Trading in the European Union
The 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 EU’s 27 member states include some of the world’s 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.
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.
- Â Harmonised standards – EU-wide technical and safety standards ensure that if you meet UK standards you’ll also meet the standards of other EU countries.
- Â 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.
- Â The euro – it has reduced the currency considerations faced by businesses trading in euros between Eurozone countries.
Find out about other EU markets
You 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.
The following 27 countries are EU member states:
Austria | Belgium | Cyprus |
Czech Republic | Denmark | Estonia |
Finland | France | Germany |
Greece | Hungary | Ireland |
Italy | Latvia | Lithuania |
Luxembourg | Malta | Netherlands |
Poland | Portugal | Slovakia |
Slovenia | Spain | Sweden |
United Kingdom | Romania | Bulgaria |
Preparing to trade with the EU
You need to make sure you’re fully prepared before beginning to trade with other European Union (EU) countries. You’re 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 you’ll be surprised by anything.
VAT on the movement of goods and services within the EU
There is less admin involved in acquisitions (goods imported into your country) and dispatches (goods exported from your country) from other European Union (EU) countries than with countries in the rest of the world.
For VAT purposes, you should record goods and services sold to and bought from other EU countries on your usual VAT return.
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 the rates set by the customs authorities in your country.
Duties on the movement of goods within the EU
Goods 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.
Price your products or services in euros
Of the 27 European Union (EU) member states, 13 have the euro as their national currency:
Austria | Belgium | Finland |
France | Germany | Greece |
Ireland | Italy | Luxembourg |
Netherlands | Portugal | Spain |
Slovenia |
If you trade with these countries – or with businesses in your country which conduct a lot of their business with these countries – you should weigh the benefits of pricing your goods and services in euros.
Accept and make payments in euros
Providing euro-denominated price lists can be an important first step for businesses selling to the eurozone. It’s possible to quote prices in euros and then accept payment in local currency, but this makes the transaction more complicated for your potential customer – they have to accept the cost and risk of exchanging euros for local currency with which to pay you.
Manage your euro currency risk
The main disadvantage of making and accepting euro payments is that it exposes you to currency risks. If the exchange rate between local currency and the euro moves between the times when prices are set and when payment is made, you may lose out.
Tendering and outsourcing within the EU
Selling goods to new markets isn’t 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.
Outsourcing
You might also 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.
Trading with China
China is the third largest country in the world and offers enormous possibilities for EU businesses looking for a new export market.
China has a population of 1.25 billion people and an economy that is growing quickly. Many EU businesses are already successfully selling into China, and thriving sectors of the Chinese economy are matched to Europe’s exporting strengths. Key areas for export include hi-tech manufacturing and communications technology.
Assess the opportunity to trade with China
China is now the fourth largest economy in the world and has one of the world’s fastest rates of growth. This and other factors mean that it will continue to be a key market for European exporters.
It is becoming easier for exporters to do business in China. Many regions are now encouraging foreign investment through tax incentives and previous legal restrictions to trading in China are being removed.
Understanding Chinese customers
In Chinese business etiquette, the concept of “face” is essential. It’s very similar to respect – you must show respect to your Chinese associates, and you must earn their respect in turn.
It’s also important to note that Chinese business people place great emphasis on friendship. It’s a good idea to become a trusted friend first and a business colleague second.
Trade visits to China
First-hand experience of China may make it easier to assess the economic, political and business climate there.
A trade visit is one of the best ways to assess the overseas market. It may be organised by a business support organisation, or by a trade association. Trade visits give you the security and support of travelling with other businesses. During the visit your group attends pre-arranged meetings, seminars and exhibitions. You may meet potential customers, agents, joint-venture partners and government representatives.
Financing exports to China
When planning to export you must be clear how you will finance the expansion, and manage your cashflow. You should also decide how to take payment from your customers.
Working out your investment requirements
Use market research to identify how you will start trading in China and what level of investment you’ll need to make.
Getting paid
Most trade with China is done using letters of credit. These are promises from your customer’s bank to make payment to you once the goods or services you provide are received, and the documentation covering the transaction is properly and correctly presented.
