Fiscal Representation - What Is It and Do You Need It?

If you or your company provides goods or services in a foreign country, there may be a requirement to appoint fiscal representation there to look after possible VAT obligations. So, what exactly is it, and do you need it?

What is fiscal representation?

A fiscal representative acts as a liaison between a person/company and the tax authorities in a foreign country. They verify the accuracy of all declarations made by overseas clients and take responsibility for the handling of tax and administrative obligations such as VAT registration, filing, and payment. This fiscal representative, also known as a tax representative, allows non-EU companies to trade in countries where fiscal representation is mandatory.

The fiscal representative must be established in the country in question and will be jointly liable for any VAT owed by a company, which is why they must provide financial security. In order to qualify for a license as a fiscal representative, there are strict requirements that must be met. These fiscal representatives can be tax advisors, lawyers, auditors, or accountants.

When does a company need a fiscal representative?

Any non-EU company trading within the EU must have a fiscal representative acting for them in the country that receives the imports. They will need to be EU VAT registered in that country before they begin importing/selling, and a fiscal representative will be able to help them with this.

Up until 2003, EU countries trading across EU borders were also required to appoint fiscal representation. Now, this isn’t necessary and EU businesses can register directly with the tax authorities in the relevant country. While EU-based companies aren’t usually expected to have fiscal representation in another EU country, it is recommended as navigating a foreign tax authority and language can be difficult, often causing unnecessary complications for businesses.

The situation for UK companies is now slightly different following Brexit, with some EU countries insisting that businesses based in the UK have fiscal representation. The EU-UK Mutual Assistance Protocol, agreed upon by the EU and UK on December 24th, 2020, sets out, in principle, that the UK can be exempt from the need for fiscal representation. However, in practice, this is not always the case.

France, Italy, and Cyprus, for example, do not require fiscal representation for UK businesses, whereas Greece, Hungary, and Portugal are just a few of the EU countries that do. On the other hand, under most circumstances, it is not mandatory for EU or non-EU businesses to appoint a fiscal representative in the UK.

Other countries outside of the European Union that allow foreign companies to trade with them following the appointment of a local fiscal representative include Norway, Switzerland, Iceland, and Japan.

What does a fiscal representative do?

Once the fiscal representative has been appointed, they will be jointly responsible for paying any EU VAT owed on items sold by the non-EU company within the EU. They must therefore make sure that all VAT compliance requirements are met. A fiscal representative has the following duties:

• Ensuring the business is fully registered with the relevant tax office for EU VAT purposes.
• Maintaining compliance regarding invoicing, VAT returns, VAT rate application, and exchange rates.
• Completing VAT returns and any other filings that might be necessary.
• Keeping records according to the requirements and obligations laid out by the specific EU Member State.
• Dealing with fines, penalties, and any other duties associated with the importation of goods.

They will be the intermediary between you/your company and the local tax authorities. While the above refers to non-EU businesses operating within the EU, the responsibilities are generally the same with regard to fiscal representation in other countries.

Benefits of fiscal representation

Perhaps the most important function of a fiscal representative is in helping traders avoid penalties. When importing into the EU (or elsewhere), the import VAT and customs procedures can result in a significant administrative burden. Also, if you’re planning to import your goods into one EU country and sell to another, the process for reclaiming import VAT can take a long time. Local fiscal representatives are well able to handle these tasks quickly and efficiently, ensuring that your cash flow is protected.

Also, once you’ve appointed a fiscal representative locally within some EU Member States, it’s possible to apply for specific import licenses and benefit from a variety of cash flow simplifications.

Even if your company is EU-based, dealing with multiple Member States, each with its own tax formalities and procedures, can be difficult, particularly when you don’t know the language. Having local representation is extremely useful in these situations as they will handle all communication and tasks on your behalf.

If you would like to find out more about our Fiscal Representation and VAT Compliance services, email us at mycompliance@taxually.com and we’ll arrange a free call with one of our VAT experts.