The change in your local VAT obligations
You have British customers and you naturally wonder about the concrete VAT consequences of Brexit, which will be fully applicable in about one month:
- Will you have to issue sales invoices with British VAT as from January 1st,2021?
- Will it be necessary to register for British VAT as a precautionary measure?
- Will the appointment of a local tax representative be mandatory?
- What will be the impact of Brexit on my local VAT return?
The answer to all these questions will depend on many parameters. In international trade of goods, the risk of swerving 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 an British company (B2B relations) for a total amount of € 100,000. The carrier acting on your behalf loads your goods onto his truck and delivers them to your British customer's warehouse.
Until December 31st , 2020, this operation is to be considered as an intra-Community supply of goods exempt from VAT in your country for your company and as an intra-Community acquisition of goods taxable in the country of arrival for your British customer, with the following practical consequences :
- Your invoice must be drawn up exempt from local VAT and include the British 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 an intra-EU listing ;
- The sale must be reported in an Intrastat listing .
In addition, it is essential for your company to keep evidence of the transport of the goods from your country to the United-Kingdom so that the VAT exemption it claims on its sale is not called into question by your local tax authorities during a VAT inspection.
The change in your local VAT obligations
From January 1st, 2021, traditional VAT rules are going to be radically modified and you will imperatively have to think “out-of-the-box” !
From January 1st, 2021, the United Kingdom will be considered as a third country for VAT purposes. This will change the VAT rules. The simplest business transaction with an British partner, in this case an intra-Community supply of goods, will have unprecedented VAT consequences for your company after Brexit. What used to be a simple intra-Community supply of goods becomes an export of goods and leads to the following changes in your country :
- Your invoice will have to be drawn up exempt from local VAT and will no longer have to include your customer's British VAT number;
- The sale will have to be included in the box for exportation and not in the box relative to intra-EU supplies anymore;
- The sale should no longer be reported in the intra-EU listing of goods.
- The sale will no longer need to be reported in your Intrastat statement.
It is also essential that your company keeps the customs export document showing the exit of its goods from the territory of the EU, so that the VAT exemption it claims on its sale is not called into question by your local tax authorities during a VAT inspection.
An essential VAT question after the Brexit: who, your company or its British customer, is the importer?
Who says export to Europe correlatively says import to the United Kingdom. From January 1st, 2021, the main VAT question will not be in which box of your VAT return the sale to your British customer should be included, but who, of your company or your British customer, should be identified as the importer when clearing your goods through customs in the United-Kingdom.
The mistake would be to naively think that everything concerning the United-Kingdom must undoubtedly be settled by your British client. Just imagine his reaction when you explain to him that the transport of your goods does not stop at the doorstep of his warehouse but at the border between the EU and the UK and that the administrative burden of clearing your goods through customs as well as their subsequent journey to the final destination is now his responsibility.
In this configuration, Brexit will have no VAT impact for your company since it will probably no longer have any British customers!
Only one commercially acceptable solution: your company is the importer!
In reality, there seems to be only one commercially acceptable alternative for your British partners: your company will have to act as the importer when the goods are cleared through customs in England.
Importing your goods into the UK will entail specific customs formalities for your company as well as an obligation to register for VAT in the UK and to comply with the related VAT obligations: payment of British VAT, filing of periodic VAT returns, keeping specific VAT accounting books. It should be noted that foreign companies with taxable activities in the UK are required to use a certified British accounting software to manage their VAT obligations. Failure to do so may result in heavy administrative penalties.
Are you importing into the European Union ? Ask for our checklist
From January 1st, 2021, the United Kingdom will be considered as a third country for VAT purposes and the intra-Community supply will be transformed into an export. 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 an importer when clearing your goods through customs in the UK for commercial reasons. The immediate consequence of this will be new VAT obligations to be met in England.