Recently, we outlined the need for speed in understanding fiscal representation obligations. As the UK looks set to become a third country from 1 January 2021, there will be many ramifications for businesses operating cross-border – among them the requirement to appoint a fiscal representative to register for VAT purposes.
As outlined in our previous piece, the deadline for the end of the transition period is fast approaching, and tax authorities’ capacity to authorise new fiscal representation applications is limited.
Whether your fiscal representation planning is in full swing or just beginning, there are considerations with regards VAT registrations, reporting and recovery to be aware of.
Fiscal representation and VAT registrations, reporting and recovery
In most EU nations, the act of securing fiscal representation doesn’t affect changes to a company’s VAT number. However, tax authorities will require up to date and comprehensive information for the fiscal representation process and may require resubmission of information already provided for the original VAT registration application.
But what is likely to undergo significant change is the nature of transactions taking place post-Brexit. While in principle transactions will be reported in the same way as before, the transactions carried out could change because of Brexit. So, any fiscal representatives appointed will need an in depth understanding of a business’ accounting processes and procedures.
The requirement to file additional declarations is unchanged by the appointment of a fiscal representative. However, as noted above, transactions may change post-Brexit, and these changes will impact on the requirement for additional declarations. Businesses will need to fully review and contingency plan for this potential impact, considering their supply chains and any UK – EU transactions, in addition to potential reporting requirements.
A question on the top of the agenda for many is how VAT registrations will be affected by Brexit. Much depends on the business in question – not all UK businesses will have a requirement to be registered for VAT in the EU Member States post-Brexit. Those who are not required to register may find that VAT in the EU is incurred, and thus must be recovered to reduce costs.
This is where things get more complex. To recover VAT in some countries where there is not requirement to be VAT registered, fiscal representation is required. The process for appointing fiscal reps and the documentation needed varies nation to nation. But broadly speaking, recovery will be under the 13th Directive. Aside from the 13th Directive’s lengthy paper based systems, the issue here is likely to be reciprocity. The principle of reciprocity means that a Member State can deny recovery of VAT if the country of the claimant doesn’t allow recovery by businesses from the Member State where the VAT is incurred. Each Member State applies reciprocity in different ways which adds to the complexity. We’re in uncharted territory here, as so far 13th Directive claims haven’t been made by UK companies. It’s essential that companies operating in EU nations review local VAT positions before incurring significant amounts of VAT.
In conclusion, fiscal representatives are likely to be an ongoing feature of cross border EU-UK trade. Though fiscal representatives themselves are unlikely to mean that VAT registration and reporting change, Brexit itself may alter the way transactions are carried out and need to be reported. Where businesses should invest time and effort is in considering recovery in the nations that they operate in, as significant changes to how VAT recovery occurs may take place.
Keen to know how Brexit will impact your VAT compliance obligations? Download our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.