Brexit & VAT: Questions and Answers

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Brexit & VAT: Questions and Answers

The potential VAT impacts of a Brexit keeps businesses busy. Due to increasing number of our VAT E-Learning participants we have now prepared the following brief overview on the most relevant VAT aspects to be considered after the Brexit.

What is this “Brexit & VAT” – Q&A about?

The Brexit will affect businesses which transport goods or supply services to the UK or receive goods or services from the UK.

Our Q&A-overview is a brief summary of the main new VAT rules applicable after Brexit. However, certain details particularly relating to the new UK VAT rules are still unclear yet. Therefore, the Q& A can only address the VAT rules as far as they are known yet. It will also shortly mention the relevant customs aspects. For more information on the customs handling we recommend the “No-Deal Readiness Report” published by the UK government in October 2019. This report consists of 159 pages and covers several business scenarios. You can find the report HERE

 

General remarks

It is understood that from Day 1 (00:00 CET) after Brexit, the UK is basically disconnected from all EU IT systems, including for operations that have started before the withdrawal date.

From a VAT and Customs perspective, UK then qualifies as a non-EE and third country respectively. This has particularly the effect that certificates and authorizations issued by UK under EU Law become invalid. This for example concerns import and export Licenses, Authorised Economic Operator (AEO) certificates and authorizations for customs simplifications and procedures.

UK VAT Identification numbers do no longer qualify as EU VAT Identification numbers. However, according to the UK government UK businesses will be able to continue to use the EU VAT number validation service (VIES) to check the validity of EU business VAT registration numbers. Parallel to this, the MRC is developing a service to enable that UK VAT numbers can continue to be validated.

Transport of goods from an EU state to the UK

Post-Brexit VAT rules – Basics

In the EU state of origin

  • the transports of goods will be subject to customs procedure rules and require an export declaration.
  • VAT wise, these transports qualify as exports and are VAT relevant in the state of origin as the transport starts here. This is both valid for supplies to business customers and consumers. Particularly, the current distance selling rules for EU supplies to consumers are no longer applicable.
  • These exports can be VAT free if the respective legal requirements are fulfilled. One requirement is the proper documentation of the export in form of export customs documents.
  • former EU deemed supplies are no longer possible. If goods shall only be temporarily transported to the UK for processing purposes and subsequently return, this transport will be subject to the outward processing procedure.
  • For transit transports through the UK, please find more information in this overview provided by the EU Commission:  Brexit Transit business scenarios

In the UK

  • the transport will be subject to import formalities. Depending on the kind of transaction and applicable customs procedure, an import declaration is required, and custom duties may apply. The import declarations will have to be lodged and customs authorities may require guarantees for these potential or existing customs debts.
  • A new UK Import tariff system will apply.
  • the importer of the goods neds either to be established in the UK or engage an UK customs agent acting on his behalf. If an EU business imports the goods with the support of an agent, it needs to be VAT registered in the UK.
  • Import VAT may occur if no respective exemption applies. The Import VAT is basically payable when the import is declared. However, an exemption applies to businesses which are VAT registered in the UK. In this case, it is possible to postpone declaring and paying UK import VAT until the next VAT return.
  • Sales within the country will be subject to new domestic VAT rules. However, according to the UK government “the VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now”. For further information please see https://www.gov.uk/government/publications/vat-for-businesses-if-theres-no-brexit-deal/vat-for-businesses-if-theres-no-brexit-deal

Additionally, certain goods may be subject to import prohibitions or restrictions. As a result, EU export or UK import licenses might be required.

Refund of UK Import VAT

UK Import VAT occurs (1) if goods are imported in the UK and (2) if no VAT exemptions apply. The Import VAT is basically payable when the import is declared. For UK VAT registered businesses the declaration of Import VAT and payment can be postponed until the next VAT return. The business can also recover the import VAT on the same return if the respective refund requirements are fulfilled. Import VAT can be recovered if the goods are imported for use in the business and the UK VAT registration number or UK EORI Number is shown on the customs declaration.

