What will Brexit bring in VAT?

CURRENT BREXIT SITUATION

On January 2020 United Kingdom (UK) based on an agreement concluded with the European Union left EU. Nevertheless at least until the end of 2020, there is an exit transitional regulation period when the existing EU VAT regime, single market, and customs rules still apply. There is a possibility that the final Brexit date may be postponed.

The Brexit will change the VAT rules in transactions between the European and British entities. For example, intra-Community supplies and acquisitions of goods will be treated as an import and export to a third country. As a consequence, there will be a need to comply with additional customs formalities and gathering different documentation than for the purpose of the EU cross-border goods transactions. Therefore, entities should prepare for the upcoming changes if they want to continue the business activity in the UK and EU Member States.

MAJOR BREXIT VAT CONSEQUENCES

• FISCAL REPRESENTATIVE – the entrepreneurs from the UK will be required to appoint a fiscal representative for the purpose of VAT registration i.e. in Poland.
  
  The entities seated in third countries which are conducting or want to conduct VAT activity in Poland, but do not have their registered office, the fixed establishment in Poland has to appoint a fiscal representative who is responsible for the:
  • VAT settlement, including the preparation of VAT returns and EC sales/purchase lists,
  • other activities resulting if the fiscal representative is authorized in the contract.

!!!! Fiscal Representative is jointly and severally liable with the taxpayer for the tax liability that the fiscal representative settles for and on behalf of that taxpayer.

• INTRA-COMMUNITY DELIVERY OF GOODS – 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 export must be endorsed by the competent customs authority.

• INTRA-COMMUNITY ACQUISITION OF GOODS – IMPORT OF GOODS
  • obligation to submit a customs (import) declaration;
  • obligation to pay VAT from the import of goods transactions;
  • the possibility of applying the simplification – settlement of the VAT due on the import of goods directly in the VAT return – after meeting certain conditions.

• TRIANGULAR SIMPLIFICATION – UK VAT number can no longer be used for triangular simplification.

• CALL OF STOCK – no possibility to directly use the call-of-stock procedure.

• TAX-FREE PROCEDURE – possibility to apply the procedure for a natural person.

• 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.

• 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 UK;
  • VAT refund requests are 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).

Please note that the agreement’s negotiations about the final relations between EU and UK after Brexit are still proceeding. It means that the final agreement, if any, may have an impact on the scope of the VAT changes which can be potentially different in some cases.

If your company wishes to continue VAT activity in the EU Member States or intends to launch business activity especially in Poland and you need the support of our experts who can help prepare your company for upcoming changes, please contact us.