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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)

Following the lifting of the COVID-19 lockdown, national governments are currently trying to revive their economies. To help boost consumer spending, in particular in those most-hit by COVID-19 pandemic industries like tourism and hospitality sectors, some countries have recently decided to cut their VAT rates. Others continue to address administrative disruptions by the postponement of new measures or burdens.

EU

With a view to addressing severe disruptions created by the COVID-19 pandemic, on the 24th of June 2020 the EU Council agreed on the 6-month deferral for introducing the e-Commerce VAT package.

In light of the above, the new rules for e-Commerce in the EU will apply only from 1 July 2021.

In a nutshell, the e-Commerce VAT package will apply the principle of taxation of B2C supplies of cross-border goods and services at destination/place of consumption. The corresponding pan-EU VAT compliance obligations will be facilitated by the OSS (One-Stop-Shop) special scheme, which in essence is the extension of the currently operating MOSS (Mini-One-Stop-Shop) scheme.

Austria

Between 1 July – 31 December 202 0 the Austrian authorities https://www.bmf.gv.at/rechtsnews.html will temporarily cut VAT rate of 5% will apply on food and drinks in catering establishments, accommodation services, visits to museums, cinemas or music events, publications as well as e-books.

Belgium

Belgium has halved its VAT rate to restaurant and catering services (excluding alcoholic beverages) from 12% to 6% from the date of reopening of the hotel, restaurant and catering industry until 31 December 2020.

Germany

As of 1st of July 2020 the new standard VAT rate in Germany has been decreased from 19% to 16% and the reduced VAT rate of 7% was cut to 5%.

The reduced rates will apply only between 1 July – 31 December 2020.

https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/2020-06-25-FAQ_Corona_Umsatzsteuer.html 

Poland

The Polish Ministry of Finance has decided to further postpone the introduction of the new SAF-T file upload that will be combined with the VAT return (‘JPK_VAT’) from the previously announced go-live date of 1 July 2020 onto 1 October 2020 for all taxpayers.

UK

For a temporary period between 15 July 2020 and 12 January 2021 the UK will apply a reduced 5% VAT rate to certain supplies related to hospitality, hotel accommodation as well as admission to certain attractions. https://www.gov.uk/government/news/rishis-plan-for-jobs-will-help-britain-bounce-back

Saudi Arabia

On the other pole of governmental approach to the post-pandemic recovery Saudi Arabia has tripled its VAT rate from the previous 5% to 15% with a view to tackling the economic difficulties caused by the COVID-19 pandemic.

The ‘Transitional Provisions Guidelines’ related to the VAT rate increase published by the General Authority of Zakat & Tax can be found under the following link:

https://gazt.gov.sa/en/HelpCenter/guidelines/Documents/Transitional%20Provisions%20Guidelines%20of%20VAT%20Rate%20Increase%20to%2015.pdf

On the 1 July 2020 the deadline for the UK to apply for the extension of the transitional Brexit period passed. Since the UK did not opt to apply for the extension in question, as of 1 January 2021 the transition period with the EU will end and the UK will leave the EU Single Market. This means that controls will be placed on the movement of goods between Great Britain and the EU.

In order to recognize the impact of COVID-19 on businesses to prepare for the changes, the UK government has decided to introduce the new border controls in  three stages: from 1 January 2021, from 1 April 2021 and from 1 July 2021.

At the beginning of July 2020 the UK government published a policy paper ‘UK Border Operating Model’ outlining the new processes per each stage of their implementation. The document can be found here: https://www.gov.uk/government/publications/the-border-operating-model

UK VAT on B2C consignments of value below £135

As part of the above-mentioned paper, the UK tax authorities provided the details of the new UK VAT rules to be applicable from 1 January 2021 to online retailers selling goods to be imported into the UK with a value not exceeding £135. On such goods (excluding excise goods and gifts) UK import VAT will no longer be due at the border. In addition to that, the existing low value consignment import VAT relief will be withdrawn. Sellers will be required to register for VAT in the UK, charge UK VAT due at the point of sale and report it on their UK VAT returns. This mirrors measures pioneered by countries such as Australia and Norway.

There are two new joiners to the ever-growing list of jurisdictions demanding non-resident suppliers of digital services to consumers based in their countries to register and charge local VAT on their supplies:

Indonesia

Starting from 1 August 2020 10% VAT rate applies to B2C digital services rendered by foreign suppliers so long as:

  • Their Indonesian transactions exceed the threshold of 600m rupiah (currently circa GBP 32k , EUR 35k, USD 41k) per annum or 50m rupiah (currently circa GBP 2,6k, EUR 2,9k, USD 3,5k) per month; OR
  • Their web traffic in Indonesia exceeds 12,000 visitors per year or 1,000 per month.

Costa Rica

As of 1 August 2020 13% VAT rate must be applied on B2C digital sales made to consumers in Costa Rica by non-resident suppliers, who are included on the list of digital service providers published by General Directorate of Taxation. The list can be found here: https://www.presidencia.go.cr/comunicados/2020/06/servicios-digitales-transfronterizos-pagaran-13-de-iva-a-partir-del-01-de-agosto/ and it will be updated at least every six months in order to include new suppliers or exclude those who have voluntarily registered as taxpayers.

