Carrying out activities consisting of Imports of leaf tobacco into Germany is becoming increasingly popular among Polish entrepreneurs. Similar questions also arise in the context of importing tobacco from other EU countries, such as Bulgaria or Italy. This type of activity - trading in raw tobacco on the German market - is entirely possible and legal, but requires compliance with a number of strict legal requirements.
In this article, we outline the most important issues that any entrepreneur planning a legal importation of tobacco leaf into Germany. We explain the key differences between raw tobacco and an excise product, describe possible forms of business, and discuss tax obligations (excise, VAT), tax warehouse requirements (Steuerlager) and the system EMCS.
Legality of tobacco leaf imports into Germany - German and EU regulations
Both EU and German law allow the marketing of unprocessed tobacco leaf, but under certain conditions. The key distinction is whether the tobacco in question is treated as an agricultural product (raw material) or already as a tobacco product subject to excise duty. As a general principle of EU law, excise duty is not levied on raw agricultural products - tobacco cultivation as such is not taxed.
Germany implements this rule: raw tobacco (Rohtabak) - i.e. tobacco leaves in an unprocessed state, e.g. whole leaves harvested from the plant that have not been cut or stripped of their main nerve - is not considered a tobacco product within the meaning of the German Tobacco Excise Duty Act (Tabaksteuergesetz). Such raw material is not subject to tobacco excise duty at the marketing stage.
In other words, the importation of whole, unprocessed tobacco leaves into Germany can, in principle, take place without immediate payment of excise duty, as long as the leaves remain raw material. Of course, we are talking about intra-EU movement of goods - importing tobacco leaves from Bulgaria or Italy to Germany is an intra-Community acquisition, exempt from customs duties, although it is subject to certain tax formalities (such as VAT clearance, as discussed further below). The key point, however, is that these leaves should not be classified as tobacco product.
As defined by the EU Directive 2011/64/EU and the Tabaksteuergesetz, tobacco products These include cigarettes, cigars, as well as smoking tobacco, i.e. tobacco that can be directly used by the consumer to smoke. Thus, if a product meets the criteria for 'smoking tobacco' - for example, it is cut, chopped or otherwise prepared so that it is suitable for smoking without further processing - then it becomes an excise product and is subject to German excise duty.
In summary, the legality of importing tobacco leaf into Germany depends on keeping it in raw status until it reaches an authorised processor. The trade in raw leaves itself (e.g. a sale between a grower and a company in Germany) is legal if it is done in accordance with the regulations - i.e. following the correct procedures and ensuring that the tobacco is not illegally transferred for consumption without taxation.
Raw tobacco versus smoking tobacco - differences in excise legislation
It is very important to understand the definitional differences between raw tobacco a smoking tobaccoas this affects excise obligations. In Germany, as in most EU countries, smoking tobacco (Rauchtabak) is defined as tobacco that is suitable for smoking without further industrial processing. This includes, inter alia, cut, shredded or block-pressed tobacco - i.e. any form of tobacco that can be used immediately by the consumer for smoking (e.g. for rolling cigarettes or smoking a pipe). Such a product is treated on a par with cigarettes or cigars - it is an excise product and subject to tobacco excise duty in the country in which it is released for consumption.
Raw tobacco (Rohtabak), on the other hand, is tobacco leaf in its unprocessed form - usually whole, dried leaves, or parts of leaves - which requires further industrial processing to become smoking tobacco. Raw tobacco is not considered an excise product as long as it remains in that form. In practice, however, the boundary between raw and manufactured can be fluid. For example, there have been doubts about the status of partially processed leaf: are the cut pieces of leaf ("strips") still raw material or already smoking tobacco?
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In 2017. Court of Justice of the EU noted that even tobacco leaves that are not themselves directly suitable for smoking may be regarded as a tobacco product if, by means of a "easy to carry out activities" they can be made smokable. This means that if the raw leaves can be simply prepared (e.g. homemade cutting or crumbling) by the user for smoking, then the tax authorities can treat them as normal smoking tobacco subject to excise duty. The purpose of this interpretation is to prevent the circumvention of the excise rules by selling quasi-raw tobacco that is in fact almost ready for consumption.
However, it should be emphasised: interpretive risk exists. In case of doubt, customs authorities may try to classify the goods as smoking tobacco, especially if they are in a form that facilitates consumption. Therefore, the trader should be cautious - e.g. not to sell cut leaves without ensuring that the contractor has the appropriate permits or that the goods will undergo further industrial processing. The boundary between a legal raw material and an excise product is sometimes fine and depends on the specific circumstances.
