Brexit: Worst Case Scenario – Part 2

Export, import and customs

2020/11/19

As we wrote earlier, although the United Kingdom (UK) withdrew from the European Union (EU) on 31 January 2020, it managed to keep all pre-existing customs and tax rules unchanged by the end of the 2020 calendar year. The future is still questionable: the UK and the EU still could not agree on what kind of relationship they should keep. Since the moratorium expires in two months, it is time to prepare for the worst-case scenario. In our new newsletter series – in addition to what was described in our previous newsletter – we would like to draw our clients’ kind attention to new aspects.

According to the current situation, from 1 January 2021, the United Kingdom will be considered a third country for VAT purposes, i.e. all supplies of goods to it will be considered exports, be they to companies or individuals. Exports, in particular the fact that the product has indeed left the territory of the Community (similar to sales to other countries currently considered as third countries, such as the USA, China or Egypt), must be supported by appropriate accompanying documents. Although no precise agreement has yet been reached between the EU and the UK, it has already been clarified that products that are released this year but only arrive next year should be treated as intra-Community supplies.

The situation is similar for movements of goods in the opposite direction: products purchased from the United Kingdom will be considered as imports from 1 January. In the case of imports, an important aspect is that the import VAT can be deducted, but it must be paid first, which may cause a cash flow problem, or at least a difficulty.

In the case of both exports and imports, taxpayers have to take into account a new legal institution, which has not been used in the EU-UK relation so far: customs and the related permits. This is because the EU requires compulsory authorization (possibly only notification) for certain goods to be shipped from a third country to the EU or vice versa. These permits and notifications are checked by the authorities within the framework of the customs procedure. From 1 January, where imports / exports of goods are subject to authorization under EU law, shipments from the EU to the UK or vice versa will require such authorization or notification. In extreme cases, in the case of special categories of goods, the EU may refuse to import goods into the Community, even though it is possible to import goods until 31 December 2020 (i.e. as long as the UK is an EU Member State for tax purposes).

Brexit will also affect the so-called MOSS system: it will no longer apply to the United Kingdom. The Mini One-Stop-Shop (abbreviated as MOSS) system offers simple, efficient, one-stop-shop and electronic administration to taxpayers who provide remote services to the European Community countries’ consumers not subject to VAT (such as TV, and radio and other electronic services). In the absence of the applicability of the MOSS system, the companies providing services to the United Kingdom must request a UK VAT number and declare their VAT in accordance with the rules thereof.

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VGD Hungary’s tax advisors will be pleased to answer your questions concerning the Brexit.
hould you need customs advice or help with customs issues, our partner companies can give you guidance.

This newsletter provides general information and does not constitute tax advice.