Strategic Metals: Tax Benefits through Duty-Free Storage
July 2022 | Guide
The decision to acquire industrial raw materials as tangible assets has been made, but where is best to put the strategic metals? And how can you even benefit from tax privileges when storing them? This is where duty-free warehouses come into play.
Special Tax Status for Duty-Free Warehouses
Duty-free spaces have existed in the trade sector for many years. This trade instrument is often known from seaports and airports, where goods from a third country are temporarily stored until further transport to their destination. Duty-free warehouses thus represent transit warehouses, which are, however, subject to inspection by customs authorities. As long as the goods are stored at such a location, they are not officially, i.e. customs-wise, imported into the Federal Republic. Thus, no import duties or taxes are due.
Cost Advantage due to Omission of Value Added Tax
This tax privilege is transferred to all subsequent transactions involving the goods, as long as they are handled within the duty-free warehouse. Private investors can benefit from this. If an individual investor buys strategic metals from the bonded warehouse and keeps them there, the value-added tax does not apply. This is 19 percent in Germany and 20 percent in Austria. Those who do not have to pay this tax rate thus have 19 or 20 percent more to invest in tangible assets.
A simple calculation example shows the cost savings. To invest 50,000 euros in rare earths, you would normally have to pay a value-added tax of 9,500 euros in Germany. This would leave only 41,500 euros for the actual investment. If the raw materials are purchased within a duty-free warehouse, the 50,000 euros can be invested in tangible assets without deductions, thanks to the tax advantage.
Nevertheless, it is important to note that tax advantages vary from country to country and should always be carefully checked in advance.
Beware when Taking Goods out of the Warehouse
If a private investor takes physical possession of his assets and has them delivered as freight, this must be reported to customs. Customs duties, freight and import turnover tax are also due. These are to be paid by the owner of the goods. In comparison, the costs for storage in a duty-free warehouse are very low. Since strategic metals are often dangerous goods, storing them in private households is not recommended; it is usually impossible to deposit them in a bank.
To make matters worse, once the raw materials have been delivered, it could be extremely difficult to resell them to the processing industry later. One reason is that the industry usually buys large quantities from only one batch and only one supplier instead of purchasing small amounts from several sources. Therefore, private sellers must expect high markdowns.
Various strategic raw materials are stored in the duty-free warehouse of METLOCK GmbH in Frankfurt/M.
Source: Kai Wipperfürth / TRADIUM GmbH
Long-Term Investment Reduces Capital Gains Tax
Regardless of the storage location, investors in Germany benefit from a further tax advantage after a one-year holding period. Those who sell their tangible assets after 12 months at the earliest do not have to pay a capital gains tax of 25% on potential profits. On the other hand, those who take advantage of commodity investments in the form of shares, exchange traded funds (ETFs) or exchange traded commodities (ETCs) are subject to tax.
Duty-free warehouse for Strategic Metals in Frankfurt/M.
One of the largest duty-free warehouses for Strategic Metals raw materials in Europe is operated in Frankfurt am Main by METLOCK GmbH, a sister company of TRADIUM GmbH. Raw materials like technology metals, rare earths and precious metals from industrial customers and private investors are stored over 1,400 sqm. Besides duty-free status, the warehouse offers secure holding to same level as a bank.
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