Another aspect of Brexit:
from a tax point of view, it will not be easy for
the United Kingdom to secede from the European Union
Although nothing concrete has been achieved so far, many companies may also experience unpleasant tax benefits when the transition period between the United Kingdom (UK) and the European Union (EU) expires on 31 December 2020. Although the UK withdrew from the EU on 31 January 2020 (officially already a third country from an EU perspective, so they no longer participate in EU decision-making, for example), they have managed to reach that in the 2020 calendar all previous customs and tax rules should remain unchanged until the end of the year.
There are only 4 months left until the end of the transition period, but it is still a mystery exactly what conditions the UK will leave the EU. According to the current plans, a decision on the country and the EU may be reached by October 2020 (so that the British Parliament can legislate), but neither side can provide concrete information.
In our current newsletter, we inform our clients, without claiming to be exhaustive, about the tax implications of a “no-deal Brexit”, an option where the UK and the EU would not be able to compromise on any issue. We do this in order to give the Hungarian companies involved in Brexit (and of course their UK customers) or even the Hungarian tax registrations of their parent companies enough time to prepare for even the worst case scenario.
Changes in value added tax (VAT)
Perhaps the most important change associated with the (no-deal) Brexit will be that customs will appear in economic relations. In addition to the administrative burden (CMR alone will no longer be enough for the tax exemption, as we are not talking about intra community sales or purchases) this can also raise systemic problems, just think of recalibrating invoicing softwares and other IT systems.
The rules of the triangular transaction, the essence of which is that, if the conditions are met, the “middle participant” in the supply chain is exempted from paying and registering the VAT in the country of the final purchaser will not be applicable, as the condition of this simplification is that all companies should have their place of seat within the EU.
It will also not be possible to apply the simplification for call-off stocks – according to which, unlike the general rules (EU sales and EU purchases), the taxable person supplying the product does not have to register as a taxable person in the Member State of destination – since this rule also presupposes that the transaction takes place between EU taxpayers.
Use of a fiscal representative
According to the Hungarian VAT rules, the appointment of a fiscal representative is possible for all taxpayers who are not established in Hungary for economic purposes and are obligatory for those who are not established in the EU.
The fiscal representation service cannot be provided by any company: the Hungarian Tax Administration Act imposes strict rules on such service providers. A fiscal representative can be a limited liability company (“Kft.”) or a joint stock company (“Rt.”) with a registered capital (or bank guarantee) of at least HUF 50 million and no tax debt. But maybe the most important requirement is that the fiscal representative is jointly and severally liable for the tax liability of the foreign company, i.e., the Hungarian Tax Authority can claim and recover the entire tax debt from any company. The Hungarian Tax Authority maintains a register of fiscal representatives and reviews the existence of the conditions described above annually.
We would like to emphasize, that non-EU companies already need a fiscal representative to simply possess a Hungarian VAT number, so they do not only have to contract with such a service provider when they maintain an actual commercial relationship with a Hungarian company. In this connection, it should be noted that, as there are still many open questions about Brexit even at EU level, the Hungarian Tax Authority has not provided official information on the fate of UK companies that already have a Hungarian tax number but no fiscal representative: their Hungarian VAT number will be automatically deleted with the effect of 31 December 2020, or do they receive any kind of deadline extension to mandate a fiscal representative?
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It can be seen that there could be many tax law problems if UK and EU policymakers cannot reach an agreement by 31 December 2020. It may definitely be worthwhile for the companies involved to think about what would happen if the worst-case scenario (the no-deal Brexit) were to materialize. VGD Hungary’s tax advisers can not only help you interpret the changes (expected or to be adopted), but – within the framework of our fiscal representation services – we can also meet the stricter rules of representation the UK companies in Hungary.