In this blogpost, we cover the Article 23 License and Fiscal Representation as an entry ticket to it. This framework unlocks ‘local treatment’ for non-Resident companies importing goods to Europe through the Netherlands, and allows them to defer VAT rather than pay it to Customs upon import. Great for cashflow.
What is the background?
Non-resident companies making taxable supplies of goods and/or services in the Netherlands may be required to register for VAT-purposes in the Netherlands. For this blog, we assume one such taxable supplies can be a company importing goods from the USA in the Netherlands, and subsequently ‘making supplies’ to customers in the Netherlands and/or other EU Member States. I.e.: bringing stuff from America to Europe and selling it 🙂
When importing goods into the Netherlands, two types of taxes will be due; [1] Import Duties and [2] VAT. Import Duties are harmonized within the EU, meaning that the same rate applies regardless of the country of import of the goods. Unlike the import-duties, VAT-rules are based on the VAT-Directive 2006/112/EG and those rules are binding in each EU-Member State in terms of results, but they leaves choices of forms and methods to the respective national authorities. Therefore, there can be differences in VAT-rules within the different EU-Member States.
We explain the VAT-rules and benefits in the Netherlands, and make our case why you, as a non-EU company, should consider coordinating your supply chain through the Netherlands.
The Base Case: Import VAT [Pay Up at the Border to Prevent VAT Runners with no Local Collaterals]
Goods that are imported in the Netherlands from countries outside the EU are subject to VAT, and the VAT is due by the importer of the goods at the moment of import in the base case. This basically means that the importer pays 21% VAT at Dutch customs to release the goods into the EU. When the importer is a taxable company, the paid import-VAT can – under certain conditions – be reclaimed in the VAT-return. Nonetheless, the importing company will have a cash-flow disadvantage because they need to prefinance the import VAT, and it can take multiple weeks before the VAT is actually refunded by the tax authorities.
To facilitate trade in the Netherlands and bring down the administrative- and financial burden for companies importing in the Netherlands, the Netherlands made it possible for Dutch companies to make use of a VAT-deferment; the so-called “Article 23 license” or “Postponed Accounting”.
By having an Article 23 license, a Dutch company does not have to actually pay the import-VAT at Dutch customs but is obligated to report the imports in the Dutch VAT-return. In the periodic VAT-return the total value of the goods are reported and the corresponding VAT is declared and at the same time the import-VAT is deducted, resulting in no payable import-VAT.
We compare the two situations in this visual:
The Article 23-license: Access to VAT Deferral
By using the Article 23 license, the (payable) import-VAT is deferred to the periodic VAT-return. If the company is entitled to deduct VAT, the import-VAT can be deducted immediately in the same VAT-return as input-VAT. This results in a “paper”-VAT, whereby the importing company only has to *report* the VAT and does not have to *pay* -so prefinance the import-VAT.
Brief overview of the base case: if the company does *not* have an Article 23 license, the import-VAT must be paid at the moment of import. If the company is importing its products in January, it pays the import-VAT in January and can deduct the paid import-VAT in the Q1 VAT-return that is filed one month after the relevant period; thus in April. The tax authorities must process the VAT-return and refund the import-VAT which can take between 4-6 weeks. Not having an article 23-license therefore results in prefinancing VAT for several weeks (or even months). And it needs no explanation that having refunds being “trapped” at tax authorities has a negative impact on the cashflow of the companies.
To obtain an Article 23-license, the Following Conditions must be met:
- The company is resident or established in the Netherlands;
- Foreign companies must appoint an tax representative;
- Goods are imported regularly;
- A separate administration is held to determine to total amount of import(-VAT).
To apply for an Article 23 License, a request must be send to the tax authorities in which the following information is mentioned:
- Full company name;
- VAT-number;
- Type of goods;
- Value of the goods;
- Frequency of imports;
- Country of origin;
- Full name, address and VAT-number of the tax representative.
Fiscal Representation: Access to the Article 23 License
Non-Dutch companies that make use of the Dutch ports and logistics infrastructure can benefit from the same VAT-benefits as local companies, such as the Article 23 License, provided that the company appoints a Dutch ‘Fiscal Representative’.
When a fiscal representative is needed, a tax registered company will be the local (Dutch) representative of the company and handles all the tax affairs in the Netherlands including filing tax returns, dealing with tax authorities and representing the company in any tax disputes.
There are two types of fiscal representation:
- Tax representation with a limited license
- Tax representation with a general license
Tax representation with a limited license
The limited tax representative acts on behalf of the non-resident company for – as the name already suggests – a limited number of transactions. This license can only be applied for the import in the Netherlands and the onward supply. The represented non-resident company does not have to register for VAT-purposes for those transactions, unless other taxable transactions are performed within the Netherlands; i.e.: intra-community- and localacquisitions. Because the represented non-resident company is not registered in the Netherlands for VAT, it is not able to file its own VAT-returns and therefore are the import and onward supplies included in the VAT-return of the representative. The representative has an unlimited liability for the VAT and is, if applicable, obliged to file statistical reports (Intrastat). This type of tax representation is most generally offered and used by freight forwarders and/or logistics firms.
Tax representation with a general license
The general tax representative acts on behalf of the non-resident company for all supplies and services for which the non-resident company owes VAT. The represented company will be registered for Dutch VAT-purposes and thus has its own VAT-number. All transactions, including the import, local and intra-community acquisitions) are included in one VAT-return of the represented company. The representative is limited liable for VAT and is, if applicable, obliged to file statistical reports (Intrastat). This type of tax representation is offered by VAT consultancy firms.
Want to know more? Or do you want a Fiscale Representative and an Article 23 License?
Feel free to book a spot and we can talk about what may work for you. It’s on us!.