Forms of business in Germany - choice of structure and registration
When planning a tobacco business in Germany, an entrepreneur must first decide on the legal form in which his or her business will operate. There are several options to choose from, each with its pros, cons and registration requirements.
Most Polish investors choose to set up limited liability companies (GmbH) in Germany, as it roughly corresponds to a Polish limited liability company and ensures that the risk is limited to the amount of share capital. Possible forms include:
- Sole trader (Gewerbe) - The equivalent of the Polish sole proprietorship. It requires the registration of the business at the business office (Gewerbeamt) responsible for the place of business. The person running the Gewerbe is liable for the company's obligations with all his/her assets.
- Ltd. (GmbH) - The most common form for larger ventures. A share capital of min. EUR 25,000 (whereby a 50% contribution is allowed prior to registration). The establishment of a GmbH requires the drafting of a memorandum of association and its notarisation in Germany, followed by registration in the commercial register (Handelsregister). The GmbH must have a management board (which may be a single person, e.g. the owner himself as Geschäftsführer) and a registered office in Germany.
- Sole trader company with limited liability (UG) - so-called Mini-GmbH (Unternehmergesellschaft haftungsbeschränkt). This form allows you to start a business with lower capital (as low as EUR 1), but requires you to set aside part of your profits as capital until it reaches EUR 25,000. The procedure for registering a UG is similar to a GmbH (contract, notary, commercial register), but the initial costs are lower.
- Partnerships - e.g. civil partnership (GbR), general partnership (OHG) or limited partnership (KG). In Germany, partnerships require at least two partners. A GbR partnership is the simplest form of contract between partners (no registration is required, a declaration of activity is sufficient), while OHG and KG are subject to registration in the commercial register. In partnerships, the partners are liable for the obligations personally (in KG, the general partner is liable unlimitedly and the limited partner up to the amount of the limited partnership sum).
- Foreign branch office (Zweigniederlassung) - option for entrepreneurs already owning a company in Poland (e.g. a limited liability company) who want to operate in Germany under the same legal personality. The branch must also be registered (at the commercial register, if the main company is subject to such a register, and at the Gewerbeamt) and must use the name of the main company with an addition denoting the branch and keep separate accounts for the purposes of the German authorities.
The choice of legal form should depend on the scale of the planned activity, the number of partners, liability issues and tax considerations. GmbH offers security (limited liability) and prestige, but involves start-up and running costs (capital, notary, financial reporting). Gewerbe is simpler and cheaper to start, but carries full personal liability for the entrepreneur. Regardless of the form, registration formalities will need to be completed - reporting the business, obtaining tax numbers (German NIP - Steuernummer, as well as EU VAT - USt-IdNr.), registering with the relevant authorities and possibly obtaining licences or permits if the business requires them.
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Tax warehouse (Steuerlager) - obtaining a tobacco warehouse permit
If the activity is to include the production of tobacco products in Germany (e.g. the processing of raw leaves into tobacco cuttings, the production of cigarettes) or at least the long-term storage of tobacco products without excise duty - it will be necessary to obtain a tax warehouse licence (Steuerlager). A tax warehouse is a designated place (warehouse, production facility) approved by the German customs office (Hauptzollamt) where excise goods can be produced, processed or stored under suspension of excise duty. This means that, for example, tobacco leaves or the products produced from them can be stored in a tax warehouse without paying excise duty, as long as they remain there and are not transferred for sale to consumers.
Authorisation procedure for a tax warehouse requires the submission of an appropriate application to the locally competent Hauptzollamt (main customs office). The application is made in writing - download the application forms from the website of the German customs administration, fill them in and submit them together with the required documents. In the case of a foreign entrepreneur who is not yet established in Germany, the application must be submitted to the customs office responsible for the place where the company first starts its excise activity in Germany. In the application, it must be specified which type of permit is being applied for - whether you want to operate a tax warehouse (as an authorised warehousekeeper, German: Steuerlagerinhaber) or whether you want to act as a registered consignee (Registrierter Empfänger) or consignor (Versender) of excise goods. For a tobacco tax warehouse, it is also necessary to submit a so-called assortment list (Sortimentsliste), containing a description of the products that will be manufactured or stored in the warehouse - this document is submitted centrally to the Hauptzollamt Bielefeld (which in Germany is responsible for excise tax stamps for tobacco).
The holder of a tax warehouse is also issued with an Excise Duty Identification Number in the SEED system - this is a unique identifier used throughout the EU to confirm the status of entities trading in excise goods. With the status of a tax warehouse, a company can purchase excise goods (e.g. finished tobacco products or dried tobacco) under an excise duty suspension arrangement from other EU countries and produce and dispatch such goods to the market - with the proviso that excise duty will only be paid when the goods leave the warehouse for consumption.
