Reclaiming VAT on a violin purchase
I am in the market for a new violin. Where I live (Japan) violins are typically marked up so heavily that you can easily finance a holiday in Europe, buy a fine violin there and still save relative to what a comparable instrument would have cost you locally. Consequently that is what I am pondering to do. While gathering information I found that most shops and violin makers in the EU state that their prices include VAT but when I ask about reclaiming that VAT or in the event of having an instrument shipped directly to Japan whether they will deduct the VAT for export, almost everyone claims that they do not pay any input VAT in the first place and that you cannot consequently claim the output VAT back.
I wonder if there is some kind of special VAT exemption on violins (or musical instruments) in the EU. Has anybody here reclaimed VAT on a violin purchase in the EU or does anybody have any related information they could share? Thank you.
Replies (15)
The issue here is that many of the violin shops and makers claim that they do not pay any VAT at all in the first place and that they are therefore unable to issue the paperwork for me to claim VAT back. Yet they say that their prices include VAT, but since they are not native English speakers, it is possible that what they actually meant to say was that their instruments are VAT exempt.
Hence my question: Is there any kind of VAT *exemption* for violins/violin dealers/violin makers in the EU which these shops/makers might be using?
The VAT is applicable to the sale, whether or not there was any VAT paid on the original purchase. I could explain this in more detail if necessary, but this is what it boils down to.
According to EU regulations, VAT levels may vary from country to country but here is no VAT exemption for musical instruments to my knowledge. When we sell instruments in Italy we charge 20% VAT; if the instrument is exported to another EU country and the buyer is a business with a VAT license, he pays no VAT; if the buyer is in the EU but doesn't have VAT registration, he pays Italian VAT; if he lives outside of the EU and regularly exports the instrument as I mentioned in my previous post, no VAT is applicable.
This of course assumes the vendor is a business. If he's a private party, then VAT is not applicable at all.
Hope this helps!
Yes, that's what I had assumed, too, but the violin shops and makers I talked to insist that they are unable to provide the paperwork for me to claim the VAT back. Also, when I asked if they can ship the violin to me here in Japan, they will do that but they will not deduct the VAT which they should.
One violin shop (a company in Germany) claimed that they are using some special kind of accounting system by which their VAT liabilities are settled based on their profits and not paid on a per sale basis. They said this was not uncommon in the antiques business (they only deal in used violins, not any new ones, and as a result the German tax office considers them an antique dealer, eligible for this type of VAT settlement). Still I don't understand why this should matter to a customer from overseas who is not liable to pay VAT and therefore does not want to pay it. I should be able to get the VAT back anyway, but without cooperation from the dealer, I can't see how I could do that.
The violin makers who say they don't pay VAT are a different story though, they probably just don't know about the financial side of their business, leave all tax matters to some chartered accountant who runs the books and consequently have no clue about VAT reclaims. Still, I have no idea what I can do in order to get their cooperation.
I mean, we are talking 19-20% on a sum of anywhere between 6000-16000 EUR, that's a lot of money. I don't have to pay it and so I don't want to pay it.
Sales of antiques are out of my league, as are local German laws. But I still think that VAT is applied on sales regardless.
My luthier says that in France it's possible for a luthier to be operating as a "micro-entreprise non assujeti à la TVA". (small business not subjected to VAT)
I am confused. Here in America we have two different taxes. There is the state sales tax and the income tax. The income tax doesn't care if the person you sold it to is in Hong Kong or California, if the company made profits, they are taxed for it (and of course pass it along as an imbedded cost). With the sales tax, it is all very clear. It says right on the reciept that the price of an item was, say, $100 and the tax was $9.50.
It seems like the EU has a completely different tax system altogether. Is the tax paid not evident on the reciept? Is the burdon on the business to prove they sold something to America and not have to pay the tax? I mean, that sounds like all sorts of paperwork I wouldn't want to deal with.
Perhaps these companies don't want to deal with the hassle of filing the paperwork and just expect that you will pay the tax rather than also dealing with the hassle. Or am I completely off base?
See this webpage (down the bottom for export to non-EU countries) some useful if slightly complicated background information.
http://www.hmrc.gov.uk/vat/int-exports.htm
Incidentally, if you did decide to make your purchase from Britain, I've found HMRC staff very helpful if you email them with a specific query.
