You are a British company – not established in Northern Ireland – and you have European clients.
Naturally you wonder about the concrete VAT consequences of Brexit, which will be fully applicable in less than 3 months:
- Will you have to issue sales invoices with a European VAT as from January 1st,2021?
- Will it be necessary to register for VAT in one or several EU countries?
- Will the appointment of a local tax representative be mandatory?
- What will be the impact of Brexit on my local UK VAT return?
The answer to all these questions will depend on many parameters. In international trade of goods, the risk of slip is significant and Brexit is a perfect illustration of this.
To better understand this, let's take a fairly simple starting situation: your company sells a batch of goods to a French company (B2B relationship) for a total amount of € 100,000. The forwarder acting on your behalf loads your goods onto his truck and delivers them to your French customer's warehouse.
Until December 31st , 2020, this operation is to be considered as a zero-rated intra-EU supply of goods for your company in the UK and as an intra-EU acquisition of goods taxable in France for your French customer, with the following practical consequences :
- Your invoice must be drawn up without local VAT and include the FR VAT number of your customer;
- The sale must be included in your periodic VAT return as an intra-EU sale;
- The sale must also be reported in the intra-EU listing ;
- The sale must be reported in the Intrastat listing .
In addition, it is essential for your company to keep evidence of the transport of the goods from the United-Kingdom to France so that the zero-rate is not called into question by the local Tax Authorities during a VAT audit.
From January 1st, 2021, usual VAT rules are going to be radically modified and you will imperatively have to think “out-of-the-box” !
The change in your local VAT obligations
From January 1st, 2021, all EU Member States will be considered as third countries from a UK perspective. This is to affect the VAT rules. The simplest business transaction with a European customer will have unprecedented VAT consequences for your company after Brexit. What used to be a simple intra-EU supply of goods becomes an export supply and leads to the following changes :
- Your invoice will have to be drawn up without local VAT and will no longer have to include your customer's European VAT number;
- The sale will not be considered as an intra-EU supply anymore but an exportation;
- The sale should no longer be reported in the intra-EU listing of goods.
It is also essential that your company keeps the customs export document (“SAD”) showing the exit of goods from the territory of the UK, so that the zero-rate is not disputed by your local Tax Authorities.
An essential VAT question after the Brexit: who, your company or the European customer, is the importer of records ?
Who says export from the UK correlatively says import to the European Union. From January 1st, 2021, the main VAT question will not be in which box of your VAT return the sale to your European customer should be included, but who, of your company or your European customer, should be regarded as the importer when clearing the goods through the Customs in the EU.
The mistake would be to naively think that everything concerning the EU must undoubtedly be settled by your EU clients. Just imagine their reaction when you explain to them that the transport of your goods does not stop at their premises but at the border between the UK and the EU and that the administrative burden of the customs clearance as well as their subsequent shipment to the final destination is placed now under their responsibility.
Under those circumstances, Brexit will have no VAT impact for your company since you will not probably have EU customers anymore!
Only one commercially acceptable solution: your company is the importer !
In reality, there seems to be only one commercially acceptable alternative for your EU customers: your company will have to act as the importer when the goods are cleared through customs in the EU.
Importing your goods into the EU will entail specific customs formalities for your company as well as an obligation to register for VAT in the country of importation and to comply with the related VAT obligations: payment of local VAT, filing of local VAT returns, keeping specific VAT accounting books. It should be noted that UK companies with taxable activities in the EU are required to appoint a fiscal representative in most countries.
Are you importing into the European Union ? Ask for our checklist
From January 1st, 2021, all Member States of the EU will be considered as third countries for VAT purposes and the intra-EU supply will be transformed into an export supply. This will result in a change to your current local VAT obligations. In addition, your company will more than likely have to be designated as the importer when clearing your goods through customs in the EU for commercial reasons. The immediate consequence of this will be new VAT obligations to be met in Europe.
If you are in the situation described above and would like to obtain the checklist of your customs and VAT obligations in the EU, click here.