How harmonised standards, freer trading regulations and reduced paperwork make the 'single market' of the EU attractive to importers and exporters.
The 28 countries of the 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 to UK requirements, you will generally meet requirements throughout the EU.
Why trade in the EU?
Trading with other EU countries offers a number of key benefits to businesses in the UK. The EU’s 28 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.
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.
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 you’ll 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 (we list the 17 countries that form the Eurozone further along in this guide)
Find out about other EU markets
You need to consider your particular business needs and see whether trading with other 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?
The following 28 countries are EU Member States:
Information 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 EU. You can consult the EEN on the European Commission website.
Action Single Market - a UK Government initiative to help UK businesses make the most of the single market across the EU. You can read about Making the Single Market More Effective.
UK Trade & Investment (UKTI) - read about services from UKTI on their website, and access country profiles for individual Member States.
Other 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 Commerce.
Preparing to trade with the EU
If you’re buying, you should conduct research to locate suppliers and assess their quality, reliability and capacity to deliver overseas. The Chartered Institute of Purchasing and Supply offers training on supplier management.
If you’re selling, it’s 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.
Your sales plan 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?
- marketing - how will you market your products?
- 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?
For more information about starting to sell your goods or services overseas, see Exporting: an overview.
Export help and advice is available from UKTI. You can find an international trade team through the local office database on the UKTI website.
VAT on the movement of goods and services within the EU
There is less admin involved in acquisitions (goods imported into the UK) and dispatches (goods exported from the UK) to and from other 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.
Find out about submitting your VAT returns electronically in How to submit your VAT Return online.
If either your EU acquisitions or dispatches of goods are above a certain threshold you’ll have to complete an additional form, the Intrastat Supplementary Declaration. Intrastat thresholds are reviewed annually. The thresholds are £1,200,000 for Arrivals and £250,000 for Dispatches. See Intrastat: an overview.
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 customer’s VAT registration number and commercial documentary evidence the goods have been removed from the UK. For more information, read Notice 725 on the HMRC website.
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. If you are responsible for the delivery of the goods to non VAT-registered customers within the EU, you should read the section on distance selling in Notice 725 on the HMRC website.
For more information about VAT and EU trade, read about VAT for EU trade in Notice 725 on the HMRC website.
Duties on the movement of goods within the EU
Goods that have been produced in the 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.
Duty 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.
For 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.
See the guide on customs warehousing.
A similar system applies to excise duty on products such as alcohol and tobacco. For more information, see the HMRC website for the section on excise duties.
Price your products or services in euros
Of the 28 EU Member States, 17 currently have the euro as their national currency:
If 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.
Look at what your competitors are doing. If you’re 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.
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
Set your prices carefully - don’t assume that your UK pricing strategy will work in other EU markets. For further information, see how to price your product or service.
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 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 - it’s 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.
Buyers 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 risk
The 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.
Similarly, 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.
There 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 EU
Selling goods to new markets isn’t the only way to begin trading within the 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.
Many of these contracts are in the public sector. The Tenders Electronic Daily (TED) website lists all contracts worth over £100,000. Search for EU contracts on the TED website (registration required).
Lower value public sector contracts (typically less than £100,000) are listed on the supply2.gov.uk website. Search for UK public sector contracts on the GOV.uk site.
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.
For 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 magazines
Rules 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. Read about EU tenders and contracts on the Europa website.
For more information about the tendering process, use the contracts finder. Or if you have problems when bidding for public procurements in other European countries, you can download Public Procurement in Europe from the Europa website.
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.
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.
Case study: RC2 Corporation
RC2 is US-owned and part of the RC2 Corporation, a leading designer, producer and marketer of innovative, high-quality toys, collectibles, and infant and toddler products. The European business is led by Managing Director - Sales and Marketing, Clive Wooster and Managing Director - Finance and Operations, Damien Weight and employs 53 staff in Exeter. Here are their tips.
- “Do lots of research and choose your target regions carefully.”
- “Spend time in the region asking partners and retailers what they would like to see from you.”
- “Adapt your product range for each country.”
- “Hire a high quality local manager who is prepared to work as a lone wolf at the start.”
- “Be prepared for the long haul - it won’t happen overnight.”
- “Keep local support staff fully briefed on what the objectives are and how things are progressing”
- “Maintain motivation.”
RC2 has been particularly successful in recent years and turnover increased by 20 per cent in 2008 as the business introduced new product lines and expanded further into Europe. Sales growth in mainland Europe (excluding the UK) was 50 per cent.
Case study: Warmup plc
Under-floor heating system manufacturer and retailer Warmup plc is based in north-west London. The business sells its products via retailers, building contractors and direct to consumers, and has customers in Germany, France, the Netherlands, Cyprus, Spain, Portugal and the USA. Howard Flood, international director at the company, explains how the firm started trading in the EU. Here are their top tips:
- “Tailor your marketing as your customer base won’t necessarily be the same across the EU. Always be prepared to adapt your approach.”
- “Never just assume if you can sell your product in one Member State that you can automatically in another. While regulations are harmonised, you still find specific requirements in some Member States.”
- “Always have a local presence, but make sure you get your local representative to spend time with the UK part of the business so they understand and believe the culture of the business here.”
Understand each market’s needs
“It’s essential that you visit each target market and walk many miles in your potential customers’ shoes. You need to understand what makes them tick and what triggers purchasing decisions.
“While the EU is a single market, there are significant practical and cultural nuances from Member State to Member State. For example, in cooler climates, such as Germany and the Netherlands, most houses are carpeted, whereas in warmer countries such as Spain and Portugal there’s a greater use of floor tiling. For us, that means our sales methods, features and benefits and target customers are different.
“In the warmer climates, we work with architects and builders to get our products in at the specification and build stage, but in cooler climates we trade through specific retailers to catch the electrical contractors and those actually installing the product, such as professional master tilers and the DIY market.”
Stay close to your markets
“We directly employed sales people in the local markets. They can spot any issues that might arise, whether they are language related, cultural or otherwise. It’s more difficult to grasp these problems from the UK.
“For example, in one of our markets, we were advised by our local office to make sure that we additionally shipped installation instructions in Polish - as they were seeing a rise in the number of migrant Polish workers in that area. Without that local knowledge, we would still have been providing instructions for installers in a language that wasn’t native to them.”
Get the right stockholding
“In Member States where we also have a warehouse presence, it helps us to keep a reasonable amount there, but without tying too much cash up in stock. For markets where we supply to order, particularly where our product is installed in new builds, it’s essential for timely delivery so as not to hold up the construction. It’s also well worth negotiating as much lead time with customers as you can, to give room for manoeuvre on manufacturing and delivery.”
Take a close look at country-specific regulations
“We’re fortunate that our product generally translates well across all EU markets as the voltages required are compatible. However, while our British Electrotechnical Approvals Board mark has been enough to meet standards in most markets, we found out that we’d need an additional local certification in France. That’s slowed our progress there a little, so it would have been useful to know it was compulsory slightly earlier.”
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