It is worth mentioning that if someone only plans to stock tobacco products (without manufacturing them), they also need a tax warehouse permit. In such a situation, an additional requirement is to be authorised to acquire excise stamps (banding) - before the products are put on sale, they must be marked with German excise stamps, purchased from the Hauptzollamt Bielefeld.
The mere packaging, labelling or banding of products in a warehouse is not considered to be their production (so it can be done in a warehouse without an additional licence), but of course this requires compliance with excise regulations in each case.
In summary, a trader wishing to legally import tobacco leaves and, for example, produce goods from them for sale, should first obtain tax warehouse status or partner with an entity that has such a warehouse. The process of obtaining a licence is complex, but necessary. conducting excise activities without the required authorisation would be a serious breach of the law.
Movement of Excise Goods - EMCS Obligation
If the intended business involves the movement of excise goods (including tobacco products) between different countries or between tax warehouses, it is necessary to use the EU's EMCS system. EMCS (Excise Movement and Control System) is an electronic system for supervising the movement of excise goods under suspension of excise duty. Throughout the European Union, the principle is that excise goods are taxed in the country of consumption (the country of destination principle). Thus, for example, cigarettes manufactured in Poland which are sent to Germany are not taxed in Poland - they are moved "on suspension of excise duty" and only in Germany, where they will be sold at retail, will the obligation to pay German excise duty arise. The EMCS serves precisely to keep track of such consignments and ensure that the excise duty is settled in the right country.
In practice, this works as follows any transport of excise goods without excise duty (e.g. cigarettes, smoking tobacco, but also alcohol or energy products) must be registered in EMCS. The consignor (e.g. a tax warehouse in country A) generates an e-AD (Electronic Administrative Document) in the electronic system with all the details of the consignment (quantity, type of goods, consignor, consignee, route, etc.). This document replaces the former paper documents accompanying the consignment - now only the electronic form is in operation. The consignee (e.g. a tax warehouse or a registered consignee in country B) must also be in the EMCS system and have an active excise number before receiving the goods. Once the goods have been delivered, the consignee confirms receipt in the EMCS, which completes the suspension procedure and allows the tax authorities to clear the excise duty.
Entrepreneur planning to import tobacco leaf from another EU country into Germany It must therefore consider whether this movement will take place with or without excise duty paid. If tobacco leaves are treated as a raw material not subject to excise duty, they can theoretically be moved without the use of EMCS (as normal goods). On the other hand, if there is even a shadow of doubt about the classification - and, as we mentioned, the authorities may assess the level of processing of the leaves differently - it is safer to use the excise procedure.
In practice, it is often the case that a shipper in Bulgaria, for example, sends tobacco leaves as excise goods under suspension of excise duty, which requires the recipient in Germany to hold a registered consignee status or operated a tax warehouse. Such a recipient must have authorisation and be registered in EMCS. This ensures that the transport declared in the EMCS can be controlled and, if necessary, the recipient will pay excise duty if the goods turn out to be tobacco products.
The EMCS procedure is now mandatory in all EU countries - failure to declare an excise consignment in this system is an infringement. For a company, this means that it must register with EMCS (in Germany, this is done via the local customs office, which issues access to the system once the operator has obtained excise status). All operations - shipments, receipts - require electronic communication with customs. It is worth noting that the EMCS only applies to goods dispatched without paid excise duty. If the goods are already released for consumption (excise duty paid in the country of dispatch) and, for example, reach consumers abroad, other procedures apply (e.g. reimbursement of excise duty paid and re-taxation in the country of destination, which, however, is unlikely to happen with trade in raw tobacco, as the raw material is not taxed at source).
For an entity importing tobacco leaf into Germany, the practical advice is: ascertain whether you need to use EMCS. If your foreign counterparty wants to dispatch goods under a suspension procedure - you must have the appropriate authorisation (warehouse or registered consignee). If the shipment does not require an EMCS (because, for example, both parties consider the goods to be non-excise goods) - still be aware that German customs may inspect the shipment. If it is deemed that they are, however, excise goods, failure to register in EMCS will be treated as an illegal excise shipment with all the consequences. It is therefore safer to act proactively - obtain the necessary permits in advance and use EMCS when legally required.
