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September 2020

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We have set out below some of the practical post-Brexit cross-border EU VAT registration implications, which we believe that the UK businesses should consider carefully and start taking the relevant actions already now with regards to their business activities carried out on the EU market post 1 January 2021.

Obligation to appoint a fiscal representative – UK established companies with existing VAT registrations in some EU Member States

EU states have the right to insist that non-EU taxpayers that are VAT registered in their jurisdiction to appoint a local entity to be jointly and severally liable for their tax debts. From 1 January 2021 UK businesses VAT registered in the EU will fall into this regime. Unfortunately, because this involves the local representative taking on board a significant risk, it usually comes at a cost. One can think of it as a type of insurance premium, except it’s the government’s risk that is being insured! Not all EU states enforce this provision, but among the key ones that do are Belgium, France, Italy, Poland, Spain and Sweden. UK companies registered or registering there will have to bear this obligation in mind and find a fiscal representative prior to this year end.

Obligation to register for VAT in EU Member States

As of 1 January 2021 the UK will no longer be part of the EU Single Market. This means not only that controls will be placed on the movement of goods between Great Britain and the EU but also that certain cross-border transactions will need to be accounted for and reported for VAT purposes in a different way, as a result of which in many cases creating an obligation for the UK sellers to register for VAT in the EU countries, into which the goods will be delivered to.

The examples of such transactions are as follows:

  1. UK companies selling goods B2B from the UK to EU customers on delivery terms, like for example Delivery Duty Paid (DDP) Incoterms, making the supplier of the goods liable for customs duties (if any) and import VAT in the EU country of the delivery of the goods to the customer.
  • Currently such B2B intra-EU deliveries of goods do not require UK businesses to register for VAT in the country of the arrival of the goods as the EU customer self-accounts for the VAT due as intra-EU acquisition VAT in its local VAT return.
  • From January 2021 such DDP supplies made from the UK will no longer be considered as intra-EU supplies and, for VAT purposes, they will be broken down into an importation of goods followed by a domestic supply made in the country of the importation of the goods. The latter transaction will make the supplier liable to register for VAT in most of the EU countries, in which the goods will be imported. Please contact Essentia should you require a review of your business’ existing flows of the goods and the terms of your supplies.
  1. UK online retailers of goods (companies selling goods B2C) from the UK to EU consumers on Delivery Duty Paid (DDP) Incoterms.
  • Currently UK businesses can charge the UK VAT up until reaching the so-called distance selling threshold of the EU country, to which goods are delivered to the customers. The distance selling thresholds are set at EUR 35,000 or EUR 100,000.
  • From January 2021 such DDP online sales of goods fulfilled from the UK will no longer be within the EU VAT distance selling regime and therefore the distance selling thresholds will no longer be applicable to such transactions. This means that the UK online retailers will be required to VAT register in every single EU Member States, to which the orders will be fulfilled, regardless of the value of such sales.
  1. UK B2C sellers of digital services to consumers in the EU
  • Currently UK companies can account for the VAT on such supplies in their UK MOSS VAT Declarations.
  • From January 2021 UK companies will either have to register for VAT in each individual EU Member State, in which the recipients of their digital services reside or, alternatively, UK companies will be able to register for MOSS VAT purposes in one EU Member State of their choice and report their pan-EU digital supplies through those EU country’s MOSS VAT Declarations.

Due to the fact that Q4 2020 will be an extremely busy time for the local tax administrations to process the enormous amount of the additionally required VAT registration applications of the UK companies (on top of their current workload), we strongly recommend that the UK businesses take an immediate action and proceed with setting up the new required EU VAT registrations now to avoid disruptions to their business activities as well as penalties & interest arising from the delays in obtaining the new VAT numbers.

If you have any queries on the above, please get in touch with either your regular Essentia or Quipsound contact, or alternatively Marta Gałązka (+44 203 713 3535; marta.galazka@essentiaglobalservices.com)

Canadian province of British Columbia

As of 1 April 2021 foreign suppliers of digital services like software to consumers residing in the Canadian province of British Columbia will be required to register and charge the British Columbia’s Provincial Sales Tax (PST) at a rate of 7% once their revenues from making those sales exceed CAD 10,000.

British Columbia becomes the third Canadian province – after Quebec and Saskatchewan – imposing provincial sales tax obligations on non-resident sellers of B2C e-services.

Ecuador

Starting from 16 September 2020, 12% of Ecuadorian VAT will need to be remitted on B2C sales of digital services made to consumers in Ecuador by the non-resident suppliers included on the Ecuadorian tax authorities list. The list of the affected digital services suppliers published on 10 September 2020 can be found here . The list will be updated from time to time to include new suppliers or exclude those who have already voluntarily registered as VAT payers in Ecuador.

The Ecuadorian legislator has foreseen the following two VAT collection mechanisms:

  • Direct collection and remittance of VAT to the Ecuadorian tax authorities by the digital service provider; or

in respect of the services rendered by those suppliers, who do not voluntarily VAT register, the VAT will be withheld by the payment card issuers.

If you have any queries on the above, please get in touch with either your regular Essentia or Quipsound contact, or alternatively Marta Gałązka (+44 203 713 3535; marta.galazka@essentiaglobalservices.com)

Ireland – standard VAT rate decrease effective from 1 September 2020 

Following the same footpath as Germany, as part of the July 2020 Jobs Stimulus Plan the Irish government has introduced a temporary reduction of the standard VAT rate in Ireland from 23% down to 21%.

The new standard VAT rate of 21% came into force on 1 September 2020 and it will be applicable only for a six-month period until 28 February 2021.

The reduction in the standard VAT rate was implemented with a view to directly supporting businesses that were negatively impacted by COVID-19 pandemic.

Poland – replacement of VAT returns with new extended SAF-T files effective from 1 October 2020

We would like to remind our readers that, as per the flash news published in our July’s VATlife magazine, as of October 2020 companies registered for VAT in Poland will no longer be submitting VAT returns. The existing VAT returns and the current format of the SAF-T files will be replaced with a new expanded type of SAF-T file (JPK_VAT). Apart from some editorial changes to the format, in which the existing information should be presenting moving forward, as part of the new expanded SAF-T file companies will be required to report certain details, which has never been reportable to the Polish tax authorities to date, either within the VAT returns or the previous type of SAT-T files, for example a document type, goods and services codes or certain procedures indicators.

Please contact Essentia should you wish us to review your existing Polish VAT reports with a view of adjusting them to the new expanded SAF-T file reporting requirements.

Portugal – catching up with ‘quick fixes’

On the 24th of August 2020 Portugal has officially implemented into its national VAT legislation the provisions of the three out of four so -called ‘2020 VAT quick fixes’ making those provisions retroactive in effect back to 1 January 2020 (which is the deadline, by which all EU Member States were meant to incorporate the quick fixes provisions into their local VAT law).

The provisions implemented now into the Portuguese VAT legislation deal with:

  1. the simplification measure for call-off stock transactions;
  2. the rules concerning determination of the intra-EU transport to be assigned within the chain transactions; and
  3. making the EU customer’s valid VAT number being a substantive condition for the application of the VAT exemption for intra-Community deliveries of goods.

Due to the fact that the fourth quick fix concerning the proof of transport to support the VAT exemption for intra-Community deliveries of good did not have to be officially transposed into the national legislation due to the fact that the provisions of the Council Implementing Regulations, which were dealing with this issue, are directly applicable in all EU Member States.

If you have any queries on the above, please get in touch with either your regular Essentia or Quipsound contact, or alternatively Marta Gałązka (+44 203 713 3535; marta.galazka@essentiaglobalservices.com)