IntroductionThe 27 countries of the European Union (EU) make up a huge market of potential customers and suppliers for your business.This market can be easier to access than other overseas markets as many of the trading practices, regulations and standards apply throughout the EU. Key tasks - such as accounting for VAT - have also been simplified to facilitate trade within the EU. If you conform with UK requirements, you will generally meet requirements throughout the EU.
Why trade in the European Union?Trading with other European Union (EU) countries offers a number of key benefits to businesses in the UK. The EUs 27 member states include some of the worlds wealthiest and most productive countries. The EU is a huge market in which to sell your goods and services - it also gives you access to a huge source of suppliers.At the core of the EU is the single market - the programme of freeing up the trade of goods and services and the movement of people between EU countries. The aim is that doing business with other EU countries should become increasingly like doing business within your own country.
Why trade in the European Union?The following are some of the measures which EU countries have introduced to make it easier to trade with each other: Reduced bureaucracy and paperwork - for instance, trade with the EU can be recorded on your VAT form in the same way as any of your sales and purchases in the UK. Harmonised standards - EU-wide technical and safety standards ensure that if you meet UK standards youll also meet the standards of other EU countries. Movement of people - UK citizens have the right to travel, live and work in any EU country. You can also employ EU citizens to work in the UK. The euro - it has reduced the currency considerations faced by businesses trading in euros between Eurozone countries.
Find out about other EU marketsYou need to consider your particular business needs and see whether trading with other European Union (EU) countries will be of benefit to you.Look at individual EU countries, find out about market conditions and ask yourself whether there might be business you could do there. Would your products or services fill a niche in the market? Would they be competitive? Are there opportunities to find materials or components of higher quality or at lower prices?
Find out about other EU marketsInformation about market conditions in the various EU countries is available from a wide range of sources: Enterprise Europe Network (EEN) - offers support and advice to businesses across Europe and helps them make the most of the opportunities in the European Union. Action Single Market - a UK Government initiative to help UK businesses make the most of the single market across the EU. UK Trade & InvestmentOther bodies will also be able to help you explore the possibilities open to you in the EU, such as your trade association, professional body, or local Chamber of
Preparing to trade with the EUYou need to make sure youre fully prepared before beginning to trade with other European Union (EU) countries. Youre unlikely to have the same background knowledge of markets, cultures and procedures elsewhere in Europe as you do in the UK - but the more groundwork you do, the less likely it is that youll be surprised by anything.
Preparing to trade with the EUIf youre buying, you should conduct research to locate suppliers and assess their quality, reliability and capacity to deliver overseas.If youre selling, its vital to have a well worked-out plan. You need to be sure that you have the necessary resources to move into an overseas market, as well as the logistical support in place to move your goods between countries.
Preparing to trade with the EUDraw up a sales plan. It should cover: Your target market - is there a demand for your goods at a viable price? Your products or services - do you need to modify them? For example, do you need to adapt them for language differences? Marketing - how will you market your products? Dont assume theyll occupy the same market position as in the UK.
Preparing to trade with the EUDraw up a sales plan. It should cover: Finance - have you got finance in place to cover the costs of trading? Distribution - how will you deliver your goods to your overseas customers? Pricing - what prices will you charge, which currencies and which payment methods will you accept? Contacts - what contacts do you need to make in your new market?
VAT on the movement of goods andservices within the EUThere is less admin involved in acquisitions (goods imported into the UK) and dispatches (goods exported from the UK) to and from other European Union (EU) countries than with countries in the rest of the world.For VAT purposes, you should record goods sold to and bought from other EU countries on your usual VAT return. The total value of your sales of goods to other EU countries should be recorded in box 8 of your VAT return, while the total value of your EU purchases of goods should be recorded in box 9.
VAT on the movement of goods andservices within the EUIf either your EU acquisitions or dispatches of goods are above a certain threshold youll have to complete an additional form, the Intrastat Supplementary Declaration. Intrastat thresholds are reviewed annually. The 2011 thresholds are £600,000 for Arrivals and £250,000 for Dispatches.
Who pays the VAT?For trade involving the movement of goods between two VAT-registered businesses in different EU countries, VAT is paid by the customer at the rate which applies in their country.For example, if you acquire goods from a VAT-registered Spanish business you pay VAT at UK rates. If you dispatch goods to the same business, the VAT is paid by your Spanish customer at Spanish rates.In order to dispatch (sell) goods free of VAT to your Spanish customer, you will need the customers VAT registration number and commercial documentary evidence the goods have been removed from the UK.
Who pays the VAT?For dispatches (sales) to a non VAT-registered business or consumer in another EU country, VAT is charged in the country from which the goods are dispatched. However, if you are responsible for delivery and the value of your dispatches exceeds the distance selling threshold set by the country you are dispatching to, then VAT is due in that country. For example, if you sell to non VAT- registered German consumers you charge VAT at UK rates.
Duties on the movement of goodswithin the EUGoods that have been produced in the European Union (EU), or that have been imported into an EU country with duty paid, are in free circulation within the EU. Customs duty is not payable on acquisitions (imports or purchases) of goods that are in free circulation.