Caution! A tax refund can only be claimed by the owner of the imported good. No refund is basically possible for non-owners. This for example applies to UK toll manufactures who do not become owners but nonetheless declare the import and pay import VAT. For more information on this and similar constellation the Guideline published by the UK HRMC

https://www.gov.uk/government/publications/revenue-and-customs-brief-2-2019-vat-import-vat-deducted-as-input-tax-by-non-owners

For more information on the Import VAT refund in general click HERE https://www.gov.uk/guidance/accounting-for-import-vat

Transports in the transition phase

But how will those transports be handled which start in the EU before the Brexit day and arrive at the UK on or after the Brexit? According to the VAT Committee of the EU Commission, these transports shall not be as EU supplies with corresponding EU acquisitions but as  (exports with corresponding) imports importation of these goods.

What you have to do

  • Make your business familiar with the EU export and UK import rules.
  • Define with your UK counterparty who is responsible for the export and import formalities.
  • If your business had no exports yet, you need to register it with the national customs authority (Please find here a list of local customs authorities per EU state).
  • To export goods out of the EU, you need an EORI number of your EU state.
  • To import goods in the UK, you need an UK EORI number.
  • If you are an EU business and plan to import the goods you need an UK representative and customs agent respectively. You will also need to be VAT registered in the UK.
  • Check which EU export and UK import formalities apply and collect the respective documents.
  • If you are an UK established importer you may want to register for transitional simplified procedures and set up a duty defer account.
  • The exchange of information between economic operators and customs authorities are carried out electronically via the ATLAS system. You will therefore need to be accordingly registered for this system and require a certified software.
  • The transport of excise goods from will have to be released from customs formalities before a movement under Excise Movement and Control System (EMCS) can begin.

Please find HERE more information on the import of goods to the UK.

Transport of goods from the UK to an EU state

Post-Brexit VAT rules – Basics

In the UK as state of origin

  • the transports of goods will be subject to customs procedure rules and require an export declaration. VAT wise, they will qualify as exports. This applies to both sales to businesses as well as private consumers. The former EU distance selling rules for supplies to consumers are no longer valid.
  • Both export sales to businesses and consumers can be VAT free if the respective requirements according to the new UK VAT rules are fulfilled.
  • a new UK Export tariff system will apply.
  • former EU deemed supplies are no longer possible. If goods are transported to the EU for processing purposes and shall return this is will be subject to inward processing procedure.

In the EU destination state

  •  the transport will be subject to import formalities. Depending on the kind of customs procedure, an import declaration is required and custom duties as well as EU Import VAT may apply. The import declarations will have to be lodged and customs authorities may require guarantees for these potential or existing customs debts.
  • An import requires that the importer of the goods is either established in the EU or engages an EU customs agent acting on his behalf. If an UK business imports the goods with the support of an agent and then sells the goods within the EU, it needs to be VAT registered in the EU. The registration country is the country in which the goods are released for free circulation. However, depending on the kind of transaction and applicable VAT rules it may also be required to be VAT registered in another EU state. This may for example be relevant under the EU distance selling rules and in case of sales to consumers from the EU import state to another EU state.
  • Import VAT may apply if no respective exemption applies. The Import VAT is basically payable when the import is declared. Under certain circumstances, businesses which are VAT registered in the EU importer state may be able to postpone declaring and paying the Import VAT until the next VAT return. The requirements depend on the VAT rules of the specific EU state and need to be individually checked.

Additionally, certain goods may be subject to UK export and EU import prohibitions or restrictions. As a result, respective export or import licenses might be required.

Refund of EU Import VAT

The refund of Import VAT paid in an EU member state is subject to the local VAT rules in the individual EU member state. If the Importer is VAT registered in the Import state, some countries allow for a postponed declaration of the Import VAT to the next VAT filing where the business can also claim a corresponding VAT refund.

Transports in the transition phase

Which rules apply to transports which start in the UK before the Brexit day and arrive in the EU on or after the Brexit? According to the VAT Committee of the EU Commission, these transports shall be handled as imports in the EU and not as intra-Community acquisition of goods.

