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:
- 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.
- 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.
- 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; firstname.lastname@example.org)