Customs warehousingDuty is normally payable on imports from outside the EU when the goods are first brought into the EU. However, goods from outside the EU can be imported into the EU without paying the normal customs duty, provided they are not released into free circulation - eg if they are held in a bonded warehouse.You can buy goods that are not in free circulation without paying duty, provided that you do not put them into free circulation - eg, if you continue to keep them in a bonded warehouse. Duty becomes payable when you want the goods released into free circulation - eg so that they can be removed from the bonded warehouse and sold on to your customers.
Customs warehousingFor example, a German company could import goods from America into a bonded warehouse in Germany without paying duty. The goods could then be sold to a UK company, and moved to a bonded warehouse in the UK - again, without paying duty. But if the UK owner wants to take them out of the bonded warehouse - for example, to sell and deliver to their UK customers - duty becomes payable.A similar system applies to excise duty on products such as alcohol and tobacco.
Price your products or services in eurosOf the 27 European Union (EU) member states, 17 currently have the euro as their national currency:
Price your products or services in eurosIf you trade with these countries - or with UK businesses which conduct a lot of their business with these countries - you should weigh the benefits of pricing your goods and services in euros.Consider what your customers and potential customers expect and prefer. In the same way that sterling is the most convenient currency for most UK businesses to work with, most Eurozone customers will prefer to see prices in euros.
Price your products or services in eurosLook at what your competitors are doing. If youre selling into the Eurozone you are competing with Eurozone businesses - all of which quote prices in euros. Using a sterling price list in this environment may lose you business.Set your prices carefully - dont assume that your UK pricing strategy will work in other EU markets.If you decide to price your goods and services in euros: Watch for pricing points - a neat sterling price of £4.99 may convert to a less psychologically appealing figure in euros Be aware of exchange rate risks if accepting payment in euros - if the exchange rate changes you may lose out
Accept and make payments ineurosProviding euro-denominated price lists can be an important first step for businesses selling to the Eurozone. Its possible to quote prices in euros and then accept payment in sterling, but this makes the transaction more complicated for your potential customer - they have to accept the cost and risk of exchanging euros for sterling with which to pay you.Most customers who use the euro will prefer to be able to make their purchases using the euro rather than having to exchange it into sterling first - its much more convenient. Accepting payment in euros may make your goods or services more attractive to a large number of potential customers across the eurozone.
Accept and make payments ineurosBuyers of goods and services from the Eurozone may also need to consider making payments in euros. Depending on your bargaining power you may be able to insist on making payment in sterling - but some vendors may be unwilling or unable to accept currencies other than the euro.
Manage your euro currency riskThe main disadvantage of making and accepting euro payments is that it exposes you to currency risks. If the exchange rate between sterling and the euro moves between the times when prices are set and when payment is made, you may lose out.For example, if the euro weakens after an exporting business sets its euro prices, it will still receive the agreed number of euros but these will be worth less when converted into sterling.
Manage your euro currency riskSimilarly, if the euro strengthens after an importer agrees the price in euros for a delivery of goods, the importer will need to use more sterling than expected to buy the euros he needs to make the payment.This can work the other way - you may gain from favourable movements in the exchange rate. But these exchange rate changes are very unpredictable and it is wise to take steps to minimise your risks.
Manage your euro currency riskThere are a number of ways you can counter your exposure to exchange rate risk, sometimes referred to as hedging your currency risk: Ask your bank to open a euro bank account for you. This lets you make and accept euro payments without having to convert into sterling every time. Use a forward exchange contract, where you agree to buy or sell an agreed amount of foreign currency at a certain exchange rate by a specified date. These remove uncertainty by tying you in advance to an agreed exchange rate. Use currency options. These agreements are more expensive than forward exchange contracts but give you more flexibility by giving you the option, without the obligation, to buy or sell euros at an agreed exchange rate.
Tendering and outsourcing within the EUSelling goods to new markets isnt the only way to begin trading within the European Union (EU). Many contracts in the EU are put out to tender - and businesses across the EU are equally entitled to compete to win these contracts.You can also use the services of private companies which charge a fee for assisting you to find contracts in the EU for which your business can submit a tender.
Tendering and outsourcing within the EUFor private-sector contracts, useful sources of information include: Trade associations and professional bodies Business contacts in other EU countries Other UK businesses with interests in EU countries Advertisements in trade and professional magazinesRules were introduced to simplify the public sector tendering process and ensure that public sector contracts are awarded fairly. The rules apply to all central government contracts worth more than £101,323 and all other public sector contracts for services and supplies worth more than £156,442 or £3,927,260 for works.
OutsourcingYou might want to consider outsourcing work to businesses in other EU countries. The basic principle of outsourcing is to contract business functions out to other companies if they can handle them more cost-effectively than you.This happens frequently between UK businesses - for instance, many businesses outsource their payroll operations. Similarly, there may be work you can contract out to businesses in other EU countries.For example, a UK manufacturing business might outsource the production of a key component to a specialist firm in Germany if they can produce it more quickly or at a lower price.
FormalitiesAll the information provided is for informational purposes only and you should seek specialist personalised advice as required. As such, we accept no liability for the actions taken by the readers of this slideshow.All information was provided by Business Link and is covered by Crown Copyright.All information is available as shown below: BusinessLink (2012) Trading in the European Union. Available at: http://www.businesslink.gov.uk/bdotg/action/layer? r.i=1082224000&r.l1=1079717544&r.l2=1087336649&r.l3=1074415241&r.s=sc& r.t=CASE%20STUDIES&topicId=1074415241 [Accessed: 19th August 2012]
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