Require a VAT fiscal representative for EU trading?
For companies providing goods or services in foreign European countries, there may be a requirement to VAT register as a non-resident VAT trader. With this, under certain circumstances, the tax authorities also requires the company to appoint a Fiscal Representative in the target country. This tax registered company will be the local representative of the company, managing with queries and filing obligations of the company for dealings with the tax authorities. They also may be liable for the VAT liability of the company. You can review EU VAT rates here.
1) EU Companies
Up until 2003 all companies trading across European Union borders were required to appoint a local Fiscal Representative in each country where they were providing a taxable supply. This requirement was simplified by EU VAT Directive 2006/65/EC, which required EU member states to instead allow companies to directly register with the relevant tax authorities.
There still remain barriers to direct VAT registration in several countries. These range from tax offices being reluctant to provide simple explanations of the compliance requirements and reporting procedures in anything but the local language, e.g. France and Spain; through to still requiring the formal appointment of a local tax agent, e.g. Poland and Bulgaria.
In addition, if the EU company is importing goods in a number of EU countries, there are cash-flow friendly schemes that involve the appointment of a Fiscal Representative (see below).
2) Non-EU Companies
More than half of the 28 EU member states oblige non-EU business to appoint a Fiscal Representative if they are providing taxable services within their state borders. Countries such as the UK, Germany and the Czech Republic have now withdrawn the requirement.
Since the duty to appoint a Fiscal Representative and potentially provide bank guarantees (see below) can be extremely onerous, many non-EU companies chose to form a company in one EU country which can then be used as a platform to obtain simplified direct registrations in the rest of the European trade block.
3) EU Importing
Where goods are brought into the EU for the first time, a VAT number will need to be produced to clear the goods through customs. Traditionally, this was done by the final customer. Increasingly, however, the sellers are looking to do this so that they can keep confidential the cost valuation of the costs as well as provide a door-to-door service for their customers.
This means that non-resident businesses are more than ever looking to obtain VAT numbers for importation purposes. For non-EU companies, this still requires a Fiscal Representative in most countries.
Whilst EU companies do not usually require a Fiscal Representative, there are a number of advantageous VAT deferral schemes which can save the importer significantly on cash flows. These often require the appointment of a local Fiscal Representative.
4) Trading Goods in Bond and Duty Suspension
Additionally, EU and non-EU traders of commodities (oil, gas, chemicals, pharmaceuticals etc.) can deal on a VAT exempt basis in bond if they engage a local Fiscal Representative. Countries such as the Netherlands and Belgium, with large ports, provide special schemes for commodity traders to reduce the VAT cash outflows.
5) Beyond the European Union
Outside of the European Union, a number of countries operate a similar facility to permit foreign companies to trade within their borders without a local subsidiary or branches. This generally requires the appointment of a local Fiscal Representative for the purposes of VAT or GST. Countries include: Norway, Switzerland, Iceland, Japan, South Africa, Australia and South Korea.
The Role and Liability of the Fiscal Representative
The tax authorities regard a fiscal representative as the local agent of the foreign trader. In many cases, the Fiscal Representative is still held jointly and severally liable for the taxes of the trader. As a result, it is therefore industry practice to require a full bank guarantee in favour of the Fiscal Representative to protect it from losses.
In most countries, the Fiscal Representative is required by the local tax code to ensure that:
- The foreign trader is properly registered with the local tax office
- The trader is fully compliant with rules on invoicing, VAT treatment, exchange rates etc.
- Accounting records are maintained to exacting local standards, and that they are readily available for inspection by the tax authorities.
- All VAT and associated filings are correctly prepared and submitted
- Enquiries and tax inspections from the VAT office are professionally handled