Taxes, duty and legal considerations for exports to China
There are some important rules and regulations specific to China that you should be aware of.
Tax
You must declare all exports to the local customs authorities. You also need to keep documentary evidence of exports, and record the value of exports on your VAT return.
Exports of most products to China are zero-rated for VAT. There are no additional export taxes.
Duty
When you export goods to China, they will attract import duty. You or your local representative will have to pay this before the goods will be released by Customs. The level of duty will depend on the type of product.
Protecting intellectual property
You should be careful to protect your business’ intellectual property when trading in China. Copyright, trade marks, patents and design right may be upheld to different degrees in different areas.
Transport, logistics and infrastructure for exports to China
As China is more than 5,000 miles from the UK, getting your transport and logistics right is essential.
Choosing a base
Once you have decided on the regions in which your key markets are located, you should establish your base in one of the major cities there.
Geographical and transport considerations
80 per cent of China is rural and much is mountainous. You’ll need to factor in time for your products to reach remote inland areas.
Communications
The communications infrastructure in China is still developing. While access to telephones, faxes and the Internet is growing, it is not always reliable.
Trading with the USA
Exporting can be a great opportunity to grow your business, win new customers and increase profits.
If you can offer quality products or services, the US is a key market to consider. The US is the largest economy in the world.
Assess the opportunity for exporting to the USA
However the US is a very competitive market. To succeed, you need to offer customers real value for money. You also need to consider the impact of the additional costs of exporting on the price of your products, when competing with US-based suppliers. In short, you need to offer something special.
Target the right customers in the USA
The US is a huge and varied market. For all but the largest companies, the cost of trying to sell across the whole of the country is prohibitive. Instead, you need to identify and target the most promising regions.
Concentrating on a regional niche increases your chances of success, leaving you in a strong position to expand your geographical coverage later.
Understanding customers in the USA
Although Americans speak English, this can disguise important differences between Americans and customers in Europe:
•Many words are spelt differently in America. More importantly, there are differences in how words are used. Slang expressions in particular can have very different meanings.
•Americans tend to be direct. In business, it’s important to get to the point and to show clear value for money.
Trade visits to the USA
Trade visits can be a key way of identifying potential customers, assessing the response to your product, and building relationships. You can also use visits to make other useful contacts, such as local advisers and business partners.
Marketing and selling in the USA
The US market is highly competitive. To win business, you need to be able to demonstrate that you offer better value or a better-quality product or service. With the costs of exporting, it can be difficult to compete on price. You are therefore more likely to succeed if you position yourself as having a superior product and better service.
Financing exports to the USA
US businesses will typically expect to be offered credit when they purchase from you. This, coupled with the delay while products are shipped to them, means you may have to finance your exports for several months.
You also need to protect yourself against the risk of non-payment. Chasing payment, or taking legal action in the US, could be very time-consuming and expensive.
Taxes, duty and legal considerations for exports to the USA
You must declare all exports to the customs authorities in your country. You also need to keep documentary evidence of exports, and record the value of exports on your VAT return.
Exports of most products to the US are zero-rated for VAT. There are no additional export taxes.
US duty and taxes
Your products may be liable to import duty. The level of duty varies for different products. Responsibility for US duty and taxes will depend on what you have agreed with your customer. To compete with local suppliers, you may have to quote a fully inclusive price (ie including all US duties) and arrange delivery to their premises.
Transport, logistics and infrastructure for exports to the USA
There are excellent transport links between the Europe and the US. Goods can be exported through a number of ports and there are regular, direct flights.
The east coast of America, with its major trading centres such as New York and Boston, is particularly easy to access. This helps reinforce the east coast as the most attractive regional market in the US for many European exporters.
Trading with India
India is a major, and growing, export market and offers great possibilities for European businesses looking for a new export market.
Trade between Europe and India has increased rapidly in recent years. As India develops, so do the opportunities for your business.
Assess the opportunity to trade with India
With a population of over one billion people, and a rapidly developing economy, India is a huge potential market.
There are many opportunities to sell to Indian companies. As well as machinery, local companies look for products and services that they can use to increase the sophistication of their products. For example, Indian manufacturers buy design, testing and other services to help them innovate.
