Join the Author and Chamber Member, Alessio Lencioni of VAT IT Stream on 4 November 2025 at the Chamber Offices for a special briefing designed to help UK Exporters trading with the EU on DDP terms understand the tax implications of their operations.

Book HERE to attend.

A Regime in Name Only

Regime 42, once regarded as a standard of European customs simplification, remains enshrined in legislation. Yet in practical terms, the framework that supported it is being steadily dismantled. The scheme was originally intended to allow importers to move goods into one member state of the European Union without paying import VAT provided that the goods were immediately dispatched to another member state for final taxation.

For UK exporters using France as their gateway to the single market, Regime 42 offered a convenient means of avoiding upfront VAT payments and preserving cash flow. However, in recent years the French customs authorities have begun to tighten enforcement. The system has not been repealed by law, but the administrative and procedural mechanisms that made it viable are being withdrawn.

French Customs now requires importers (i.e. you the UK exporter, are also the importer of record) to prove the final intra-European destination of the goods, the validity of the consignee’s VAT registration, and the demonstrable link between the importer of record and the declared VAT number. These stricter interpretations, combined with intensified audit activity, have made it extremely difficult to operate under Regime 42 as it once functioned.

The Rise of the “Derived” DDP Model

In response to this shift, a number of freight forwarders have begun to promote alternative arrangements designed to replicate the cash flow advantages of Regime 42. Their promotional material often claims that exporters can continue to sell on Delivered Duty Paid (DDP) terms while still benefiting from VAT exemption.

Such arrangements are typically presented as “derivations” of DDP, in which the seller continues to pay duties and import costs but allocates the VAT to the European customer “on their behalf.” On paper this appears elegant and smart, but in reality, it is a contradiction in both legal and fiscal terms.

Under genuine DDP conditions, the seller is responsible for all import formalities, including VAT. Transferring that liability to the buyer effectively converts the transaction into Delivered at Place (DAP). To market this hybrid arrangement as DDP is at best imprecise and it would not be amiss to call it outright misleading.

Customs authorities have begun to reject declarations where the importer of record and the VAT declarant are not the same legal entity. When this occurs, the VAT exemption is disallowed and the tax becomes immediately payable in France. Several recent audits have led to retrospective assessments, interest charges, and penalties. For non-European exporters without a fiscal presence in the Union, such outcomes can be both financially damaging and legally complex to resolve.

Not Repealed, but Functionally Dismantled

Formally, Regime 42 continues to exist within the European VAT Directive. No legislative act has abolished it. The simplified documentation chains that once underpinned the regime have been replaced by digital systems requiring real-time data validation and transparent reporting.

The result is that, while the legal framework remains intact, the working mechanism that once made Regime 42 attractive has effectively been dismantled through administrative reform rather than legislative repeal.

The ICS2 Effect

These changes are not occurring in isolation. They align closely with the EU’s broader transformation of customs oversight under the Import Control System 2 (ICS2). ICS2, which will be fully implemented by 2028, introduces a unified pre-arrival data environment across all modes of transport and all member states. Once operational, it will enable tax authorities to verify importer identities, VAT registrations, and supply chain data before the goods even reach European territory.

Such a system is fundamentally incompatible with opaque VAT arrangements. It represents a decisive move from paper-based simplifications towards a model of continuous, digital transparency. Regime 42, with its reliance on post-clearance proof and partial reporting, cannot coexist within this future architecture. Its demise, while gradual, is certain.

Building for the Future

Exporters who wish to safeguard their European trade operations should now focus on adopting durable and compliant structures. Several practical routes have existed for some time as credible and alternatives to Regime 42:

• Direct VAT Registration

  Registering for VAT in an EU member state such as France, Belgium, or the Netherlands allows the exporter to act as importer of record and to declare VAT transparently.

• Postponed VAT Accounting (PVA) or Import VAT Deferments

  Many member states now permit import VAT to be deferred and reported through standard VAT returns. This achieves the same cash flow efficiency once offered by Regime 42, without relying on exemptions that are now under scrutiny.

• Fiscal Representation

  For businesses based outside the European Union, appointing a local fiscal representative ensures that VAT obligations are fulfilled accurately and that communication with tax authorities remains consistent and traceable.

• Transparent Use of Incoterms
  

  Where a company’s structure cannot support true DDP, it should declare transactions under DAP with appropriate VAT arrangements. Precision in documentation is always preferable to creative terminology.

The Broader Outlook

The European customs landscape is entering a phase of structural consolidation. The emphasis is shifting from procedural shortcuts to complete data coherence. Regime 42 may remain technically valid, but its practical functionality is vanishing under the weight of modern customs technology and coordinated regulatory reform.

Freight intermediaries that continue to market “no-change” solutions risk leaving their clients exposed to retrospective liabilities that may surface long after the shipment has cleared. The direction of change in EU customs is unmistakable: towards a single, transparent customs and VAT environment where every stage of the transaction is visible and accountable.

Exporters that adapt early by embracing postponed accounting, establishing legitimate VAT registrations, and aligning with the requirements of ICS2 will not only avoid disruption but also position themselves competitively in the next era of European trade. The age of data-driven compliance has already begun.