Consignment warehouses are an important organisational model for lots of businesses, especially those engaged in cross-border commerce. While the upside for German companies is vast, they can be tricky to manage from a tax and regulatory perspective.

This article will explain what a consignment warehouse is and the legal regulations in both Germany and internationally. We'll also walk you through the documentation requirements, and the compliance risks you need to be mindful of.

What's in this article?

• Definition: What is a consignment warehouse?
  
• What does the law say about consignment?
  
• Handling VAT on consignment warehouses in the EU and third countries
  
• Documentation requirements for consignment warehouses
  
• Compliance risks with consignment warehouses
  

Definition: What is a consignment warehouse?

A consignment warehouse stores goods at a customer's site while the supplier retains ownership. The supplier transfers ownership only when the client withdraws an item from the storage site. This type of arrangement is called consignment.

These facilities typically sit where the inventory is needed, often near clients or directly on their premises. Many German companies establish such storage sites in other European Union states or in third countries so they can deliver goods to their international customers without long delivery times.

The inventory remains the property of the vendor (the so-called consignor) throughout its time in storage. The clients who retrieve these items from the consignment warehouse are considered consignees. Ownership transfers once the goods are withdrawn from the storage site, unless the parties agree to a retention-of-title clause. In this case, the consignor retains ownership until full payment is received.

These ownership-transfer rules determine how value-added tax (VAT) applies to a storage facility by defining when taxable revenue arises.

Advantages of a consignment warehouse

Consignment warehouses support production by holding parts needed regularly or at short notice. By keeping inventory close to the manufacturing site or end customer, suppliers can deliver required items on demand. This speed and flexibility allow companies to simplify their manufacturing processes and avoid delays.

A further plus for customers is that they don't have to maintain in-house stock. Online retailers can also use consignment warehouses to deliver products to clients quickly, without first ordering them from overseas.

Full responsibility for quality assurance and inventory oversight lies with the vendor. This reduces customers' workload enormously, as they don't have to run checks on the goods themselves – excellent news for perishable items that require regular monitoring. The vendor also handles product modifications, such as introducing new collections or replacing existing items. That means significant savings for consignees who don't have to invest in stock maintenance and management.

What does the law say about consignment?

One of the key regulations affecting consignment warehouses is the German VAT Act (UStG). So-called "Quick Fixes" were also introduced in 2020 to standardise VAT and sales tax across the EU and make cross-border supplies of goods easier.

UStG

According to § 6b of the UStG, a product held in a consignment warehouse is not yet considered to constitute a supply under VAT law. VAT only becomes due when the consignee retrieves the product from the storage site. As long as the item remains in storage, there's no VAT to pay. This simplifies VAT handling, since there's no need to pay levies when stocking an item.

EU Directive

Article 17a of the EU VAT Directive was introduced in 2018 through EU Directive 2018/1910, creating the very first EU standard for consignment warehouses. This article obligated member states to apply the new provisions at a national level, starting 1 January 2020. This move standardised and simplified VAT rules for these storage sites within the EU.

The Quick Fixes define when the supply of inventory from a consignment warehouse becomes taxable. In particular, companies operating these storage sites in other EU jurisdictions must prove that the stock is physically stored in the facility and are about to be withdrawn by the consignee. These adjustments benefit businesses that run consignment warehouses in multiple EU states, as they provide a simple, unified mechanism for handling VAT.

Support for businesses

Businesses that operate consignment warehouses and sell goods internationally face two main challenges: calculating VAT accurately and meeting its obligations in destination countries. Stripe Tax helps address the two by managing VAT registration in the jurisdiction where the storage facility operates and automatically applying the correct tax rates based on the place of dispatch.

While transfer of ownership and stock retrievals still need to be documented manually in the business's stock management system, Stripe automates VAT calculations and end-customer invoicing. This reduces manual errors and makes it significantly easier to comply with tax rules across jurisdictions. Tax helps manage complex fiscal requirements efficiently and ensure compliance with all relevant regulations, especially for operations in multiple EU states or in third countries.

Handling VAT on consignment warehouses in the EU and third countries

Below is a list of the most notable VAT rules for businesses in Germany operating consignment warehouses in other EU states or third countries.

