Non-Community goods released into free circulation

Amended Article 50, clause 4, letter b): operations concerning non-Community goods released into free circulation and intended for entry to VAT warehouses are conducted without payment of VAT.
VAT warehouses may store domestic and Community goods while goods from third countries/territories are not included unless they are released into free circulation. Release into free circulation is the procedure that gives non-Community goods the customs status of Community goods.
Trade policy measures and the completion of other customs clearance operations prescribed for the importation of goods must be applied, as well as any excise duties payable.
Upon completion, the goods may freely circulate in the Community, and shall be subjected to the same indirect taxes as goods therein produced. VAT warehouses allow goods to be imported without paying VAT if, after fulfilling customs clearance operations and payment of any excise duties, they are deposited in a VAT warehouse.
For this purpose, Ministerial Circular no. 145/E of 10 June 1998 stipulated that "the release of goods into free circulation destined to be deposited in a VAT warehouse must be considered as importation not subject to VAT, provided that a declaration is made by the importer stating the destination of the goods. This must also be demonstrated by returning copies of the customs import document together with a declaration in the register required for VAT warehouses, signed by the depositary, stating that the goods have been handed over as per amended Article 50, clause 3, of Legislative Decree no. 331/1993".

The import document

The IM-4 customs declaration form must clearly specify the wording, "Release into free circulation is requested without payment of VAT pursuant to amended Article 50, clause 4, letter b) Legislative Decree no. 331/1993 converted to Legislative Decree no. 427/93, since the goods are to be deposited in the VAT warehouse", as well as the identification details of the warehouse. For customs, the operation is concluded when the goods are released into free circulation and a form is issued, which states that they are not subject to VAT, at the time the importer declares that the goods are to be deposited in a VAT warehouse.

Entry of goods into a VAT warehouse

When goods enter a VAT warehouse, they must be accompanied by the customs import document. The VAT warehouse director must:
record, in the appropriate register, that the goods have been transferred, and
keep a copy of the customs import document
affix the certificate of transfer of goods to a copy of the IM-0 form and sign it
send a copy of the IM-0 form, with the affixed certificate of transfer of goods,
to the Customs station that has dealt with clearance.

Returning the document

A copy of the customs document, recording the acceptance of the goods in the VAT warehouse director’s accounts, and signed by the latter, must be returned to the issuing office. When the certificate stating the acceptance of the goods is returned, and any security required is released, the customs operation is finally concluded: any subsequent withdrawal from the VAT warehouse is not to be considered importation, but shall be carried out in accordance with the procedures described below

The depositor’s accounts
The depositor, to whom the customs form has been issued, must record it in the Purchase VAT Register and clearly specify the wording, "Operation carried out without payment of VAT as per clause 4, letter b) of amended Article 50 of Legislative Decree no. 331/1993 converted to Legislative Decree no. 427/93". It should be noted that the operation must be recorded in the annual VAT return, on the line concerning imported goods.

Financial benefits

An outline follows of the financial benefits that can be obtained from using VAT warehouses to import from non-EU countries without actually paying VAT and without being forced to use a credit limit.
It must be stated that, as indicated below, the self-invoicing procedure must be used in order to withdraw any goods from the VAT warehouse, as per Article 17, clause 2 of Presidential Decree no. 633/1972: since VAT is not paid but compensated in the accounts. It is therefore of great importance for companies in a VAT credit position to be able to adopt this system, since they can import without paying VAT and significantly reduce their credit, with huge benefits for company liquidity. This system may also be useful for companies that are not normally in a VAT credit position: it relieves them from paying VAT in advance at customs clearance, and helps them to obtain a financial benefit of 20% (in the case of regular VAT) of the value of the goods for a period of time from 15 - 45 days.

The person who deposited the goods in the VAT warehouse withdraws them

The person who has released the goods into free circulation by depositing them in a VAT warehouse may decide to withdraw them at a later date. In this case, the person must issue a self-invoice for this operation, indicating the VAT payable on the withdrawn goods. The self-invoice must be delivered to the VAT warehouse director, who will keep a copy. For example, if the company Rossi decides to withdraw goods worth 1 million, it will have to issue a self-invoice specifying the transaction that refers to the withdrawal of a specific lot from the VAT warehouse, in which Rossi had deposited these goods, and it will be necessary to indicate the following amounts:

+ Taxable amount 1.000.000
+ VAT payable 200.000
= Total amount 1.200.000

The invoice must be recorded in the invoice register, including the date on which it was issued, which cannot be later than the time of withdrawal of the goods. Once an invoice has been recorded in the register, any self-invoice must be recorded in the Purchase Register to conclude the VAT accounting operation.

Tax base for withdrawal
Amended Article 50, clause 6: the tax base is calculated in accordance with the amount or value involved in the operation involving goods not subjected to VAT due to their entry. If the goods have subsequently been subjected to one or more transfers, it shall therefore be calculated with reference to the amount or value for the most recent of these transfers. In any case, this amount will have increased, if it is not already included, due to the cost of any services on the goods during their storage up to the time they are withdrawn.

The underlying concept is that, at the time of withdrawal, VAT must be paid on the overall value of the goods: this value not only refers to the value of the goods at the time they were deposited in the VAT warehouse but it also takes into account any transactions that may have occurred while the goods were stored in the VAT warehouse, as well as any increase due to services on the deposited goods, including any operations and any storage/handling costs. Such services have already been charged for without the addition of VAT, under the VAT warehousing procedure. Due to this common underlying concept, the concrete methods of calculating the tax base will differ for cases in which withdrawal is made by the person who deposited the goods and for cases in which the withdrawn goods have been subjected to one or more transactions during storage.

Withdrawal of goods by the person who deposited them in the VAT warehouse

In this case the tax base is calculated from:

the amount or value of the transaction not subject to VAT following entry into
the VAT warehouse
the cost of any services on the goods while in storage
the basic tax base

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