Whilst the US market is much more homogeneous than the EU market and the Australian market, closer to home the EU market poses some very severe challenges to any Chinese business wishing to break into the largest 'common' market in the world. Although the market is lauded as being 'one market' for goods, dealing with up to 28 different sets of legislation, VAT systems, customs duties and alike, not to mention 24 official languages makes for a very daunting prospect.
Many Chinese firms think they need to establish one trading entity, bank account and related issues for each EU jurisdiction in which they wish to trade. When we talk to our Chinese manufacturing clients and explain to them that there is a possibility of setting up one entity in the Isle of Man, which can be used for trading throughout the EU with simplified VAT accounting and other factors, including the enjoyment of corporation tax at zero per cent, they are initially surprised but often then very interested in learning how they can move up the value chain and fulfil the Chinese Government's official policy of 'Going Out'. We have called this service our European Trading Platform (ETP), and whilst we have focussed a lot of our attention on our Chinese clients due to their manufacturing diversity and volume, the accessibility of the EU market through the Isle of Man via the ETP is valid for any non EU manufacturing company or country.
By selling goods at the factory gates most manufacturers are only able to realise approximately 20 per cent of the value of the goods that the ultimate purchaser pays. By taking greater ownership of their distribution chain they can increase their turnover as a percentage of the final retail price up to 60 to 70 per cent, Whilst the move from 20 to 70 per cent incurs some additional costs in terms of freight, insurance, warehousing and fulfilment the margin at the end of the day is significantly greater for those manufacturers and brands that wish to take a greater level of control of their distribution channel. ILS in the Isle of Man is experienced in dealing with a number of manufactured products that use the Isle of Man ETP for this purpose. Amongst our existing clients are those that manufacture:
By forming a subsidiary of an existing Chinese or other entity in the Isle of Man and the manufacturing holding company then selling its goods to the Isle of Man subsidiary, the subsidiary having been registered for VAT in the EU, can then deal with the importation of the goods in either the UK or elsewhere and resell the goods to the end EU buyer. The goods do not need to transit the Isle of Man for the ETP to work fully for the client. Once the goods have been landed in Europe they can be broken and distributed to various customers or they can be held in a warehouse for later consignment on an 'as sold' basis. Payments are made to the Isle of Man Company which banks in the Isle of Man, any VAT payments can be disbursed and/or reclaimed as required and all other customs duties can be facilitated by the Isle of Man company. Ultimately the profits of the Isle of Man Company can either be reinvested in the promotion of the brand within Europe or remitted back to the holding company in China or elsewhere free from any withholding tax.
All in all the ETP offers a very slick and cost effective solution for international brands attempting to break into the EU market and provides a level of simplification which many clients simply don't identify as being possible when first contemplating entry into the EU.
For further information about the ILS World European Trading Platform please contact us.