Fiscal representation


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Whitepaper of how to set up fiscal representation. The do's and the don'ts. Not rocket science, but do it right from scratch!

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Fiscal representation

  1. 1. WHITEPAPER FISCAL REPRESENTATION This whitepaper is meant to clarify the ins and the outs of fiscal representation. There are a lot of misunderstandings and unnecessary hurdles you might come accross. We sincerely hope this document will ease and simplify setting up the European part of your supply chain. Feel free to contact us using the contact details on the last page of this whitepaper. Sincerely yours, Marc Poelenjee Director Business Development Copyright © Midl Integrated Logistics | M. Poelenjee 2013
  3. 3. SETTING UP EUROPEAN LOGISTICS Congratulations! Choosing for The Netherlands as location for your European inventory, grants you with the maximum flexiblility and professionalism. The Netherlands form a Gateway to Europe for over decades and host a large number of worldfamous brands. A part of those companies has chosen to set up their own legal entity with different reasons. Another part supplies EMEA (Europe Middle East and Africa) from The Netherlands without having an entity. Without a doubt, they have chosen for fiscal representation in order to avoid to pay VAT (Value Added Tax) when importing their goods into the European Union. This whitepaper describes all the necessary steps to be taken in order to issue General Fiscal Representation. Before actually physically storing and shipping goods. Our advise is to do it right from scratch to make sure you will not be faced with negative consequences afterwards. Import duties. These duties are well known globally to any company importing or exporting goods to and from foreign countries on different continents. Within the EU the import duties payable on your goods should be the same percentage in any EU-country. This percentage is raised over the declared value or CIF amount (cost, insurance and freight…). In some cases the import duties are influenced both upwards or downwards by bilateral agreements between the EU and non EU foreign governments. In these cases, mostly special documents are required. Examples are: Certificates of origin, import licenses when quota are set or anti dumping surcharges on goods which are literally dumped on the European market. Based on goods descriptions and harmonized codes provided by you, we will be able to determine the amount of duties payable on your products. In some cases we will require the Dutch customs authorities to officialize our interpretations for your own security and liability by asking them for a BTA, Binding Tariff Agreement. Bonded storage Midl holds a so called license-C customs entrepot. This type of license grants us with the maximum achievable flexibility. In specific cases we store goods in bond on behalf of our customers. For instance when our customer re-exports to non EU countries. Since they did not have to pay any import duties upon arrival in the EU, this can be a significant cost saving... Customs authorities randomly audits Midl to verify that the right amount of (non customs cleared) goods, are physically at the right location in our warehouse. Since Midl is fully AEO Certified, you may conclude this procedure is completely ‘waterproof’. Bonded storage is however only required in case the amount of duties payable is high enough to justify the extra handling (customs clearance) charges. Your cash flow and/or interest advantages should live up to the above described additional cost. • • • Consider the value of your goods Consider the turnover rate of stock annually Consider the revenue targets outside the EU (Middle East, Africa and former Eastern European Countries)
  4. 4. LIMITED VERSUS GENERAL FISCAL REPRESENTATION VAT tax representation has become a familiar phenomenon in logistics Netherlands. Logistics service providers and foreign importers make extensive use of the instrument of fiscal representation in order to avoid the actual payment of VAT when importing into the EU. If a tax representative is appointed, it is in conjunction with other tax arrangements for foreign entrepreneurs often possible to import non-EU goods in the Netherlands and (partly) deliver within the EU without actually paying VAT. The Fiscal representation possibilities of The Netherlands attract numbers of foreign entrepreneurs to choose The Netherlands as a gateway to Europe. It is also known that tax representation also brings risks with it. Risks, which one should not jeopardize. Especially the representative is exposed, but in a worse case scenario, the foreign entrepreneur can face negative consequences as well. Not to mention the collateral damage to the value of the imported brand. If it appears that too little tax is paid or the administration appears not to be waterproof, usually the tax representative is liable for the additional tax due. Despite the fact The Netherlands already experiences tax representatives for over 15 years, there are a lot of do’s and don’ts which might make it difficult to choose between acting as general or limited tax representative. LIMITED FISCAL REPRESENTATION GENERAL FISCAL REPRESENTATION A declining number of logistics service providers act as a tax representative in order to attract foreign companies to make use of their logistics services. In most cases they acted as a limited fiscal representative. A foreign entrepreneur can appoint several limited fiscal representatives in the