Understanding Indian customers
India is ethnically diverse, with a whole range of different languages and religions.
Although Hindi is the official national language, less than half the population speak it. English is the key language for commerce. Most business people you deal with are likely to speak good English.
Trade visits to India
Successfully selling to Indian customers depends on building relationships, and often requires several face-to-face meetings.
Trade visits can help you identify potential customers and key contacts, and find out what they think of your product. You can also use them to build relationships with local advisers and other key contacts.
Contacting decision makers
Make sure you’re speaking to people who make buying decisions. If you have local agents, use their expertise. In an organised trade visit, the organisers should help you find contacts.
Marketing and selling in India
To succeed in the Indian market, you need to compete with local, national and multinational businesses. As an exporter based in the Europe, your costs are likely to be higher than those of many competitors. You therefore need to clearly demonstrate the value of what you offer. Superior technology and quality may give you an edge.
Financing exports to India
Indian companies purchasing imports generally need approval. If you are selling to an experienced importer, they should be able to advise you of the documentation they require.
Imports are generally financed using import letters of credit or import bills.
Taxes, duty and legal considerations for exports to India
You must declare all exports to the customs authorities in your country. You also need to keep documentary evidence of exports, and record the value of exports on your VAT return.
Exports of most products to India are zero-rated for VAT. There are no additional export taxes.
Duty
When you export goods to India, they will attract import duty. You or your local representative will have to pay this before the goods will be released by customs. The level of duty will depend on the type of product.
Trading with the Middle East
The Middle East represents a rich mix of cultures, religions, languages and political influences. The region can provide lucrative openings to European businesses who wish to export to the area.
Assess the opportunity to trade with the Middle East
The business profile of countries in the Middle East varies widely. There are strong and developed economies, and also emerging and developing areas.
Understanding customers in the Middle East
The Middle East is a diverse region, both in terms of business culture and religion. This will affect the way that you handle your exports.
Religious issues
Much, but not all, of the Middle East is Islamic. Muslims pray five times each day so you must make sure business appointments are outside prayer times.
Gender issues
In Arab cultures, the roles of men and women may be different from in the UK. Interaction between sexes may be frowned upon in some areas.
Language issues
It’s a good idea to translate your sales literature into the local language, otherwise you may miss out on sales.
Meeting customer expectations
It’s essential that you research and understand what your customers in the Middle East will expect of their trading relationship with you. This will vary from country to country.
Trade visits to the Middle EastVisiting your target market in the Middle East can bring you important benefits, including:
- Â meeting potential customers face-to-face
- finding out about market conditions
- seeing what products and services you will be competing with
Preparing for a visit
Make sure that whoever is going on the visit is properly briefed. Plan what you want to achieve from each event and prepare the materials you’ll use to promote your business abroad.
Contacting other businesses
Research potential customers to find out how to contact the right person. Check online for business listings and websites.
You can also find business opportunities through a number of support services.
Marketing and selling in the Middle East
You should carry out detailed research on your intended Middle East market. Economic conditions and business requirements vary across the region, and UK businesses will need to check the regulations that cover overseas businesses. You will also need to find out how the regulatory system works.
Financing exports to the Middle East
Trading in a new market in the Middle East means you will have to consider:
- the level of investment you are prepared to make in the new market
- how you will manage your cashflow
- how you will be paid by your customers in the region
Getting paid
Payment arrangements for your products will usually take the form of letters of credit.
Taxes, duty and legal considerations for exports to the Middle East
You must declare all exports to the customs authorities in your country.
Duty
When you export goods to Middle East countries, they will usually be liable to import duty. Usually your customer, as the importer, will have to pay this before the goods will be released by customs, unless you have agreed to do this as part of the terms of the sales contract.
Transport, logistics and infrastructure for exports to the Middle East
Your goods will need to travel large distances from the UK to exploit opportunities in Middle East markets.
Transport
Most businesses that sell to the Middle East use a specialist freight forwarder to handle transport. In most cases, your goods will change ships on the way from Europe, so it makes sense to use a forwarder to help you manage these processes.
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