Introduction
Fiscal Representation A Gateway for Non-EU Companies: it serves as a vital tool for companies outside the European Union (EU), allowing them to participate in EU commerce without needing to establish a local company. Through fiscal representation, non-EU businesses can register for a VAT number, enabling them to manage their own imports, customs clearance, local sales, and stock management. This strategy opens doors for businesses to operate similarly to EU-based companies, with the added advantage of being able to compete freely within the EU market.
Fiscal Representation A Gateway for Non-EU Companies : Concepts of Fiscal Representation
VAT Number Requirement
To engage in fiscal representation, obtaining a VAT number is essential. This number is specific to each country within the EU, and a company may hold multiple VAT numbers—one for each country where it operates. Along with the VAT number, the company also needs an EORI number (Economic Operators Registration and Identification) to import goods across the EU. While a company can have multiple VAT numbers, only one EORI number is needed per entity.
Benefits of Fiscal Representation
With a VAT number, companies can leverage various operational advantages:
Import and sell goods within the EU: Non-EU companies can import goods in euros, clear customs using their own VAT number, and manage local sales or stock within EU countries.
Stock management and local purchases: Having a VAT number allows companies to store stock locally in EU countries and make local purchases, further simplifying operations.
Sales across the EU: With a VAT number, businesses can also sell goods in the country where the VAT number is registered, as well as across other EU countries.
Tax simplification: In many cases, fiscal representation can simplify tax obligations, allowing companies to operate without the need to establish a full legal entity in the country.
Limitations and Considerations
While fiscal representation offers many benefits, there are specific limitations:
No VAT number in the country of residence: Companies cannot obtain a VAT number in the country where their directors reside. This ensures that the fiscal representation model remains distinct from local operations.
Stable establishment restrictions: Fiscal representation is only available for companies without a stable establishment in the country where they seek VAT registration. This is a key point to highlight, as it limits companies from using fiscal representation if they already have significant local operations in that country.
Risk of errors: If clients attempt to handle VAT declarations themselves in countries where this is permitted, they may make errors. It is often safer to rely on a local fiscal representative who is familiar with the specific regulations of each country.
The Role of Fiscal Representatives
Fiscal representatives act as intermediaries between non-EU companies and local tax authorities, particularly in countries where a representative is mandatory. Most EU countries require a fiscal representative, while some, such as the UK, allow companies to handle VAT registrations and declarations themselves. However, many clients still prefer to use a local agent to ensure compliance, as errors can result in significant liabilities for companies.
Responsibility of fiscal representatives: When a fiscal representative files VAT returns or declarations on behalf of their clients, they bear some responsibility for the accuracy of these declarations. As such, some countries, including Belgium and France, require fiscal representatives to provide a financial deposit or a bank guarantee, depending on the type of business involved. This ensures that there is accountability for any VAT that is declared on behalf of the client.
Financial Guarantees and Deposits
As noted, some countries have introduced the requirement for financial guarantees. For example, since January 1, 2021, France requires fiscal representatives to set up a deposit based on the business model of their client. Companies that engage in higher-risk activities, such as those that involve significant VAT collection (and therefore the potential for fraud), may face stricter requirements than those operating in lower-risk sectors. This ensures that the risks are managed and that the representative is prepared to cover any shortfall should there be an issue.
Flexibility of Fiscal Representation
One of the major advantages of fiscal representation is the flexibility it offers to businesses:
No need for a local legal entity: Companies that open a VAT number through a fiscal representative do not need to establish a legal entity in the country. For instance, a US or Hong Kong-based company can open a VAT number in France or Germany and operate directly through that number. The VAT number remains tied to the company abroad, meaning there is no need to form a separate legal structure.
Simplified accounting and tax obligations: Unlike local companies, non-EU companies using fiscal representation do not have to deal with local accounting, audits, or corporate profit taxes. This reduces the administrative burden significantly, although the exact declarations and obligations vary from country to country.
No long-term commitments: Companies can open a VAT number, file declarations for a period of time, and cease operations when necessary, without any long-term contractual obligations with the fiscal representative.
Tax Exemptions and Optimization
A key motivation for companies to open a VAT number is tax optimization. In many cases, obtaining a VAT number allows companies to benefit from exemptions, particularly on imports and sales. There are generally two main types of VAT:
Import VAT: In many EU countries, having a VAT number allows companies to avoid paying VAT on imported goods.
Sales VAT: Companies with a VAT number can also avoid paying VAT on sales, though this depends on the specific business model and local regulations.
Purchase VAT: Companies with a VAT number will, in most cases, pay VAT on their local purchases. However, there are ways to waive the VAT on purchases that may apply depending on your setup. Connect with us to discuss this specific case.
This can be a significant advantage for companies seeking to operate with a tax-efficient model. However, it’s important to note that each country has its own specific rules, and not all allow these exemptions. It is critical to operate in full compliance with local regulations, as fiscal representation is not a tool for circumventing tax obligations, but rather for optimizing them in line with legal requirements.
Conclusion
Fiscal representation provides a streamlined and efficient way for non-EU companies to access the European market, manage their imports, and optimize their tax obligations. With the right fiscal representative, businesses can navigate the complex regulatory landscape of the EU while avoiding the need for a local legal entity, audits, or accounting obligations. By understanding the rules of each country and leveraging the flexibility offered by VAT registration, companies can create a tax-efficient and compliant business model that allows them to compete effectively within the EU.
In a future article, we will delve into the One-Stop Shop (OSS) and Import One-Stop Shop (IOSS) schemes, which provide additional avenues for non-EU companies to streamline their tax processes across multiple countries. Stay tuned for more insights on how to leverage these systems to your advantage.
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