Thanks to a number of geographical, cultural and social factors, the Netherlands has traditionally stood out as an attractive country for setting up a business location. The relatively favorable tax climate also plays an important role in the decision making process.
VAT, for instance, has a major impact on the cash flow of companies. In principle, a company is entitled to a refund of the VAT amount it incurred. However, several months can elapse before this VAT can be reclaimed via the periodical VAT return. Depending on the member state of the European Union (‘EU’) involved in the refund application, the refund of foreign VAT can even take more than a year.
Another example of a negative impact on cash flow can occur when companies import goods in the the EU. These companies are faced with paying import VAT that they can only reclaim in their VAT return (retroactively) or via a separate, time-consuming, refund application. The consequence is that companies must pre-pay import VAT, which adversely affects their cash flow. In this context, a small number of EU member states have introduced arrangements to defer payment of VAT due at importation.
Companies that are established in the Netherlands can apply for a so-called “Article 23 license”, which allows them to defer the payment of import VAT until the moment of filing the periodical VAT return. The VAT then can be declared as payable on the return, whereby the same amount is immediately deducted as input VAT. In sum, VAT does not have to be pre-financed (+/-). Without this license, the import VAT due would have to be paid immediately at the border, after which this VAT can be reclaimed via a time-consuming refund application or via the periodical VAT return. As already mentioned, it can take months or sometimes even more than a year for this VAT to be refunded. A VAT deferral license can be granted to businesses established in the Netherlands, but also to foreign businesses that are not established in the Netherlands but have appointed a fiscal representative for VAT purposes in the Netherlands. Trade and tax acts as such (i.e. fiscal representative with a general license in the Netherlands).
In almost all EU member states, VAT due at importation must be paid to the tax and customs administration at, or around, the moment of importation. Postponed accounting does not apply in countries like Germany, Ireland, Italy, Spain, Sweden and the United Kingdom. It applies in some other countries, but only under very strict conditions and in specific situations. Only Belgium provides for an arrangement similar to the one in the Netherlands, where the payment of import VAT due can be deferred to the time when the VAT return is filed.
The VAT Directive gives EU member states the option of granting a VAT exemption on importation of goods that will be transported to another EU member state immediately after importation. For goods that will be stored or sold in the EU member state into which they are imported, the is no VAT exemption on importation. It, however, is possible to (temporarily) suspend payment of import duties and VAT due upon importation.
When goods arrive in the EU, a company can decide to store the goods in a “customs warehouse”. Customs warehousing is available in all EU member states, but the practical formalities vary per country. In this scenario, payment of import VAT and import duties is suspended until the moment of removal of the goods from the warehouse. The temporary suspension of duty and VAT payment will result in a cash flow advantage. Ultimately these charges become due. However, if the destination of the goods in kind is not known upfront, storing the goods under customs bond could be beneficial. If these are subsequently transported to non-EU destinations, nog customs duties and VAT become due at all.
Based on the above, it can be concluded that geographical and logistic factors are not necessarily the only valid reasons for importing goods via the Netherlands. The fact that import VAT due does not have to be pre-financed can play a major role in the decision to route a flow of goods via the Netherlands.
An additional factor, the importance of which should not be underestimated, is the difference in the interaction with the various tax and customs administrations amongst the EU. Some tax and customs administration take a very formal approach, whereas other administration are very much open to dialogue. The Dutch tax and customs administration belongs to the latter. They are well-known for their pro-active approach and high service level. They are also receptive to confirm certain arrangements in writing, which guarantees certainty (upfront) for taxable entities. This is seen as a very valuable incentive and is often a reason, besides the favorable VAT treatment at importation, for companies to select the Netherlands as their gateway to Europe.
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