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EU VAT Fiscal Representation for non-EU businesses

  • Dec 31, 2014 | Richard Asquith

EU VAT Fiscal Representation for non-EU businesses

Non-resident companies who fall within the VAT net of an EU country, because of the nature of their trading, could require to submit VAT filings and payments to the country’s tax authority. In general, non-EU businesses have to appoint a VAT Fiscal Representative (FR) in most EU countries. There are some exceptions, the UK, Ireland and Netherlands being examples. Under EU rules, EU businesses do not have to appoint an FR. Instead, they can choose to appoint a VAT Agent or do the VAT compliance work themselves.

Role of a fiscal representative

What is a VAT Fiscal Representative (FR)? A VAT FR is a company resident within the country concerned, and considered acceptable to the local tax authority by whatever conditions laid down. Its prime purpose is to fully represent the non-resident entity, not only ensuring full VAT compliance, but also guaranteeing the tax liability. Different EU countries have different rules, but in most cases it is the FR who bears the VAT burden.

In turn therefore, the FR requires a bank guarantee or monetary deposit to be made, its size dependent on the potential exposure. It would be expected that the amount would be no less than 5% of the company’s annual turnover (billings) in the country, and could be 10% or more in some cases. The guarantee has to remain in place not only for the period of trading but also for example, for say three years after completion, in view of possible the legal right of retrospective recovery by the tax office.

Shared VAT liability

Because of its responsibilities, the FR must ensure that the VAT compliance is of the highest order. Non-EU companies who contract with FRs often find this difficult to understand. They are paying the FRs fees and they have provided what can be a sizeable guarantee. Having done this, they find that they are being subjected to what appears to be over-pedantic administrative scrutiny from the FR. In some extreme cases, because of unease, it is not unknown for the FR to resign from the contract, if there is insufficient client co-operation in respect of compliance requirements.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara