Optimizing Your VAT When Selling B2B in the EU

In most EU countries, “importers of record” have to register for value-added tax (VAT), charge VAT on sales, and submit VAT returns. The Netherlands has a number of practical solutions to help business-to-business (B2B) traders minimize their compliance burden and optimize their VAT cash flow.

Most goods imported into the Netherlands from outside the EU are subject to VAT. The VAT has to be paid by the importer at the time of importation. Where the importation is for business purposes, the importer may be able to reclaim the tax, subject to certain rules.

Customs duty is levied at the place where goods are cleared into “free circulation” in the EU. Once the duty (if applicable) and VAT has been paid by the importer, the goods are in free circulation and can be released for use in the EU market. Unlike other indirect taxes, such as VAT, customs duty, once paid, is not recoverable by the importer.

Import VAT is due even if customs duties are not payable.

Planning Ahead

Once the goods are cleared into “free circulation” in the EU, it is virtually impossible to obtain a refund of payments made for customs duties. Therefore, it is advisable to plan ahead and make sure it is known in advance what will happen to the goods after they enter the EU.

For example, if an importer plans to re-export (part of) the goods, it can place the goods under one of the customs suspension procedures. While the goods are under suspension, customs duties are not due. The goods could be placed under the T1 procedure and transported as non-Union goods to another EU country or a non-EU country. In this way, payment of customs duties and VAT can be avoided until the goods reach the destination country and are cleared into free circulation.

In addition, an Article 42 procedure could be used if, after the goods are released into free circulation in the Netherlands, the goods are immediately transported to another EU country. In this way, importers who only occasionally import via the Netherlands can avoid paying Dutch VAT.

Import VAT Deferral

If a business is regularly importing goods into the Netherlands, it may want to consider applying for an Article 23 license, which allows payment of import VAT to be postponed to when the periodic VAT return is due, thereby avoiding any adverse cash flows. This postponement is known as an “import VAT deferment” or “reverse charge VAT on import.”

Depending on the type of goods imported, this VAT deferment may be obligatory if certain raw materials are imported.

Dutch Businesses

Dutch legal entities and fixed establishments can apply for a deferment license to import goods from non-EU countries. With this license, importers avoid payment of VAT at the time of importation and instead pay it when the VAT return is due.

Non-Dutch Businesses

A taxable person not established in the Netherlands (i.e., a nonresident) will not be able to move the payment of import VAT to the time when the VAT return is due unless he appoints a fiscal representative.

Article 33g of the VAT Act offers nonresident taxable persons (taxable persons not established in the Netherlands, i.e., those without a business establishment or fixed establishment in the Netherlands) the opportunity to appoint a fiscal representative in relation to their VAT obligations.

In certain conditions, a fiscal representative is obligatory. For example, if a non-Dutch business sells the goods in a certain bonded warehouse in the Netherlands, then the appointment of a general fiscal representative is required. Appointing a fiscal representative is also required if a non-EU business makes EU distance sales in the Netherlands.

A nonresident can appoint a fiscal representative with a limited or a general license for the importation of goods into the Netherlands. A general fiscal representative can report all purchases and supplies of a nonresident, but the nonresident must be registered for VAT in the Netherlands. A limited fiscal representative can only be used for reporting the import of the goods and their subsequent supply. If the nonresident appoints a limited fiscal representative, he does not need to be registered for VAT purposes in the Netherlands.

The advantage of appointing a general, as opposed to a limited, fiscal representative is that the former can report not only an importation of goods and their subsequent B2B supply, but also intra-community acquisitions and domestic purchases, as well as EU distance sales and all other sales. Also, with a general representative, customs suspension regimes, such as bonded warehousing, can be used. In addition to charging a fee, the general representative will ask for a limited bank guarantee/bond.

A nonresident taxable person may use the services of only one general fiscal representative. If a nonresident company has appointed a general representative, the representative’s VAT identification number, full name, and address must be indicated on the invoices raised by the nonresident company.

A limited fiscal representative can represent a nonresident taxable person for a limited number of transactions. According to article 24c(5a) of the Dutch VAT Implementing Order, as a general rule a limited fiscal representative may act with respect to:

• the importation of products into the territory of the Netherlands and the subsequent supply of the goods;
• the supply of goods subject to zero rating, according to Table II(a)(7) and (8) of the VAT Act (i.e., excise and bulk products); and
• export and intra-community supplies subject to zero rating, according to Table II(a)(2) or (a)(6) of the VAT Act.

A nonresident taxable person, using the professional services of a limited fiscal representative, is not required to register for VAT. He can use the representative’s VAT identification number. When making intra-community transactions, the VAT identification number of the representative must be indicated on the invoice.

The limited fiscal representative is jointly and severally liable for the VAT due on the transactions and is required to provide a bond (cash or bank guarantee).

Because they have unlimited liability, limited fiscal representatives are difficult to find and usually charge higher fees, and require higher bank guarantees/bonds, than general fiscal representatives.

The special scheme for reporting sales of low value goods

The Import One-Stop-Shop allows for a quick release of imported goods using a “green channel” fast customs clearance for consignments not exceeding150 euros ($153) and also for a release of goods destined for customers located in EU member states other than the one where the goods entered the EU. If the One-Stop-Shop procedure is not used, then the transit procedure and a release of the goods in the EU member state of their final destination is required if the goods entered the EU in a different member state.

Summary

If you only sell to Dutch customers or businesses registered for VAT in other EU countries, then:

• To a Dutch customer, VAT is subject to the reverse charge in the Netherlands.
• To another business with delivery to another EU country, the intra-community supply is subject to 0% VAT.
• If you appoint a fiscal representative, your VAT position, as a rule, is nil.
• If you don’t appoint a fiscal representative, as a rule you are in a VAT refund position because VAT should be paid upfront on imports when the goods are released.

Planning Points

• If you import via the Netherlands, you can take advantage of the import VAT deferment (also known as “the reverse charge”).
• Appointing a fiscal representative is required if a non-Dutch business wants to take advantage of the import VAT deferral.
• In certain conditions, appointing a fiscal representative is obligatory. For example, if a non-Dutch business wants to place and sell goods in a bonded warehouse.
• Import One-Stop-Shop registration provides an opportunity to ease the administrative burden of businesses who import low-value goods.
• Businesses who opt for the Import One-Stop-Shop are not required to register for VAT in each EU country where the goods are destined.
• Applying the reverse charge on importation considerably improves the cash flow position of the business, especially if it is involved in the B2B trade.

Steps to be taken

• Engage with VAT advisers to understand the VAT rules applicable to the flow of your goods.
• Check what your indirect tax obligations are and how you can optimize your VAT and customs positions.
• Check whether import VAT deferral would be beneficial.
• Check the administrative requirements for the import VAT deferral and what steps you need to take.
• If you choose to appoint a fiscal representative, check what type of representation would be the best option.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Aiki Kuldkepp is Senior Manager, Tax, with Grant Thornton Netherlands.

The author may be contacted at: aiki.kuldkepp@nl.gt.com