How to work out Japanese car import duty and VAT?
I was asked recently how to calculate the VAT due on an imported vehicle, so I decided to write this post. I’ve mentioned the subject briefly in my overall ‘costs’ guide here, but this will include more detail.
I’m going to include import duty here as well. Why?
- Both import duty and VAT need to be paid before you can get your hands on your imported car.
- The import duty affects the VAT.
VAT stands for ‘value added tax’ and is a tax levied on goods and services sold to consumers. Import duty is a tax on goods imported into the UK. The rate varies according to what is being imported.
These two taxes combined represent the biggest cost involved in importing a car from Japan, after the cost of the car itself.
I think estimate would have been a better word than calculate. Why? The tax you pay will be dependent on exchange rates. You can calculate the tax bill using today’s rates, but remember you won’t be paying the bill until the car arrives, by which time the rates may have changed. Have a look at this post for more information on the impact of exchange rates.
The two costs you need to know to work out the tax bill
What is the FOB cost?
FOB stands for freight on board (other car-related acronyms explained here).
You need to know your FOB cost to be able to work out how much tax you’ll pay.
It refers to the cost of buying the car and getting it on the boat. All the costs incurred whilst the car is in Japan, including the cost of the car itself, go to make up the FOB cost.
How much did the shipping cost?
This is the second cost you need to know before calculating your tax bill.
Calculate import duty first
Import duty is variable, due to a trade agreement between the UK and Japan. If you’re importing something made in Japan and you can prove it, you’ll benefit from a preferential rate of 5 % import duty. If not, it’ll be 10 %. Import duty is calculated on the total of the FOB and shipping costs.
Next, calculate the VAT
Add the FOB cost, shipping cost and import duty together. Now work out 20 % of this figure. You now have your VAT amount due.
Paying tax on a tax?
Yes, you read it correctly, you are paying tax on a tax! Unfortunately you have to pay VAT on the import duty, as well as on the car cost. It could be worse – in the US they have to wait until a car is 25 years old before it can be imported.
Japanese Import Price Calculation Worksheet
Having read this post, you may be interested in my Japanese import car UK price calculation worksheet.