Brexit – the major VAT and Customs consequences of the United Kingdom’s exit from the European Union

On January 1, 2020, the United Kingdom (UK) left the European Union (EU) on the basis of an agreement concluded with the EU.

The Brexit will change the VAT and customs rules in transactions between the EU Member States and British entities. Therefore, companies should adapt themselves smoothly for the upcoming changes, in order to secure their businesses.

MAJOR BREXIT VAT CONSEQUENCES

• FISCAL REPRESENTATIVE – please find more information here.

• INTRA-COMMUNITY DELIVERY OF GOODS (ICS) ➞ EXPORT OF GOODS
  • change of the conditions for the application of the 0% VAT rate – obligation to have an appropriate document confirming the export of goods outside the EU territory; such transaction must be endorsed by the competent customs authority.
• INTRA-COMMUNITY ACQUISITION OF GOODS (ICA) ➞ IMPORT OF GOODS
  • obligation to submit a customs (import) declaration;
  • obligation to pay VAT during the customs clearance;
  • the possibility of applying the simplification – upon meeting certain conditions the VAT is deferred to the VAT return.
• Notice! The above changes are not applied to the supply and purchase of goods in trade with Northern Ireland (NI). The rules of ICS and ICA transactions with NI have remained unchanged with all VAT consequences as they were before Brexit. There is also an obligation to use only in goods cross-border transactions a „XI” VAT TIN code assigned to NI.
• SIMPLIFIED INTRA-EU TRANGULSTION – UK VAT number cannot be longer used for triangulation simplification.

Before Brexit

Post-Brexit

• Triangular simplification – after Brexit, the triangular simplification will not be applied, as the condition of participation of three entities registered for VAT in three different EU Member States will not be met (if the British company does not have a different VAT registration). In consequence, the British company will be obliged to register for VAT in Poland and settle ICA from Germany, and then sell the goods as a domestic supply to the Polish taxpayer.

• Consequences for Polish companies, e.g. additional VAT registration in another country, may appear when the Polish company is the second entity in the chain (intermediary). Companies trading with the UK, particularly within the supply chain, will have to analyze the transactions they conclude and define the VAT consequences for new ones. In some cases, it may be necessary to register for VAT in another country, which will result in additional administrative costs.

• CALL OF STOCK – no possibility to use the call-of-stock procedure directly.
• SERVICES – for the majority of the services in B2B and B2C transactions UK’s exit from the EU will not change the place of taxation.

Notice!

The provision of certain services, such as legal, accounting, translation, advertising services in B2C transactions to consumers located in the UK will be taxed in the UK, and not in the country of the service provider as before Brexit.

• DISTANCE SELLING – trade in goods between Poland and the UK in the B2C sector will not be under the distance selling procedure. These transactions will therefore be treated as export/import of goods.
• TAX-FREE PROCEDURE – possibility to apply the procedure for a natural person.
• CHANGES IN VAT REFUND PROCEDURE
  • no possibility to submit a VAT-Refund application in electronic form – 8th Directive (Directive 2008/9/EC) will cease in order to obtain a VAT refund on purchases made in EU Member State and the UK;
  • VAT refund requests become subject to the rules set out in the 13th Directive (Directive 86/560/EEC) – the UK must comply with the principle of reciprocity.

• ARRANGEMENTS FOR COMMENCED TRANSACTIONS – EXAMPLES:
  • with regard to goods shipped/transported from the EU to the UK (and vice versa), where a shipment/transport has started during a transitional period and has ended thereafter – Directive 2006/112/EC will continue to apply;
  • VAT-Refund applications, until 31 March 2021, submitted under the existing rules specified in the 8th Directive (Directive 2008/9/EC).
• EORI – entrepreneur intending to trade in goods with countries outside the European Union must have an EORI number. It is indispensable for the submission of declarations and customs declarations as well as for all other formalities before the customs authorities. The UK’s EORI numbers (starting with GB prefix) will be canceled. Entities with such a number and intending to continue their activities subject to customs formalities need to obtain a new EORI number in one of the EU Member States. Polish entrepreneurs trading with Great Britain must apply for an EORI number in Poland, in order to keep continuation in supplies to the UK.