Brexit: Customs and VAT Implications
The trade agreement between the EU and the UK was entered into on Christmas Eve and has been provisionally applied since 1 January 2021; however, it is expected that it will be approved by the European Parliament with retroactive effect. What principal customs and VAT implications arise from this agreement? Is your company fully prepared for trading with the UK? And what are the rules for trading with Northern Ireland?
Preferential Trade between the European Union and the United Kingdom
In customs matters, the trade agreement concluded between the EU and the UK allows for the use of zero customs duties for goods with proven preferential origin in the EU/UK. However, even these goods cannot avoid customs clearance. Goods without preferential origin are subject to customs rates as defined in the customs tariff list of the EU or the UK. For the possibility to use zero customs duty, the goods must adhere to the rules of preferential origin (stipulated in the trade agreement) and this fact must be documented in a required manner. Under certain conditions, it is also possible to apply preferential origin retrospectively. If you import the goods from Great Britain, we recommend requiring a declaration of origin from your suppliers for their products. When exporting your products from the EU, you may issue a declaration of origin in general only if you are registered in the REX system. Exporters who have not yet been registered in REX must first ask the customs administration for such registration. We recommend applying for the registration without delay.
The trade agreement between the EU and the UK has numerous specifics regarding the proving of preferential origin and wording of the rules on the origin themselves. Pay sufficient attention to these matters. Incorrect use of preferential origin may result in complications both on the part of the EU exporters, and consequently on the part of British customers. By analogy, when your British supplier incorrectly applies the rules, your company importing particular goods to the EU may get to a complicated situation as it will result in customs duty arrears that will be subsequently collected from the importer.
Bearing in mind that an assessment of the preferential origin of the goods mostly depends on the correct tariff classification of the goods, we recommend focusing, in case of doubt, also on these issues.
Trade in Goods – Great Britain and Northern Ireland
Trade in goods between the EU and Great Britain (i.e., the territory of England, Wales, and Scotland) that will be sent after 31 December 2020 is no longer subject to VAT rules for intra-community supplies of goods, but it is considered import and export from/to a third country from the perspective of customs duties and VAT. The goods sent before 31 December 2020, the transport of which is completed after 31 December 2020, are treated as intra-community supplies.
When you receive goods sent from Great Britain after 31 December 2020, it is now necessary to terminate transit documents accompanying these shipments and release the goods to subsequent customs procedure. If you are sending goods to Great Britain after 31 December 2020, it is necessary to release these shipments into the export procedure.
Trade in goods between the EU and Northern Ireland will continue to be treated as intra-community supplies after 1 January 2021. To this end, it is necessary to confirm the appropriate tax ID, to which these supplies are to be reported, with the business partner. These goods do not have to be released into the export procedure.
In view of this, it is necessary to correctly use internal tax codes and report the transactions correctly. This also applies to potential corrective tax documents. The financial administrations of the EU and the UK continue to have an established information-sharing system within the trade agreement between the EU and the UK.
In the event of chain transactions with any UK element, we recommend paying special attention to the application of VAT. Likewise, when you supply goods to Great Britain in the call-off stock mode or when you receive such goods from your suppliers from Great Britain, it is necessary to review the setting with regard to potential VAT implications.
Trade in Services – the United Kingdom
Trade in services between the EU and the UK (i.e., including Northern Ireland) follows the rules for trade in services between the EU and third countries. The exception for Northern Ireland does not apply to trade in services. In the event of provided services, it is necessary to consider, among other things, the use and enjoyment rule that the Czech Republic applies to services provided to entities outside the EU, i.e. also to entities from the UK after 1 January 2021. If a particular service is used in the territory of the Czech Republic and the customer is an entity having its registered office outside the EU and registered for VAT in the Czech Republic, the services may be subject to VAT in the Czech Republic.
We will gladly assist you in assessing the preferential origin of your products, registering in the REX system, or we can prepare a made-to-measure training for your employees regarding preferential origin in relation to the United Kingdom. We will answer any questions relating to customs matters or application of VAT in trade in goods.