VAT implications for EU/UK business in case there's no Brexit deal

With the actual Brexit on 29 March 2019 closing in, there is (still) no deal reached between the EU and the UK. Where a few months ago we would have reassured you the Brexit would be ‘soft’, we have reason to be more careful now. Businesses are anticipating on a ‘hard brexit’, and so is the British government. Although still addressing a hard brexit as ‘an unlikely event’, the British Tax Authorities (HMRC) published guidance on VAT for businesses in case of a ‘no deal Brexit’. Read the highlights and possible solutions below.

EU/UK Trade in goods

The bottom line is that from a TAX perspective the UK will be considered as a non-EU country resulting in customs duties and import-VAT due upon import in EU/UK transactions in which goods are involved. Whereas for example a UK-business can zero-rate its sales to the EU as a intracommunity supply until 29 March 2019, after 29 March UK-businesses are confronted with the pre-financing of the import VAT in the state of the recipient.[1]  

The import VAT can of course be refunded assuming the UK-business is not (partially) exempt. However, the pre-finance of the import VAT remains, resulting in a cashflow disadvantage for the UK-business. We recommend that these businesses either set up a Dutch BV through which the EU-market is served, or appoint a fiscal representative combined with a ‘article 23 permit’. With this permit the payment of the import-VAT will be shifted to the company’s Dutch VAT-return. Where on the one hand this ‘shifted’ VAT will be declared, the same amount can be declared as deductible input-VAT. Thus, on balance resulting in a VAT-payable of nil with respect to the EU-import.

EU/UK Trade in services

The place of supply rules for services will remain intact. One of these rules regard the place of supply rules for digital services. These services are taxed in the country of the recipient of the service. To mitigate the administrative burden for companies the MOSS-system was introduced EU-wide. Under the MOSS-system a company can declare all its VAT in one tax return in its resident state. The resident state’s Tax Authorities will transfer the VAT to the various countries where the company sold digital services to. UK-businesses can still utilize this system but should register for the MOSS non-union scheme. This can only be done after the UK leaves the EU. The non-union MOSS scheme requires businesses to register by the 10th April 2019 if you make a sale from the 29 to 31 March 2019 following, and by 10th May 2019 if you make a sale in April 2019. Key dates to put on your calendar when this applies to your business.   

More information

In case you wish to make specific preparations for the (either hard or soft) Brexit, please contact one of our international business advisors Manuel de Jong or Erik Klop.