Ex Works, why not? Understanding the risks of EXW under EU sanctions and VAT rules.

Authored by: Iris Groenendijk - Junior Customs & Trade Advisor, Gaston Schul

What are Incoterms® and how does EXW work in international trade?

Incoterms® – short for international commercial terms – are a set of standardised trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities of sellers and buyers in cross-border transactions, particularly regarding transportation costs, risk transfer, and documentation.

Introduced in 1936 and periodically updated, Incoterms® aim to reduce legal uncertainty and commercial disputes. They are widely adopted globally, including by organisations like UNCITRAL (the United Nations Commission on International Trade Law). While they clarify responsibilities between parties, Incoterms® do not override public regulatory obligations such as EU sanctions or VAT laws.

What is EXW (Ex Works)? Pros, cons & common misconceptions

EXW (Ex Works) is the Incoterm that places the least responsibility on the seller. Under this rule, the seller only needs to make the goods available for pickup at their premises or another agreed location. From that point on, the buyer takes full responsibility for all aspects of the shipment: loading, transport, insurance, customs clearance, and all associated costs and risks.

Although EXW may seem attractive – especially for domestic or intra-EU trade – it is widely discouraged for international exports. Here’s why:

• Documentation problems: EXW does not require the seller to provide transport documents. This causes issues with common international payment methods, such as letters of credit.
• Customs complications: Sellers may struggle to prove the goods left the EU, especially when they don’t handle transport. Without proof of export, they may not be eligible for the 0% VAT rate – posing tax compliance risks.
• Ambiguity around delivery: If a seller helps with loading or documentation, it can blur the line of responsibility and potentially undermine the legal position.

How EXW exposes sellers to EU sanctions risk

The biggest risk associated with EXW lies in sanctions compliance and export control. While EXW appears to shift all responsibility to the buyer – including for export declarations – this does not remove the seller’s legal obligations under EU law.

Can a seller still be liable under EXW?

Yes. Even when using EXW, the seller remains responsible for ensuring the goods do not reach a sanctioned destination or prohibited end-user. The EU prohibits not only direct exports to sanctioned entities but also actions that enable or facilitate such exports – whether intentionally or through negligence.

Why this is a problem

Under EXW, the seller often lacks visibility into the route, end destination, or handling of the goods. This creates the risk that:

• Goods may be diverted via intermediaries to sanctioned countries.
• Dual-use goods – items with both civilian and military applications – may end up in the wrong hands, even if the seller did not intend it.
• The seller may not obtain or retain proof of export or compliance documentation, exposing them to enforcement actions.

In all these cases, the seller can be held legally responsible under EU sanctions law – even when using EXW.

What are the VAT risks for sellers using EXW?

Another risk is VAT-related. To apply the 0% VAT rate on exports, sellers must demonstrate that the goods have physically left the EU. With EXW, this is difficult, since the seller is not responsible for transport and may not have access to the necessary shipping documentation.

If a tax audit reveals that a seller cannot prove export, the tax authorities may:

• Disallow the 0% VAT rate, resulting in a significant tax bill.
• Impose fines or penalties for incorrect VAT reporting.

This is especially important in the Netherlands and other EU countries with strict VAT audit regimes.

Safer alternatives: FCA vs EXW

To mitigate the risks, exporters are advised to consider FCA (Free Carrier) as a safer Incoterm. FCA allows the seller to:

• Retain responsibility up to the point of export.
• Provide transport documents (e.g. bill of lading).
• Prove that goods have left the EU (essential for VAT and sanctions compliance).

FCA strikes a better balance between convenience and control – and is far more suitable for international transactions.

Exporters are advised to rethink their Incoterm strategies – not only to stay compliant, but to stay in control.

Best practices: How to stay compliant when exporting

If EXW is used, sellers should at the very least implement:

• Know Your Customer (KYC) and Know Your Customer’s Customer (KYCC) checks.
• A robust trade compliance programme.
• Screening against EU and UN sanctions lists.
• Traceability of transport routes, especially in high-risk transactions.

Remember: Responsibility for export compliance cannot be contracted away. If something goes wrong, it’s often the seller that authorities come after.

That’s why working with experienced customs experts is essential – not just for compliance, but to safeguard operational control and reputational integrity.

Should you avoid EXW? Key takeaways for exporters and compliance teams

EXW may look attractive on paper. It minimises the seller’s logistical burden and shifts risk to the buyer. But in practice – especially in international transactions – it creates serious exposure:

• You may still be liable under EU sanctions law.
• You may not be eligible for 0% VAT if you cannot prove export.
• You lose control and oversight – opening the door to misuse or diversion.

EXW carries various risks, but with regard to sanctions, we want to emphasise one key takeaway: using the EXW rule does not release the seller from the obligation to comply with EU Sanction regulations.

For sellers, the safest route is clear: exercise extreme caution when using EXW, or better yet, avoid it altogether in cross-border exports.

How Gaston Schul helps you reduce EXW-related compliance risks

EXW may seem convenient, but it often leaves exporters exposed to VAT issues, sanctions liability, and documentation gaps. At Gaston Schul, we help businesses rethink their Incoterm strategies with practical, tailored support. Whether you’re using EXW today or looking for safer alternatives, our customs experts ensure you stay compliant – and in control.