Hi Benjamin,
It might be the Japan import tax that's driving up the cost instead of the VAT. Both Shimokura and Kurozawa violins whom I've work with here can help you and I recommend them. They also have repair staff from America and Europe and you can talk with them. If the German is Mr. Machold ,he is also excellent. He is very proud of his seven generations doing the same line of work and he inherited everything from them,so he knows what he's doing. Hope this helps.
Craig
Joy,
VAT is a consumption tax that is collected in a quite different way than sales taxes. But it doesn't apply to exports. There is usually some method to reclaim it when purchasing something from a country that has a VAT tax.What you said about sales taxes is not really correct. If you buy a violin in say Texas and have the dealer ship it to your home in another state the Commerce Clause of the US Constitution allows you to avoid sales taxes. (No state taxes on interstate commerce). The dealer needs to 1) not have a presence in the state that you are in and 2) needs to prove that he shipped it across state lines. If they don't do this they will have to pay the tax and they probably will have a hard time collecting it from you. The state that the violin is shipped to probably has a use tax law that requires you to pay a use tax at home state rates in your home state. The problem is that they don't have very good ways of finding out that someone did this so typically only big companies that keep good purchasing records (that are auditable) wind up paying use taxes.
I apologize to the purists for linking to Wikipedia. I also apologize to any lawyers or tax accountants for any errors in fact.
Thank you Corwin, but you unfortunately told me what I did already know. I was wondering how it is collected, how the tax is stated, and whom the burdon falls to in paying it.
You're right and wrong about the sales tax. If I show up to a store in California, I still have to pay their sales tax. If I go to Oregon which has zero sales tax, Washington can't collect a tax on what I've paid. However, if I lived in Mass (never in a million years) then they could still tax me for my Oregon purchase, which I think is ridiculous. It is a state tax and shouldn't cross state lines.
Honestly, I think the biggest problem with taxation in the first place is that it is so convoluted and complicated. We spend too much taxpayer money trying to inforce taxes. Simpler is better.
Thanks everybody for your responses.
I understand that the situation with sales tax in the US when items are shipped from one state to another can be rather tricky but it is quite a different situation when you buy something in the EU and you don't live in the EU. The EU VAT regulations are clear in that non-EU residents only have to pay the VAT if the item purchased remains in the EU three months after the item has been obtained.
Usually this is straightforward to handle and there are two scenarios:
1) you buy an item while you are in the EU and you leave with the item, that is you are the exporter, in which case you have to pay the VAT and then claim it back, usually at a VAT reclaims office at the airport. However, you will need the cooperation of the merchant to do this.
2) you have an item shipped to you outside the EU where you live and then the seller is the exporter, in which case they should not charge you any VAT in the first place.
The situation I am facing is that the violin shops and some of the luthiers which had the instruments most interesting to me state that they cannot accommodate either of these two scenarios. In some cases it is possible that they simply don't want to have to deal with the paperwork, but in other cases there appears to be some kind of exception or extra-ordinary way in which they deal with VAT.
For example, the manager at a German violin shop told me that they process their VAT under a procedure called "Differenzbesteuerung" in the German tax code which entails settling their VAT liabilities on the basis of their profits instead of on a per sale basis as it would normally be the case. As a result, they issue invoices which do not show the VAT, instead the invoice states that the sale was in compliance with the German VAT tax code. It is unclear to me and to them how one would claim any VAT back in this case. Anyway, I have asked someone at an accounting firm to see if they can find out anything about this and if there is a way to reclaim VAT.
The situation with those luthiers who state that their prices include VAT but that they don't pay any VAT is probably different. It is possible that some or all of them have some kind of tax exemption, like the French example Nigel mentioned. However, I would expect a luthier to know that they have such a status and then tell me accordingly "We have VAT exemption status" instead of "All prices include VAT but we don't pay any VAT". But this may perhaps be a communications problem because those luthiers were not native English speakers.
Still it would be interesting to hear about experiences from people who live outside the EU and have successfully reclaimed VAT on a violin purchase made in the EU.
@Craig
"It might be the Japan import tax that's driving up the cost instead of the VAT. Both Shimokura and Kurozawa violins whom I've work with here can help you and I recommend them."
Thanks Craig, but I was not talking about buying from a shop in Japan. I was talking about purchasing directly from a shop in the EU. Yes, upon arrival of the package in Japan, you *may* have to pay 5% Japanese consumption tax, but if you are not a business the chance is you won't. Also, 5% is a far cry from 19 or 20% EU VAT. And don't forget that if you do have to pay Japanese consumption tax on an imported item then this will be on whatever you paid in the EU, so if you pay 20% EU VAT you would have to pay 5% on 120% of the item's actual price, in which case you would have paid 26% tax (120% x 1.05 = 126%).