The Costa Rican legislator foresees two VAT collection mechanisms:

  • Direct collection of VAT 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.

As the governments’ announcements on VAT measures related to the COVID-19 epidemic outbreak continue to unfold at such great speed, here is our second summary of the recent developments. This is current as of the 30th of March.

For many countries there is uncertainty as to whether the below measures apply only to locally established businesses or have they been extended to non-resident companies. Essentia is investigating this on a country by country basis and we will publish the relevant updates shortly.

  • ITALY – Italy has not implemented any further VAT measures apart from those outlined in our previous newsletter of the 17th of March. Moreover, it is uncertain whether or not those measures that have already been announced can apply to non-resident companies.
  • SPAIN – no further announcements have been made by Spain since our previous newsletter of the 17th of March.
  • GERMANY – the German tax authorities have extended the VAT deferment period until the end of 2020.
  • AUSTRIA – in addition to a payment plan provisions outlined in our newsletter of the 17th of March, the deadline to submit the annual VAT return for 2019 period has been extended from the 30th of June 2020 to 31st of August 2020.
  • FRANCE – as it stands at the moment there are no specific VAT measures approved in France;
  • UK – according to the latest (of the 26th of March) HMRC’s guidance, both resident and non-resident businesses that are registered for UK VAT will have an option to defer their VAT payment due for the period 20 March – 30 June 2020 until the 31st of March 2021 (at the latest). Businesses paying by direct debit should cancel their direct debit orders with their banks. Note that these measures do not cover VAT MOSS payments. Please follow the link for full HMRC’s guidance: https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19
  • IRELAND – in addition to the VAT measures outlined in our newsletter of the 17th of March, Ireland suspends all VAT debt enforcement activities until further notice.
  • POLAND – in addition to the VAT measures outlined in our newsletter of the 17th of March, Poland announced that the interest normally charged on the tax arrears will be temporarily abolished. Other VAT positions within the approved ‘anti-crisis shield’ include postponing the go-live date for the combined SAF-T file with the VAT returns for large companies from the planned 1st of April onto the 1st of July 2020 and the application of the new VAT rates matrix from the planned 1st of April onto the 1st of July 2020 as well as extension of the deadline for submitting a notification of payment to a bank account of the supplier not included in the Whitelist from 3 days to 14 days.
  • SWEDEN – the measures reported in our newsletter of the 17th of March can be backdated to January 2020 period.
  • DENMARK – as part of the Danish id package, businesses that settle VAT monthly received a 30-day extension of the deadline to pay the VAT whereas business settling VAT on a quarterly basis the payment for the first two quarters of 2020 can be combined and made by the 1st September 2020. Any businesses on a bi-annual frequency can pay the VAT for both half-yearly periods in a combined payment to be made only by the 1st of March 2021. For further details, please follow the link (in English): https://skat.dk/skat.aspx?oid=16900&lang=us
  • NETHERLANDS – the Dutch tax authorities may grant a 3-month VAT payment holiday upon receiving an application from a business struggling with its cashflow due to the COVID-19 crisis. Such applications can even be made by the companies over a telephone as far as the 3-month payment extension is concerned. If a business requires some a payment extension beyond 3 months, a written motivated application is required. In addition, the authorities are reducing the interest rate for such payments from 8% to 0,01%. Moreover, some extra VAT relief on customer bad debts related to the COVID-19 crisis are going to be granted and businesses in a regular VAT refund situation may switch from the quarterly VAT return filing frequency into the monthly returns to improve their cash flow.
  • SWITZERLAND – The Swiss tax authorities are going to allow the affected businesses to defer their VAT payments with no interest charge until the end of 2020.
  • NORWAY – the deadline for payment of VAT for January-February 2020 period has been postponed from the 10th of April to the 10th of June 2020. Moreover, the tax administration will not impose enforcement fines for late submission of the VAT returns. In addition to that, VAT rate for passenger transport, accommodation, public broadcasting as well as access to cinema, sporting events, amusement parks and adventure centres will be reduced from 12% to 8% from 1 April to 31 October 2020. Link to the Norwegian tax authorities’ announcement can be found here (in English): https://www.skatteetaten.no/en/package-of-measures-in-connection-with-the-coronavirus-situation/#value-added-tax-vat
  • CYPRUS – the measures reported in our newsletter of the 17th of March may now be reconsidered by the Cypriot government.
  • JAPAN – Japan may be reconsidering the implementation of the consumption tax measures, which were outlined in our newsletter of the 17th of March.

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)

Here is a summary of some emergency VAT measures to combat the financial impact of this pandemic, current as at 17 March 2020:

ITALY

  • The Italian Ministry of Finance announced on Friday, 13 of March that all the VAT payments due by March 16, 2020 will be postponed. Now it looks like the VAT payments for small businesses (with annual turnover below EUR 2m) will be postponed until 31st of May 2020 whereas for the remaining taxpayers the payments will be deferred until the 20th of March 2020. Moreover, all VAT declarations filings are to be postponed until the 30th of June 2020, including the Annual VAT Return for 2019 period. Businesses can apply for a 5-month payment plan.

