The VAT implications of the UK leaving the EU are significant, especially since no deal has yet been agreed. Whilst from a VAT perspective, there is very little clarity from the tax offices, there is clear guidance for businesses based on the assumption that the UK will be treated the same as other non-EU countries from 2021.
The key areas of consideration for e-commerce sellers are:
- How does Brexit impact my business from a practical import and fulfilment perspective?
- What changes will occur to my VAT compliance obligations?
- Will my online marketplace experience remain the same?
- What “VAT hacks” can I consider to weather this storm?
The importance of imports…
When goods are imported into a country with a VAT regime, import VAT is charged as a percentage of the value of the imported goods. From a VAT perspective, when goods are moved between two EU member states, this is not technically an import – therefore, trade between two EU countries never results in import VAT being paid.
Once the UK is classified as non-EU, everything changes. The movement of goods from UK to the EU, or any goods coming into the UK (from the EU or otherwise) will be treated as imports and subject to VAT. Since all goods going from the UK into the EU will have VAT on them in the destination country, this creates a cash-flow impact which did not exist when the UK was part of the single market.
For example, if the UK company is the exporter only, they will not have to worry (since the EU importer will have to pay VAT on their side). However, if the UK company is also importing the goods into the EU country, then the UK company will have a foreign import VAT cost to consider. (Similar to above, it is likely that EU countries who have a high volume of imports from the UK will therefore start implementing import VAT deferment schemes – but this is a logical presumption, not an official opinion).
Determine the Importer of Record
If the import includes two parties, and not just one business moving goods between the UK and EU, they need to agree which side will be responsible for the clearance requirements. This includes customs import declarations, import duties or tariffs and import VAT. The elected party is known as the importer of record.
As you may be aware, any business who imports goods into the EU requires an EORI number (a special import registration number used to clear customs). The EU law says that a company only requires one EORI, which can be issued by any of the member states, and the EORI can be used for imports into all EU countries
However, with Brexit around the corner, the UK will no longer be in the EU and therefore:
- An EORI issued by the UK will not be valid for imports to any of the other 27 EU countries.
- An EORI issued by an EU country will not be valid for imports into the UK.
If you import goods into both the UK and EU countries, you will therefore need 2 EORI numbers. We suggest that you sort this out ASAP since the authorities will be flooded with requests of this nature.
VAT Registration Obligations when Exporting from UK to EU (or vice versa)
For the purpose of simplicity, this Guide we use the term “EU-UK Trade” to refer to any movement of goods from an EU country into the UK, or the movement of goods from the UK into an EU country.
The consequence of the new classification of imports means that all EU-UK trade needs to be evaluated from a VAT compliance perspective. Previously, EU-UK trade was subject to the standard EU rules – when the transactions are B2B, there is no need for the seller to register for VAT in the buyer’s country and for B2C transactions, a registration obligation in the destination country was threshold dependent. (The so-called Distance Selling thresholds).
Following Brexit, EU-UK trade will no longer be subject to these rules, and therefore each such transaction must be examined on its own merit. In general, if the selling party is responsible for paying the import VAT in the destination country, it is probable a VAT registration will immediately be required. For example, if a UK business exports goods to customers in Sweden, and the UK exporter is responsible for clearing customs and paying the Swedish import VAT, then the UK company will probably need to register for VAT in Sweden and charge Swedish VAT on the sale.
It is therefore imperative than you understand your incoterms on all exports and get VAT advice if you decide to export to a new jurisdiction.
Many EU countries permit foreign companies to register directly with the tax office, without having to appoint a local representative – this is almost always the case when the ‘foreign’ company is also from the EU. For example, a German company can register for VAT in France without having to appoint any representation in France.
However, in most cases in the EU, the tax authorities will require a non-EU company to appoint a Fiscal Representative in order to get a VAT registration. The fiscal representative may be jointly liable for all VAT payments of the company.
Since UK sellers will now be considered non-EU, they will require fiscal representation for their EU VAT registrations. In terms of the common countries from an Amazon FBA perspective, this is applicable in France, Italy and Poland. Therefore, if you already have a VAT registration in one of these countries, you will probably need to “upgrade” the registration and appoint a fiscal rep. (The process for doing so will be different depending on the country). For new VAT registrations in the EU, you will need to take not of this requirement.
Most companies who offer VAT services for companies will not act as a fiscal representative. This means you might be forced to find 3rd party companies in addition to the VAT agent. In some cases, the company will only represent you if you establish an EU business (which comes with several other unnecessary complications).
Amazon fulfilment after Brexit
Owing to the complexities of EU-UK trade explained above, Amazon will no longer be transferring goods between the UK and EU as part of their standard FBA model after Brexit. This move will obviously have major implications for merchants both sides of the border.
Amazon has confirmed that “pan-European FBA inventory transfers will stop between the UK and EU” on January 1, 2021, when the UK formally separates from the rest of the EU.
This means that UK sellers hoping to access the 440 million EU customers will no longer be able to use Amazon’s UK logistics network to do so. They will instead be responsible for separating their own inventory and sending what they want to sell on the continent to Amazon fulfilment centres in the EU themselves. When these goods are sent from the UK to the Amazon FC in the EU, the complexities of EU-UK trade again kick in.
While this is set to have a major impact on UK sellers it also applies to those in the EU selling to UK consumers, meaning shoppers could face stock issues and increased delivery times and costs.