Now this is going to be a little off-topic, but since you you mentioned the Shimokura and Kurosawa violin shops, I would like to comment on that.
As for Kurosawa Violins, I do not believe for one second that their high markups are driven by import duties and consumption tax. With all due respect, I believe they are just greedy rip off artists who prey on the fact that the average Japanese consumer is inexperienced and vary of making a mail order purchase from a company overseas. Shimokura, however, appear to be far more reasonable in their markups.
Look at some of the entry level violins both companies sell: Shimokura sell (amongst other brands) factory instruments from Strunal in the Czech Republic, the top of the line of which is priced 189000 yen at the Shimokura shop. That is about 2.5 times the cost of this instrument ex-factory. This is a significant markup but it is comparable to what Japanese companies reselling imported products in other industries might mark up, so I would say this is still within the limits of being reasonable for Japan.
On the other hand, Kurosawa sell Gliga Gama instruments which are priced at their shops at over 300000 yen. The Gliga Gamas cost about the same at the Gliga USA online store as the aforementioned Strunal instruments. Kurosawa are likely getting them for less (I don't know the Gliga reseller prices), which means that Kurosawa have at least a markup of 500%, probably higher. Japanese import duties and taxes apply to both companies equally, both companies have their main violin shop in the same Tokyo Ochanomizu area, close to the JR station, so the rent and staff expenses should not differ in as much as to justify such a dramatic difference in their markups. In my view Kurosawa's pricing is outrageous, or if you want a suitable Japanese term: "boromoke". Also, my teacher told me that Kurosawa offer violin teachers 20-30% kick-back if they bring one of their students and they end up buying a violin there. I find this practise shady at best.
As far as I am concerned, I will only buy from Kurosawa if the price they are willing to sell to me is roughly the same as what I would have to pay if I import it myself. Sometimes they are willing to bargain, many times I found them to be unwilling. The best shop for negotiating a better price seems to be the one in Shin-Okubo. I bought a Coda bow there for only about 50 USD more than what it would have cost me if I had ordered it directly in the US (including the shipping and credit card fees, etc) so I was happy to pay that for the convenience of not having to wait. It took some very hard Arabian bazar bargaining though. The average Japanese consumer will never be able to drive such a hard bargain, I was only be able to do this because I am not Japanese and I was at the very limit of Japanese etiquette.
NB: For the instrument I am looking to buy now, resale value is my number one priority because it is going to be an interim violin for about two years since I intend to commission an instrument next year. When I take delivery of the violin I intend to commission, I want to be able to resell the interim one, hopefully at about the same price I bought it. This constraint almost certainly means that I won't be buying the interim instrument in Japan, hence my plan to buy directly overseas.
But anyway, thanks for your comment.
To anyone who's interested, I have some new information on this. One of the Czech violin makers I have been in contact with explained to me that he "doesn't pay" VAT because his business doesn't earn more than a certain limit. I looked up some related information and found that most EU countries have a threshold of 35.000 EUR for VAT registration. A business which doesn't go over this threshold does not have to register for VAT, which means they cannot claim any VAT paid on materials or services back, and their customers cannot claim any VAT paid either. In other words when the luthier said "I don't pay any VAT" he actually meant the exact opposite.
Still trying to find out more about what the company in Germany told me about this special way they say they settle their VAT liabilities.
Thank you, I'm finding this quite interesting, even if it's something I never end up having to deal with. I don't know why, but the insane ways governments try to take money from us is just fascinating.
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November 7, 2008 at 11:58 AM ·
The application of European Union VAT applies only to the sale of objects destined to remain in the EU. Your easiest solution is to ask for an invoice in 2 copies made out to your name (with an address outside the EU) and without the application of VAT. When you're at the airport, have someone from Customs stamp both invoice copies, proving that the merchandise has been exported; then send one stamped copy back to the merchant and keep the other for yourself.
If the merchant is worried that you might not remember to send him the stamped invoice back, which would subject him to payment of VAT from his own pocket, then make a deal: get the invoice without VAT but pay the VAT anyway, with the proviso that when the merchant receives the stamped invoice he wires you the amount paid for the VAT back home to you. If you put this in writing with the merchant you should be OK.
Good luck!