @ 19%. If you supply your German clients from another EU member state, you do not have to charge VAT.

I will deal with the other question in a separate post

Cheers,
Rudolf289

RUDOLF289

Quote:
Originally Posted by Rudolf289
Ideally you should structure your imports in such a way that you avoid the outlay at time of importation. If you are bringing in container loads of product from China to Ireland, the goods will naturally tranship through another EU member state (likely to be the Netherlands, Belgium or the UK) before they arrive in Ireland. It is increasingly common to clear the goods into the EU at the point of transhipment. That way you can account for the VAT as an intra EU acquisition and avoid the cash outlay (which you then would claim back through your VAT return).

Could you please explain how to go about this?

Hello Bizzyblog,

You would need to employ a Freight Forwarder / Logistics Service Provider who is familiar with these aspects. The FF / LSP would be able to handle your shipments from origin (China), look after the customs clearance and "VAT at import" formalities and should be able to offer you a complete logistics service, including warehousing / distribution throughout the EU.

On the face of it, I would recommend to bring your goods to a central point in Europe (e.g. the Netherlands would be an option), store the products and supply your clients throughout the EU from the Netherlands, using (for instance) your Irish registered company (i.e. you raise your invoices from your Irish company). However, would need more input to asses all aspects of your supply chain to come to proper conclusions.

I would be happy - without obligation - to explore this further with you and determine how you can set up an efficient and cost effective supply chain for your products.

I am attaching some further documentation that explains the process and procedures. It would be possible to set up a socalled A-B-C process, that would facilitate goods arriving in (for example) the Netherlands addressed to (an Irish) party A, to be supplied from / by party B (the FF / LSP) to party C (your client in other EU member states) and account for the VAT in such a manner that eliminates any cash outlay for the three parties involved.

BizzyBlog

Originally posted by Rudolf289

You would need to employ a Freight Forwarder / Logistics Service Provider who is familiar with these aspects. The FF / LSP would be able to handle your shipments from origin (China), look after the customs clearance and "VAT at import" formalities and should be able to offer you a complete logistics service, including warehousing / distribution throughout the EU.

On the face of it, I would recommend to bring your goods to a central point in Europe (e.g. the Netherlands would be an option), store the products and supply your clients throughout the EU from the Netherlands, using (for instance) your Irish registered company (i.e. you raise your invoices from your Irish company). However, would need more input to asses all aspects of your supply chain to come to proper conclusions.

I would be happy - without obligation - to explore this further with you and determine how you can set up an efficient and cost effective supply chain for your products.

I am attaching some further documentation that explains the process and procedures. It would be possible to set up a socalled A-B-C process, that would facilitate goods arriving in (for example) the Netherlands addressed to (an Irish) party A, to be supplied from / by party B (the FF / LSP) to party C (your client in other EU member states) and account for the VAT in such a manner that eliminates any cash outlay for the three parties involved.

Interesting method.. Thanks for that Rudolf. I will PM you soon