Using fiscal and customs representatives in the EU saves on duty and VAT

December 28, 2022

The request

A major US online fashion retailer approached us to use our IOR service. An IOR service provides businesses with a solution in countries where they need to import or export goods, but do not meet the necessary legal requirements to do so.

The online retailer explained that they wanted to import goods directly into 26 European Union (EU) countries for onward delivery to their customers. The retailer’s goal was to speed up delivery times and to save on duty and VAT costs when clearing the goods in the respective countries.

The solution

After reviewing the fashion retailer’s requirements, Fiscal IOR used their expertise to advise the retailer that they should become the importer of the goods into the EU themselves. This change would allow them to clear the goods at their cost, rather than the ultimate selling price to their customers, which would lead to significant duty savings. Although they would have to charge customers VAT on sales, it would also allow them to claim back all VAT amounts paid both at import and on customer credit notes issued when goods are returned.

The retailer found that many customers ordered multiple sizes of the same products and returned unwanted items, therefore having the ability to issue credit notes and recover the VAT made significant costs saving.

However, when reviewing the implementation of this solution, the retailer found that in many countries of the EU, their customs broker was unable to act as an “indirect representative” for customs purposes. An indirect representative is an EU based company that acts as a guarantor for goods imported into the EU by non-EU entities. This company can act as the declarant of the goods where freight companies or their brokers cannot.

The good news was that Fiscal IOR had a solution to this problem and could team up with its parent company - Fiscal Solutions Ltd, to provide a complete end-to-end solution to the retailer.

How it worked

Fiscal Representation service

The fashion retailer became the importer of the goods by appointing Fiscal Solutions as their Fiscal Representative (“FR”) in all of the EU countries where the goods were imported. Fiscal Solutions was able to offer the FR service to the online retailer, by using their own subsidiaries in the relevant countries.

Appointing Fiscal Solutions as a FR, meant that the retailer was provided with:

  1. A facility to have a business address in the EU country of import, they could then apply for VAT registration
  2. Support with the submission of VAT and statistical return filing, in respect of their VAT registrations
  3. The ability to act as the importer of record and effectively import their own goods into the EU at the “cost price” rather than the ultimate “selling price” to customers, therefore resulting in the retailer paying less duties
  4. The ability to claim back all import VAT paid and enabling VAT on credit notes issued to their customers.

By appointing a FR, the retailer did not need to create a permanent retail premises in the EU, which meant that they did not have a liability to pay corporation tax.

Indirect Representation

By engaging an FR it allowed the company to clear the goods at a lower value, but did not remove the requirement for an Indirect Representative, so once set-up, Fiscal IOR was able to offer the retailer an indirect representative service. This was a simple process of the retailer appointing our EU entity as the declarant of the goods into all EU countries.

By providing this service, it meant that the ownership of the goods never changed and remained with the retailer. Allowing them to clear all of their goods into any EU country themselves and claim back any VAT that they incurred.

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