What you have to do

  • Define with your EU counterparty who is responsible for the export and import formalities.
  • If your business had no exports yet, you need to register it with the UK customs authority and apply for an UK EORI number.
  • Check which UK export and EU import formalities apply and collect the respective documents.
  • The Export of certain goods is subject to special export controls. Click HERE for more information
  • To import goods in the EU, the importer needs an EU EORI number. If you are an UK business and plan to import the goods you need an EU representative and customs agent respectively. You also need to be VAT registered in the EU import state.
  • The exchange of information between economic operators and customs authorities are carried out electronically via the ATLAS system. The economic operator must therefore be accordingly registered for this system and requires a certified software.
  • The transport of excise goods from will have to be released from customs formalities before a movement under Excise Movement and Control System (EMCS) can begin.

Please find  HERE more information on the export of goods out the UK.

Supplies of services from an EU member state to the UK

Services of an EU supplier to UK entrepreneurs

Services towards a non-domestic entrepreneur are in general not VAT relevant in the supplier state. This also applies to UK receivers after the Brexit. There are, however, some exemptions from this principle:

  • First, the specific service must not be subject to a special regulation with stipulates a domestic VAT relevance. This for example applies to services connected to local immovable property in the meaning of Article 45 VAT Directive. In such a case, the entrepreneur may be obliged to charge local VAT. The receiver may then be entitled to a corresponding VAT refund. For more information please see the below section “Refund of foreign VAT post-Brexit”.
  • Secondly, the supplier must be able to document that the receiver is an entrepreneur receiving the service for his business. These circumstances are indicated by the fact that the receiver uses a valid foreign VAT Identification number towards the supplier. However, UK VAT Identification number become invalid after the Brexit. Thus, the supplier will now document these circumstances by other means. The appropriate means depend on the individual case and on the kind of service supplied. The documentation that the receiver is an entrepreneur can for example be documented by an excerpt of the commercial register.

Services of an EU supplier to UK private consumers

Services towards private customers are basically tax relevant in the resident state of the supplier. However, after Brexit UK private consumer will qualify as non-EU consumer. The supply of certain services towards these kinds of customers are only VAT relevant in the customer country. This applies to

  • Services in the meaning of Article 56 VAT Directive; and
  • Telecommunication, broadcasting and electronically supplied services.

It is assumed that the entrepreneur will need to charge UK VAT and will be taxpayer in the UK. Therefore, he needs to be accordingly VAT registered. Particularly, it is no longer possible to apply for the reliefs under the MOSS-procedure.

Supplies of services from the UK to an EU member state

Services of an UK supplier towards an EU-entrepreneur

According to the UK government, the VAT rules for services supplied after Brexit shall remain the same. For more information see https://www.gov.uk/government/publications/vat-for-businesses-if-theres-no-brexit-deal/vat-for-businesses-if-theres-no-brexit-deal

This means that services of an UK entrepreneur to a non-domestic entrepreneur are in general not VAT relevant in the UK. There are, however, some exemptions from this principle:

  • The specific service is subject to a special regulation with stipulates a domestic VAT relevance. This for example applies to services connected to local immovable property. In such a case, the UK entrepreneur may be obliged to charge local VAT. The UK receiver may then be entitled to a corresponding VAT refund in the UK.
  • The UK supplier cannot document that the receiver is an entrepreneur receiving the service for his business.

Services of an UK supplier to EU private consumers

Services towards EU private customers are basically tax relevant in the resident state of the UK supplier.

However, for digital services to non-business customers in the EU the ‘place of supply’ will continue to be in the customer country. This means that the supplier must charge the customer country’s VAT and basically needs to be VAT registered in this country. It is no longer possible to use the UK’s Mini One Stop Shop (MOSS) portal to centrally report and pay the VAT for the different EU customer countries in one filing. If a business wants to continue to use the reliefs under the MOSS procedure it will need to register for the VAT MOSS non-Union scheme in an EU member state. This is only possible after the Brexit. The non-Union MOSS scheme requires businesses to register by the 10th day of the month following a sale. For further information please see the ​EU Commission’s website.

How to claim back foreign VAT?

UK businesses can still claim back foreign VAT paid in an EU member state. This will however no longer be possible via the EU VAT refund system. Instead, UK businesses will need to send an application to the national tax authorities in the EU country where they incurred the VAT. For more country information please click  HERE

To claim a refund of VAT paid in the UK, EU businesses will need to send an application to the HMRC. If the business is VAT registered in the UK a VAT refund can be claimed in the UK VAT filing.

 

 

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