SPAIN

  • Last week the Spanish Tax Agency published on their website a statement about the extension of the deadlines in VAT procedures. The Spanish Tax Agency also published on their website some provisional instructions on applying for a VAT deferral in accordance with the Royal Decree of 12 March foreseen for SMEs and professionals (with the last year’s turnover below EUR 6m), i.e. automatic 6-month VAT payment deferral will be granted for the VAT returns with a filing deadline between 13 March – 30 May 2020 and resulting with a VAT payment of up to EUR 30k. In addition, no late payment interest will be due for the first 3 months of a delay in payment. Link to the Spanish Tax Agency’s announcement can be found here:

https://www.agenciatributaria.es/AEAT.internet/Inicio/_componentes_/_Le_interesa_conocer/Instrucciones_provisionales_para_solicitar_aplazamientos_conforme_al_Real_Decreto_ley_7_2020__de_12_de_marzo_.shtml

GERMANY

  • The German tax authorities are offering a possibility to apply for delayed VAT payments as of the 13th of March 2020.

AUSTRIA

  • Application can be made to the tax authorities to postpone payment of VAT or payment via instalments. Application can also be made for reduction/waiver of late payment interest.

FRANCE 

  • Businesses can apply for a suspension of their tax payments due in March 2020.

UK

IRELAND 

POLAND

  • On the 11th of March 2020 the Polish Ministry of Finance informed that entrepreneurs who, due to the coronavirus, will have problems paying their taxes in a timely manner can apply for a reduction/relief or waiver/remission of arrears. Further detailed support should be announced by the Ministry of Finance in due course. In addition, the go-live date for the implementation of the combined SAF-T file with the VAT returns for large companies (the details of which Essentia provided to its readers in our February 2020 VAT Life publication) will be postponed from the 1st of April 2020 onto the 1st of July 2020. Moreover, the tax authorities are also to make the VAT refunds quicker. For full details about the proposed ‘shield package for companies’ follow this link: https://www.gov.pl/web/koronawirus/pakiet-oslonowy-dla-firm-w-zwiazku-z-koronawirusem

SWEDEN

  • The government is proposing an opportunity for temporary deferral with payment of VAT which is proposed to enter into force on April 7. The deferral period may be set for a maximum of one year.

NETHERLANDS

  • The government has announced that the Dutch tax authorities will grant a deferral of payment for any VAT if a company will motivate in writing that it has run into financial issues due to the coronavirus. As soon as the tax authorities receive such a request, they will put the collection of tax on hold.

CYPRUS

  • Cypriot government announced a temporary reduction of the standard VAT rate from 19% to 17% for 2 months and bringing down the reduced rate of 9% (applicable mainly to hotel accommodation, restaurant and catering services or domestic passenger transport) to 7.5% for 3.5 months.

JAPAN

  • Japan is considering temporarily lowering its Consumption tax rate from 10% to 5% on top of delaying the filing and payment deadlines by 1 month until April 2020.

CHINA

  • The country where the first cases of the coronavirus epidemic were detected has put some extensive measures in place to overcome the crisis, e.g. expanding temporarily the scope of the VAT exemption for goods and services needed to combat the effects of the virus, exempting temporarily from VAT all small-scale VAT payers located in Hubei Province or extending monthly VAT returns filing deadline for February and March 2020 periods by 2 weeks and 1 week, respectively.

Not driven by the crisis, but nevertheless extremely timely, is a European Court of Justice case concerning remote consultations with Doctors (which may become much more popular in the coming months).

The case related to a German company X-GmbH providing medical advice to insured persons and running patient support programmes for those suffering from chronic or long-term diseases. The medical consultations were provided over a healthcare telephone line, supported by an on-line assessment which allowed the consultant to put the patients’ situation into a medical context before providing the advice. The German authorities felt that this remoteness brought the service out of the VAT exemption for medical care. However, the CJEU held that the main criterion for determining whether or not the medical services could be exempt from VAT is whether those services pursue a ‘therapeutic aim’ regardless of the place or means of providing of such services. More details of the case can be found here .

As of the 1st of January 2020 a package of the so-called 4 ‘Quick Fixes’ came into force. One of the quick fixes was the Pan-EU simplification rule for call-off stock transactions. As our readers may know from reviewing our January newsletter, the application of the call-off stock simplification is conditional upon fulfilling certain requirements, one of them being to report in the recapitulative statement (EC Sales List) the VAT identification number of the intended acquirer.

Due to the fact that the existing EC Sales List forms do not allow reporting just the customer’s VAT number without entering the value, EU Member States are either amending their current forms or, alternatively, introducing some additional codes in the indicator columns/boxes for the purposes of the new call-off stock reporting obligations.

As an example, please find below the link to the UK tax authorities guidance on how to fulfil the company’s reporting obligations on the EC Sales List under the call-off stock arrangements using the three new codes that they introduced for these purposes in the indicator column: https://www.gov.uk/guidance/vat-how-to-report-your-eu-sales#call-off-stock