Avoid the use of a tax representative
Early in 2018, we were contacted by a chemical group established in South-East Asia. The group had already been active in Europe from a production facility in Germany since 2014. Because of the good financial results, they were looking for further expansion in Europe.
The first step was the large-scale import and resale of semi-finished products from Asia. Because of its geographical location and excellent infrastructure, they decided to choose the Netherlands as operating base.
In the import and resale of goods, the group was confronted with VAT-levy and import duties. Advised by their regular logistics partner, they contacted a general tax representative to handle tax liabilities in the Netherlands.
The advantage of this solution was that VAT-registration in the Netherlands was not necessary. A VAT-reverse charge mechanism could also be used for the imports to prevent any financing losses.
The main disadvantage of this solution concerned the considerable costs of the general tax representative and the required surety bond to submit the VAT-return. Moreover, this was no solution for the long term as there were also plans to start a production location and sales office in the Netherlands.
The challenge for us was to come up with a future-proof solution that prevented the considerable costs and the surety bond of tax representation, while keeping the VAT-reverse charge mechanism with imports in place.
Incorporate a private limited company in the Netherlands
To avoid the deployment and related costs of a tax representative, the group had to be registered in the Netherlands as VAT-entrepreneur and (possibly with the help of KroeseWevers) autonomously submit VAT-returns.
A mere VAT-registration posed a new problem, however, as in that case the VAT-reverse charge mechanism with imports could no longer be applied. The reverse charge mechanism may only be applied when a tax representative is used, or when the importing party is established in the Netherlands. The non-applicability of the VAT-reverse charge mechanism would mean that VAT would be due immediately on importing instead of through the regular VAT-return. This would result in a considerable financing disadvantage.
In view of the fact that the VAT-reverse charge mechanism with imports was a requirement for an adequate solution, it was eventually proposed to incorporate a private limited company in the Netherlands. Moreover, this solution tied in well with the plans to start a production location and sales office in the Netherlands.