What is offshore fulfilment?

Offshore fulfilment in Europe is the fulfilment of mail order goods from a non-EU location in order to take advantage of an import VAT exemption called Low Value Consignment Relief or LVCR. Items are sent to a location outside the EU so that when they re-enter the EU by mail order they can take advantage of LVCR which exempts the goods from VAT. The trade involves the supply of EU and non EU goods to EU customers via an offshore hub, often by a retailer located in the EU who has set up a company structure offshore to take advantage of LVCR. EU goods are sent to the offshore hub in order that they can be sold back again into the EU by mail order. This circular trade is called ‘circular shipping.’ A second practice called ‘order splitting’ dictates that any items ordered from an offshore fulfilment hub will be sent individually so that they can fall below the threshold at which LVCR operates (currently £15 in the UK) and benefit from the import VAT exemption to the greatest degree. For example if two items with a value of £13 each are ordered from a retailer then rather than being sent together they will be despatched in two separate packages with a value of £13. This is so each packet qualifies for the VAT exemption. If the items had been sent together they would have a total value of £26 which is above the maximum LVCR value threshold and VAT would be payable. The threshold varies from member state to member state depending upon what level it is set which can be between 10 and 22 Euros.