Tax obligations: excise duty and VAT on tobacco leaf trade
As already discussed, raw tobacco leaves in themselves do not give rise to excise duty liability in Germany as long as they are not recognised as a tobacco product. On the other hand, as soon as the tobacco becomes a smoking product (e.g. it is cut and packaged for retail sale as pipe or cigarette tobacco), a tax obligation arises for the German tobacco excise duty. According to the country-of-destination principle, excise duty is due in Germany on consumer products that are traded hereudaily-collect.com . The rates of tobacco excise duty in Germany are significant - they depend on the type of product and consist of a quota part (per piece or weight) and a percentage of the maximum retail price. For smoking tobacco (pipe, cigarette), for example, the rate is several euros per kilogram plus several percent of the retail price, with a specific quota minimum per kg. In practice, this means that excise duty can make up a large proportion of the shelf price of tobacco products.
The (intra-EU) import of tobacco leaf into Germany also entails obligations in terms of Value Added Tax (VAT, German: Umsatzsteuer). As Bulgaria and Italy are members of the EU, the delivery of tobacco leaves from these countries to Germany will be treated as an intra-Community supply and acquisition of goods. The foreign seller (e.g. Bulgarian) will apply 0% VAT (WDT) provided that the buyer provides a valid German EU VAT number. On the other hand, the buyer in Germany (our company importing the list) will have to account for the intra-Community acquisition of goods (ITT) - to show output VAT on the value of the goods at the national rate (in Germany, the current standard rate is 19%). This input VAT on the WNT is generally deductible as input tax at the same time, as long as the purchase is related to taxable sales (which in a commercial activity is fulfilled). The net effect for the company with the formalities (having the invoice, supplier's VAT number, etc.) should therefore be neutral, but the VAT returns must show this.
Before starting cross-border transactions, it is necessary to register the company for VAT in Germany (obtaining a local VAT number and EU VAT). It is also necessary to keep an eye on the reporting thresholds - e.g. to submit summary declarations (ZM) for intra-EU transactions, to keep records of EU supplies and acquisitions, and, in the case of higher turnover, to also Intrastat (EU trade statistics). The sale of processed tobacco products within Germany will be subject to a VAT rate of 19%. On the other hand, if a company from Germany sells the goods to a business counterparty in another EU country, it can apply the rate 0% (WDT) provided the requirements are met (transport to another country, valid VAT number of the buyer, etc.).
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The most common errors and risks in tobacco leaf marketing
Doing business in such a sensitive area as the trade in raw tobacco requires great care. Below are the most common mistakes and associated risks to avoid when planning to import leaf tobacco:
- Lack of required excise permits: Some entrepreneurs start their activities without first obtaining a tax warehouse permit or registering as an excise operator. This is a serious mistake - it is illegal to carry out tobacco storage or processing without a permit. It can result in immediate intervention by customs, confiscation of the goods and criminal charges. Always make sure you have the relevant permits or use the facilities of an entity that has them before bringing in larger batches of raw material.
- misclassification of the product: a common risk is misjudgementthat the tobacco in question is still "leaves", whereas by law it may already be considered to be smoking tobacco. For example, selling finely cut leaves to consumers as 'dried' without excise duty is a legal circumvention - the authorities may consider it an excise product when a few simple steps are enough to make it smokeable. Such a mistake exposes you to outstanding excise duty and penalties. Therefore, always analyse whether the form in which you sell tobacco does not de facto make it a tobacco product.
- Failure to follow EMCS procedures when transporting: Attempting to transport tobacco leaf between EU countries without declaring it in the EMCS system (when required by law) is another serious mistake. Customs are carrying out increased checks on such transports. If a truckload of tobacco is stopped and the goods are not listed in EMCS, customs will assume that there is untaxed trade. The consequences can be seizure of the cargo, charging the full excise duty (often more than the value of the goods) and criminal prosecution. Never transport excise goods 'on your own' outside the official circuit.
- Non-transparent commercial practices: In the past, there have been attempts to conceal the true purpose of tobacco leaves - e.g. declaring them in documents as 'agricultural waste', 'fertiliser' or 'natural insect repellent' to evade excise supervision. Such action constitutes forgery and, if detected, results in serious charges. For example, the Polish tax authorities have described cases of people transporting tobacco leaves from Germany claiming that they were "rubbish - unusable leaves", when in fact they were intended to be used for the illegal production of domestic sausage. Customs authorities in Germany and throughout the EU are alert to similar signals. Therefore carry out fully transparent - declare the goods and their intended use correctly.