Netherlands all of them with different VAT numbers. The import VAT does not need not to be actually paid to customs but the amount is deferred to the VAT number of the limited fiscal representative who declares this through the periodic VAT administration. If all appears to be right, no VAT will have to be paid. A foreign company can only appoint one general fiscal representative in the Netherlands. The general agent represents the principal in the case of imports from non-EU goods and the deliveries to the principals’ European customers. The foreign entrepreneur receives its own Dutch VAT number for which is applied to customs by the general fiscal representative. The representative is responsible for the general VAT formalities on behalf of the foreign company. For each foreign company the general representative performs a separate declaration. The administrations are filed separately. The limited representative is obliged to keep a waterproof administration of the European deliveries of the imported goods. Where necessary, the VAT number of the limited agent is used on the invoices of the foreign company to its European customers. The Dutch customs require a financial guarantee of limited representative. It usually involves a bank guarantee.   In case of irregularities, the limited tax representative will be held liable for the underpaid tax, interest and penalties. The tax inquiry can cover a maximum of five calendar years. The amount of the liability is unlimited. This is the most confusing aspect of the term “limited”. Most foreign companies think their risk is limited but it appears to be the opposite… CONCLUSION The only advantage of limited fiscal representation is the speed of doing business. Since the VAT registration number is already established, a customs clearance is easily made. In case of a ‘one-off’ delivery to a French VAT registered company of one shipment, which is traceable all the way and where a proof of delivery is supplied, LFR seems to be a fast and reliable alternative. However a professional LFR will demand a signed EU Power of Attorney from its principal. This must be a European VAT registered, trustworthy company. The signature of a non-EU registered company has no legal value, leaving the LFR with unlimited risk. In above example of the French delivery, the LFR will most likely customs clear and defer the VAT to the VAT registration number of the French importer. Although it seems that GFR is time consuming during the start up phase, it is a much more sustainable solution. Since on behalf of several different foreign companies customs and VAT declarations are issued on one VAT registration number (that of the representative), a mistake is easily made. In case of irregularities of one out of ten customers, the other 9 companies could be exposed to unlimited fiscal consequences... The general representative is also obliged to provide financial security to customs. However, his liability is limited to the annual amount of the security, which is determined by customs. Also in the case of general fiscal representation the period of five calendar years is applicable. The general fiscal representative is fully able to determine the maximum risk and financial exposure to him as well as on behalf of it’s principal.
  5. 5. ed over the VAT) is rais dded Tax ( duties. The Value A plus import lared value EU counCIF dec rs amongst entage diffe is 21%. VAT perc nds the VAT The Netherla could tries. In tage which large percen lt with A fairly when not dea enormously backfire properly… the EU are mpanies in registered co tizens, but All VAT be private ci ered not to ies. As long consid red compan shed, registe ngst each establi s trade amo e companie ically) paid as thes s to be (phys no VAT need other, panies. by these com VA Td e fer me Th eV nt de fer AT p nu red aya Th mber to a ble i a his s ca , hel so c t en tra de n a d b all Re pre sign lso b y th ed V nce in sen ate e a e im AT d ta for po reg the Wh tio D r n) utc eign ter o istra EU i co enev hV s t mp f co er AT mp reco ion tha an yo nu an r reg t pa y an u sel mb y w d. ist rtic ywh l go er i is m ra u o (F th en tion lar ere i ds to isc n s tio al ne num ale i the a VA sd do EU Tr be , n y r o efe e ou f th rre the V giste dt rs ale e con o t AT o red n s in sig he ne VAT vo ice e w . ho Other things of interest 1. Intrastat list ing In case our in tra- European sa les exceed appr mately € 400. oxi000,- the Dutch authorities will require us to li st an administr ation of numbe values and volu rs, mes of the goo ds which have ved within the mo European U nio n, including re and so on. turns This will have to be done on a monthly basi s. Does the fiscal representation partnerl file th administration is on our behalf as well? YES! The tax authori ties will requir e a bank guaran Do we have a D tee. utch bank? Does our bank have an office in Holland?. CHECK! In general this bank guarantee is 1/12th of the imported annu al value into th e EU *21% (whi covers one mo ch nth ‘risk ’ for th e tax authoriti es) SO if we import an estimate of EUR 50 0.000 into the EU , guarantee should ap the prx be: 500000/12 = 4166 6,41666 * 21% = € 87 50
  6. 6. THE PROOF OF THE PUDDING... : l / Vatko t to Mi d Submi e EU e into th te d valu r e d impo -Es timat m per annu 1 orders y of sales ber te d num - Es tima pro tivities, f o ur ac tion o - Descrip d markets ducts an tatus of cate of s ce) - Certifi (tax offi terprise en on orporati te of inc ca - Certifi m merce) er of co (chamb card of i dentity f the - Copy o / CFO o ur CEO IS IN THE EATING!
