VEXP20300 - Basic principles: Direct and indirect exports
For VAT purposes, supplies of goods for export fall into two categories - direct and indirect. These terms should not be confused with the definitions of direct and indirect export used for customs purposes which are explained at VEXP40300. Direct and indirect exports are subject to separate legal rules described below.
Direct exports
A direct export occurs when the complete transaction from supply to export is under the control of the UK supplier or owner of the goods. The location of the customer is not a relevant factor provided the goods are exported under the control of the supplier.
Direct exports are defined in section 30(6) of the VAT Act 1994 as follows
30(6) A supply of goods is zero-rated by virtue of this subsection if the Commissioners are satisfied that the person supplying the goods—
(a) has exported them
(b) has shipped them for use as stores on a voyage or flight to an eventual destination outside the United Kingdom, or as merchandise for sale by retail to persons carried on such a voyage or flight in a ship or aircraft,
and in either case if such other conditions, if any, as may be specified in regulations or the Commissioners may impose are fulfilled.
Examples of direct exports include situations where
- the UK supplier, or an agent employed by the supplier, eg a freight forwarder, is responsible for the physical export of the goods
- the UK supplier sends the goods by post, or
- the UK supplier exports the goods in baggage using the ‘Merchandise In Baggage’ (MIB) procedures.
Indirect exports
An indirect export occurs when your overseas customer or their agent collects or arranges for the collection of the commercial goods from you the supplier within the UK and then takes them outside the of the UK. This includes goods collected ex-works.
Commercial goods means goods which are exported for a commercial purpose by a business customer and not goods intended for the personal use of the customer.
If your customer does not have a business establishment in the UK the supply is eligible for zero rating as an indirect export even if that customer is VAT registered in the UK.
Indirect exports are defined in section 30(8) of the VAT Act 1994 as follows
30(8) Regulations may provide for the zero-rating of supplies of goods, or of such goods as may be specified in the regulations, in cases where—
(a) the Commissioners are satisfied that the goods have been or are to be exported to such places as may be specified in the regulations, and
(b) such other conditions, if any, as may be specified in the regulations or the Commissioners may impose are fulfilled.
and in Great Britain regulation 129 of the VAT Regulations 1995 (SI 1995/2518)
Supplies to overseas persons
129(1) Where the Commissioners are satisfied that–
(a) goods intended for export to a place outside Great Britain have been supplied at a time when they were located in Great Britain to–
(i) a person not resident in Great Britain,
(ii) a trader who has no business establishment in Great Britain from which taxable supplies are made, or
(iii) an overseas authority,
(b) the goods were exported to a place outside Great Britain, and
(c) the goods are not personal gifts on export as defined in regulation 2 of the Customs (Export) (EU Exit) Regulations 2019, and
(d)any conditions that may be specified by the Commissioners in a notice published by them have been met,
the supply, subject to such other conditions as they may impose, shall be zero-rated.
and in Northern Ireland regulation 133B of the VAT Regulations 1995 (SI 1995/2518)
133B Where the Commissioners are satisfied that—
(1) goods intended for export to a place outside the relevant states have been supplied at a time when they were located in Northern Ireland to—
(a) a person not resident in Northern Ireland,
(b) a trader who has no business establishment in Northern Ireland from which taxable supplies are made, or
(c) an overseas authority, and
(2) the goods were exported to a place outside the relevant states;
(3) the goods are not personal gifts on export as defined in regulation 9 of the Customs (Export) (EU Exit) Regulations 2019(1); and
(4) any conditions that may be specified by the Commissioners in a notice published by them have been met,
the supply, subject to such other conditions as they may impose, shall be zero-rated.
Examples of indirect exports include situations where
- the overseas person or their agent e.g. a freight forwarder collects the goods in the UK and exports them as freight or
- exports them in baggage using the ‘Merchandise In Baggage’ (MIB) procedures.
Such arrangements are typically referred to as ‘ex-works’ transactions.