What is Limited Fiscal Representation (LFR)?

Limited Fiscal Representation (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 (Value Added Tax) at the time of import.

What's the benefit of LFR?

LFR improves the importer’s liquidity. Instead of the importer paying VAT upon entry into the EU and being refunded at a later date, VAT responsibility is passed to a limited fiscal representative before being passed to the buyer of the goods. Note that LFR can only be applied at ports in Belgium, the UK, and the Netherlands.

How does LFR work?

Upon import at the EU border, a customs broker with authorization as a limited fiscal representative will assume responsibility of the VAT. All other standard customs procedures will be followed and any import duties or customs fees will be paid as normal. At the end of the month, the customs broker and the buyer in the other EU member state will both report the transaction to their respective tax authorities. Both tax authorities will submit the transaction information to Intrastat (Intrastat is the system for collecting information and producing statistics on the trade in goods between countries of the EU), and if the information submitted by each party matches, the customs broker passes responsibility of the VAT to the buyer.

For example:

If a U.S. company is importing into the EU through the Netherlands but is selling those goods to a company based in Germany, a customs broker can assume responsibility of the VAT upon import. Once the matching transaction information has been submitted to Intrastat from both the Netherlands and Germany, the customs broker can pass VAT responsibility to the German buyer. In this way the U.S. company importing the goods did not have to pay VAT upon import and wait to be refunded.

Direct/Indirect representation

In case of direct representation, a customs agent lodges a declaration in the name of and on behalf of the stakeholder. The stakeholder is the declarant and, as such, responsible for the declaration. In the EU the basis for this kind of representation is Article 18 UCC.

In case of indirect representation, a customs agent lodges a declaration in his or her own name but on behalf of a stakeholder. A customs agent who acts as an indirect representative is the declarant and, as such, responsible for the content of the declaration. Indirect representation is particularly intended for situations where the stakeholder is established outside the import country. In that case, he/she will not be able to act as a declarant himself. In the EU the basis for this kind of representation is Article 18 UCC.

Fiscal representation

This is when foreign entity appoints a tax representative in the import country to handle their business with the Tax and Customs Administrations. If you do engage a tax representative then you will not usually be obliged to register yourself as a taxpayer for VAT purposes. There are two types of fiscal representation, General and limited. In very few EU member states (NL is an example) Customs forwarding agents sometimes act as limited fiscal representatives. The (limited)Fiscal representative can take care of completing VAT returns and can (where applicable) apply the reverse-charge mechanism on import or postponed VAT accounting.

Deferment/Postponed VAT accounting (art 23 NL and PVA in UK)

This term refers to the reverse-charge mechanism on wherein you are not required to pay the VAT on import immediately. The VAT can then be paid when you file your VAT return, offering huge cash flow benefits.

In the Netherlands, to make use of deferred VAT at import you will need an Article 23 permit. As 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 art. 23 import license You can read more about Article 23 Licence and its benefits here.

In the UK, to make use of postponed VAT accounting, your business needs to be registered for VAT in the UK. If you are not VAT registered in the UK you will need to appoint a representative. You can find more detailed information here.