  7. 7. LANDING PROCEDURE 1. 2. 3. 4. 5. When the information and documentation of the previous page is submitted to Midl and Vatko, we will supply you with the following documents to be filled out and signed: Vatko: Midl • Tax Representation Agreement • Physical Distribution • Power Of Attorney agreement • Letter of revocation and withdrawel • Terms and conditions • Vatko will apply for a designated VAT number with the Dutch tax authorities. Vatko has straight communication lines with the several internal teams at the authorities, but you will have to allow a little bit of processing time. • Meanwhile, Midl will load the masterdata of your articles in our warehouse management system. This includes article numbers, descriptions, weights, dimensions, barcodes, batchnumbers etcetera. • Dutch tax authorities will revert back to Vatko and advise them both the designated VAT number as well as the EORI number. They will also state what the required amount of the bank guarantee will be for the first year. The tax authorities are entitled to amend this guarantee when the imported value appears to be higher or lower than estimated at first. • The bank guarantee for the first year will have to be issued in the name of the Dutch tax authorities. • For the next year(s), the guarantee will have to be issued in the name of Vatko • You have to instruct your bank to issue this guarantee. The guarantee is requested to be with a Dutch bank or with an international bank who has their own entity / office in The Netherlands (for instance the Bank of America) In other cases your (local) bank needs to acquire a Dutch partner bank who issues a contra-guarantee. The first two options will however proof to be quicker and more sufficient. • After receiving the paperwork from your bank, please inform Vatko immediately the guarantee has been issued by your bank. Please send Vatko the relevant copies of the documentation of your bank. • Vatko will inform the tax authorities that the guarantee is established. The authorities will confirm this and will subsequently activate your VAT number digitally. • Midl will check if the number is really active by submitting a customs document digitally... You are all set!
  8. 8. HE IS WELL PROTECTED Because his suit protects him against small parts of asbestus. His suit was manufactured in Alpharetta, Georgia by a company called Grayling Industries. The group of companies to whom Grayling belongs, ILC Dover, also manufactures the suits which are worn by NASA’s austronauts. Midl and Grayling go back a long time. Midl used to keep Grayling’s inventory under customs bond. Whenever an order was ready for one of Grayling’s European customers, Midl would arrange the transportation under customs bond, while arranging the customs clearance in the country of destination. A time consuming process, which led to an unnecesary long lead time of processing a sales order. Recently Midl and her partner, Vatko, applied for a designated VAT number on behalf of Grayling. Now the General Fiscal Representation is in place, the time-tomarket is significantly shortened. This enables European importers to buy smaller amounts of Grayling’s product whilst not having to go through the hassle of customs clearance on their behalf. BY SOLUTIONS BEYOND LOGITICS
  9. 9. WHO ELSE LAUNCHED? A growing number of foreign entrepreneurs choose to outsource both their logistics as well as their general fiscal representation. Reasons are obvious. They are not confronted with monthly recurring fixed costs for real estate, staff and other financial obligations. When combining logistics outsourcing and fiscal representation, you create a ’best-of-both-worlds-scenario’. In order to choose the best scenario, you should alway check what the best (fiscal) scenario will be in your specific case. Therefor feel free to contact us. We give you an objective advise which will proof to be the best for both short- and long term. You may also verify this with the companies listed below!