Consignment in other EU states

Once a German company runs a consignment warehouse in another EU member state, the transportation of inventory to the facility is considered an intracommunity entry of goods. In principle, this operation is subject to tax in the country (see § 3.1a of the UStG). Still, per regulations for intracommunity supplies, it is exempt from levies, provided the necessary evidence is provided (§ 6a.2 of the UStG). Evidence includes:

• A detailed record of the goods brought in (quantity, commercial designation)
  
• The address of the consignment warehouse
  
• The business's VAT ID
  
• The date of entry
  
• The assessment base, which is based on the purchase price plus ancillary costs, or the cost price
  

The supplier has to declare the acquisition in the destination country to record tax there. When the consignee subsequently retrieves the goods, this is considered a domestic supply within the receiving territory. This supply is subject to VAT in that jurisdiction. Consequently, the business has to register for VAT in the applicable EU member state. The application process varies from country to country.

However, a simplification rule in multiple EU member states allows for operators of a consignment warehouse to forgo mandatory VAT registration in the destination country. Instead, the transaction qualifies as an intracommunity supply, and the consignee accounts for tax on the acquisition in the receiving jurisdiction. In this case, the German business does not have to apply for VAT in the receiving territory. That said, the specific provisions vary across member states and come with prerequisites. It is a good idea to do your research beforehand.

Consignment in third countries

Handling VAT for consignment warehouses in third countries is far more complex and depends on the destination country's fiscal regulations. Unlike in the EU, where the Quick Fixes harmonise VAT treatment, companies with storage facilities in third countries have to follow each jurisdiction's framework. These vary widely and involve a range of tax registration and documentation.

The transport of items to a third country does not trigger VAT in Germany, since this constitutes a tax-exempt export (see § 4, no. 1a of the UStG). Nevertheless, local levies, such as import duties or local VAT, are due in the third country upon retrieval of the goods from the consignment warehouse. The result: German businesses running these storage sites in third countries must register for levies in those jurisdictions.

Documentation requirements for consignment warehouses

Businesses in Germany operating consignment warehouses have to meet various documentation requirements. These obligations help provide evidence of taxation and demonstrate compliance with VAT rules. To avoid legal issues or additional demands from fiscal authorities, businesses must carefully document all relevant steps and information.

Proof of transport

Records must show that the stock reached the consignment warehouse. This documentation has to provide detailed information, such as the quantity and commercial designation of the inventory, the address of the facility, and the date of transport. The details are needed to accurately demonstrate that the intracommunity entry of goods is exempt from tax.

VAT ID and recapitulative statement

VAT ID numbers are required in both countries to process the shipment properly. That means the vendor must have a VAT ID in the country of origin, while the consignee needs an equivalent ID in the destination country. German businesses also have to regularly submit recapitulative statements (see § 18a of the UStG), which document the intracommunity movement of goods, and to record tax-exempt supplies properly.

Proof of retrieval

A further important part of the bookkeeping is proof of the consignee's receipt of the inventory. The supply becomes taxable once the consignee takes the items from the storage facility. To document this, companies have to correctly post every retrieval and record all relevant data for the inventory retrieved.

Compliance risks with consignment warehouses

To avoid regulatory issues or financial penalties while running consignment warehouses, German businesses must ensure they comply fully with all fiscal regulations. They also need to be entirely up to speed on the legal landscape in Germany and their destination territories to reduce unnecessary admin. Two major risk areas in that respect revolve around temporary VAT registration and the lack of export evidence.

Temporary VAT registration

A common issue for operating consignment warehouses is applying for VAT in another country temporarily. In many cases, you don't have to register for VAT in a different EU member state or a third country right away. That said, if businesses apply when they are not required to, the result is complicated fiscal audits and additional bureaucratic hoops. This temporary registration can also lead to unnecessary costs, particularly if it doesn't align with actual tax obligations.

No proof of export

Another risk: not having proper proof of export. When it comes to storage facilities, specifically those in third countries, companies must clearly document the transport of goods to guarantee tax-free treatment. If a company cannot produce adequate export evidence, the tax authorities will not accept its fiscal exemptions. This can lead to arrears and penalties, substantially undercutting the financial benefits of a consignment warehouse.