- No verification of contractors: In Poland, there is a rule that, when selling dried tobacco, you must make sure that the buyer is an authorised entity (tax warehouse or intermediary tobacco entity); otherwise you risk being charged excise duty as a seller. Although in Germany formally raw tobacco is not so subject to excise duty, common sense dictates similar caution. If you sell raw leaves further afield, make sure that the recipient is a legitimate entity and not, for example, a criminal group producing illegal cigarettes. In the event of an investigation, the authorities may investigate the supply chain - a lack of due diligence in selecting a customer can result in problems, especially if your goods are found to have fed into the grey market.
- Disregard for legal consequences: The worst mistake is to believe 'somehow it will be done'. It is important to be aware that violations of excise regulations are acts punishable by severe penalties. In Germany, evasion of excise duty (e.g. failure to pay the excise duty due on tobacco) is treated as a fiscal offence - in serious cases (large sums of money, acting in a group), it can be classified as a particularly serious case of tax fraud, punishable by up to 10 years in prison. In addition, of course, there are financial penalties, confiscation of unpaid goods, charging of outstanding tax, etc. In both Poland and Germany, the state authorities react very strongly to the illegal trade in tobacco products, due to high excise duty rates and state health policy. Therefore, any "shortcuts" in this industry are simply too risky to take.
Poland and Germany - comparison of regulations on raw tobacco
Finally, it is worth relating the legal situation in Germany to the Polish reality, as many of our clients operate or plan to operate in both markets. Poland over the past decade has significantly tightened regulations on the marketing of raw tobacco. As recently as early 2013, those trading in dried tobacco leaves argued that if the leaves were not directly suitable for smoking, they were not subject to the excise law. Indeed, originally the Polish Excise Duty Act (of 2008) did not explicitly mention dried tobacco as an excise product - it only defined finished products (cigarettes, smoking tobacco, cigars). This allowed the law to be circumvented by selling whole leaves to people who then cut them into selvedge themselves.
The Polish government has, however, responded to the growth of the shadow economy. At the end of 2012, a definition of the "dried tobacco" and subjected to excise duty. Dried tobacco in Poland are tobacco (irrespective of moisture content) detached from the plant which is not yet a tobacco product. This is a very broad definition - any tobacco leaf detached from a living plant, regardless of the degree of drying or cutting, is treated as dried tobacco subject to excise rationing. The Act imposes an obligation to pay excise duty in a number of situations related to the marketing of such dried tobacco. Thus, excise duty is imposed in Poland on, inter alia:
- the intra-Community acquisition or importation of dried tobacco by an entity that not is neither a tax warehouse keeper nor intermediate tobacco operator (ITP); in other words, if a company without special status imports tobacco leaf from another country, it is automatically liable to pay excise duty on that dried tobacco;
- the sale of dried tobacco to an entity other than a tax warehouse or PPT; this, in turn, means that a farmer selling leaves to a company without a warehouse/PPT should pay excise duty (although in practice farmers usually sell leaves to legitimate factories or PPTs); the seller is obliged to verify the status of the buyer - the regulations explicitly state that a lack of due diligence does not protect against taxation.
In Germany approach is more liberal in the sense that raw leaves have not formally become a separate subject of excise taxation. Germany does not have an equivalent of the Polish PPT - the assumption is that as long as the commodity is not an excise product, it does not fall under the Tobacco Tax Act. This means less bureaucracy at the raw material trade stage. However, as described above, German customs authorities also keep a close eye on the leaf trade. If they find that circumvention is taking place (e.g. leaves go directly to consumers), they react by reconstructing the existing provisions - i.e. they consider such leaves as Rauchtabak under a broad interpretation of the definition (in the spirit of the CJEU ruling). The difference is that in Poland a trader has to have a licence or pay a tax on each piece of leaf in advance, whereas in Germany he can trade more freely but at your own risk - If he does so unwisely, the consequences will be similar to those in Poland (excise duty, penalties, even criminal liability).
Summary and recommendations
Starting a legal business of importing leaf tobacco into Germany and further trading in this raw material requires solid preparation. The entrepreneur must take into account both aspects corporate (choice of form of business and registration of company in Germany) as well as fiscal-regulatory (excise regulations, customs and tax requirements). It is crucial to understand and respect the difference between raw tobacco and tobacco products - as long as we are operating on raw tobacco, we have some freedom, but every step towards a consumer product means entering the highly regulated area of excise.
In light of the complexity of these issues, it is worth taking advantage of professional support. Our law firm is experienced both in setting up companies in Germany and other EU countries and in providing legal advice on the circulation of excise goods. Expert assistance at the business planning stage will help you avoid costly mistakes and speed up the process of obtaining all required permits.
We invite you to contact us - together we will ensure that your tobacco venture in Germany is run safely, legally and successfully in a competitive market.
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