What is Limited Fiscal Representation (LFR)?

Under the EU's VAT system, importers who bring goods into an EU member state are generally required to pay VAT at the time of import

However, LFR allows importers who are bringing goods into one EU member state but selling those goods in another EU member state to import without paying VAT at the time of import. Instead, the VAT is deferred until the goods are sold in the destination member state.

To use LFR, the importer must appoint a fiscal representative in the member state where the goods are being imported. They are then responsible for ensuring that the VAT is paid when the goods are sold in the destination member state.

LFR can be a useful option for businesses that import goods into the EU regularly and sell them in another member state. It can help to reduce the upfront costs of importing goods and simplify the VAT compliance process for businesses.

Limited Fiscal Representation (LFR) can help to improve the importer's liquidity by allowing the importer to defer payment of VAT until the goods are sold in the destination member state. This can be particularly beneficial for businesses that import goods regularly and may not have the cash flow to pay VAT upfront.

LFR also has the added benefit of simplifying the VAT compliance process for businesses. Instead of the importer being held responsible for paying VAT and then seeking a refund at a later date, the limited fiscal representative takes on this responsibility and handles the payment of VAT when the goods are sold in the destination member state.

It's worth noting that LFR is only available at certain ports in the EU, including Belgium, the UK, and the Netherlands. Importers who bring goods into other EU member states will generally be required to pay VAT at the time of import.

It allows importers to defer payment of VAT until the goods are sold in the destination member state.

Here's a summary of the process:

1. The importer brings goods into an EU member state (e.g., the Netherlands) and appoints a fiscal representative in that member state.
2. The fiscal representative assumes responsibility for the VAT when the goods are imported into the EU.
3. The importer sells the goods to a buyer in another EU member state (e.g., Germany).
4. At the end of the month, the fiscal representative and the buyer in the destination member state (Germany) both report the transaction to their respective tax authorities.
5. Both tax authorities submit the transaction information to Intrastat.
6. If the information submitted by each party matches, the fiscal representative passes responsibility for the VAT to the buyer in the destination member state (Germany).

In this way, the importer can import the goods into the EU without paying VAT upfront, and it is instead paid when the goods are sold in the destination member state. This can help to improve the importer's liquidity and simplify the VAT compliance process.

Direct representation and indirect representation are two different types of customs representation that allow businesses to appoint a customs agent to handle customs declarations on their behalf.

In direct representation, the customs agent lodges a customs declaration in the name of and on behalf of the stakeholder (the business). The stakeholder is the declarant and is responsible for the declaration.

In indirect representation, the customs agent lodges a customs declaration in their name but on behalf of the stakeholder. The customs agent is the declarant and is responsible for the content of the declaration. Indirect representation is often used when the stakeholder is based outside the importing country and is not able to act as a declarant themselves.

Both direct representation and indirect representation are based on Article 18 of the Union Customs Code (UCC), which is the EU's legal framework for customs rules and procedures.

Now let’s discuss fiscal representation. It refers to the appointment of a tax representative in an importing country to handle a foreign entity's business with the tax and customs administrations.

There are two types of fiscal representation: general fiscal representation and limited fiscal representation.

General fiscal representation involves the appointment of a tax representative who acts on behalf of the foreign entity for all tax matters, including VAT. The tax representative is responsible for completing VAT returns and handling all aspects of the foreign entity's tax compliance in the importing country.

Please check Deferment or Postponed VAT Accounting for further information.

Limited fiscal representation, on the other hand, involves the appointment of a tax representative who is only responsible for VAT matters. The tax representative can take care of completing VAT returns and can apply the reverse-charge mechanism on import or postponed VAT accounting, where applicable.

In some EU member states, customs forwarding agents may act as limited fiscal representatives. This can be a useful option for businesses that import goods into the EU regularly and sell them in another member state, as it can help to reduce the upfront costs of importing goods and simplify the VAT compliance process.

Deferment or postponed VAT accounting refers to a mechanism that allows businesses to defer payment of VAT on import until they file their VAT return. This can be a useful option for businesses that import goods into the EU regularly, as it can help to improve cash flow by allowing the business to defer payment of VAT until a later date.

In the Netherlands, businesses can make use of deferred VAT at import by obtaining an Article 23 permit. As a foreign entity, you are not able to apply for an Article 23 permit yourself. However, you can appoint a tax representative and use their VAT number and Article 23 import license.

In the UK, businesses can make use of postponed VAT accounting by registering for VAT in the UK. If you are not VAT registered in the UK, you will need to appoint a representative.

Both deferred VAT and postponed VAT accounting can be useful options for businesses that import goods into the EU regularly, as they can help to reduce the upfront costs of importing goods and improve cash flow.