Our Brexit and VAT series aims to offer the vital information and planning tips businesses operating cross border need. This week, we’re addressing fiscal representation in the EU. As the UK is now a third country from a VAT perspective, there are various urgent steps businesses must take.

Post-Brexit Fiscal Representation in the EU

Fiscal representatives are effectively an insurance policy for tax authorities, for whom they protect the ability to collect VAT. Member States in the EU have different positions on fiscal representation. Some require non-EU businesses to make a local appointment if the business requires a VAT registration.

Fiscal representatives are local businesses acting on behalf of non-EU companies. They often assume joint and several liability for VAT. Businesses who perform this role must meet a series of measures set out by the Member State in question. They often must be authorized to act by the relevant tax authority.

When do I need a fiscal representatives?

There are two common situations in which fiscal representatives are needed. The first is where a non-EU business registers in a Member State where fiscal representation is required. Fiscal representation is imposed in different ways, and at the Member State’s discretion – so in some countries it’s mandatory for all non-resident businesses liable to register, whilst in others it depends on the taxpayer’s activity. Equally, some tax authorities don’t require it, whilst others make it optional.

The second common scenario for fiscal representation is where the appointment of a fiscal representative offers a business access to a beneficial VAT regime, as is the case in the Netherlands in respect of the postponement of import VAT.

Post-Brexit, the UK will become a third country for VAT purposes. Most EU nations require fiscal representation for non-EU businesses – with some notable exceptions like Germany – so all businesses that choose or must remain registered in EU nations after 31 December must determine the position of the countries in which they operate.

What are the issues to be aware of?

As many companies restructure supply chains to mitigate the consequences of Brexit, situations arise where they require VAT registrations for the first time. If the country which requires registrations demands fiscal representation, then businesses must look to appoint a local fiscal representative.

UK businesses are in a particular and complex situation. Tax authorities are struggling under the weight of mass applications for fiscal representatives, as significant need has been generated in a relatively short time. As a result, some Member States are issuing specific guidance to UK companies, and others may follow suit. France, for example, has recently clarified that UK companies don’t need to appoint a fiscal representative. Though full details and guidance are yet to arrive, this should be cause for a sigh of collective relief for all UK businesses registered for VAT in France. But beware differing positions – Belgium previously advised all UK businesses who hold non-resident VAT registrations that they require fiscal representation before the end of 2020. They relaxed this position, with the authorities offering an extension until June 2021. The coming weeks may see other Member States taking similar approaches.

Whatever individual Member States’ positions, there are time considerations to be aware of. The amount of risk that fiscal representatives take on for a company is significant. So the process for securing fiscal representation is often lengthy and can involve financial guarantees.

Next steps

Fiscal representation is here to stay – so planning now is fundamental. Regardless of Brexit, the process for establishing EU fiscal representation for VAT is time consuming. As a result, businesses must act fast to establish the necessary support needed in the countries where there is a requirement to register.

Essential steps are an urgent and ongoing review of different tax authority positions, and careful planning for the associated administrative and financial costs.

For more post-Brexit related content:

Goods, Services, and VAT Recovery Post-Brexit – What do Businesses Need to Know?

UK Border Controls Post-Brexit – What you Need to Know About Importing Goods

UK Postponed Import Accounting for VAT

Post-Brexit: Postponed and Deferred Import VAT Accounting in the EU

Businesses that trade cross border must turn their attention to the treatment of goods post-Brexit. Recently, we discussed postponed import VAT accounting in the UK. This week, we’re turning our attention to postponed import VAT accounting in the EU.

Deferred and postponed accounting for VAT post-Brexit

In theory, when goods enter the EU, import VAT is immediately due to the customs authorities at the relevant border. In practice, the EU VAT Directive gives Member States the ability to determine the conditions under which goods enter their territories. This is in addition to the ability to set detailed rules for payment of VAT in respect of goods imported. This means Member States can implement mechanisms for postponed accounting via the VAT return, or deferred payment schemes, or a combination of both.

Postponed accounting via the VAT return accounts and pays for import VAT due in the taxpayer’s periodic VAT return. If import VAT is deductible, it is recoverable on the same return.  This creates the benefit of neutral cashflow impact as a result. Effectively, this accounts for VAT in a similar way as acquisition tax, in that there is no physical payment of VAT to the revenue authority.

Member States are able to determine the specifics of their own deferment scheme, which may apply to every importer or be limited to certain cases.

What’s the picture in the EU?

• In the Netherlands, Article 23 of the VAT Law grants the ability to postpone import VAT to the VAT return. However, to apply for an Article 23 licence directly, a business must be established in the Netherlands. It’s still possible to benefit from Article 23 without being established, if the services of a fiscal representative are secured. Fiscal representation in the Netherlands is limited or general; limited doesn’t require the importer to obtain their own VAT number and can only be used for certain transactions. In contrast, general fiscal representation does involve the importer obtaining their own VAT number. This is then managed by the fiscal representative and offers significant flexibility on how the goods may be used after the initial importation.
• Germany has deferred import VAT accounting, which offers the possibility for some importers to apply a deferred payment scheme to mitigate the cost of an immediate payment of import VAT. That said, it may be necessary to have a bank guarantee to access the scheme. Any import VAT will be deductible on the VAT return covering the date that the import took place.
• Belgium allows for the postponement of import VAT payment to the VAT return after successful authorisation of licence E.T. 14.000. The authorisation isn’t subject to a guarantee, and UK businesses can use the VAT deferral licence if they file periodical VAT returns.
• France allows non-EU businesses who have a fiscal representative with Authorized Economic Operator status to apply for postponed accounting via the VAT return. This is through the request of a specific authorization to the Customs Authorities which, once approved, is valid for up to three years. Important to note is that the Customs Authority will be relaxing this requirement from 1 January 2021 so any business can apply for postponed accounting.
• Portugal has been implementing a postponed accounting scheme since 2017. It’s subject to the meeting of specific conditions and requires businesses to make a specific application to use the scheme. Crucially, it involves the submission of monthly VAT returns on an ongoing basis. This has a knock-on impact on compliance costs.
• Spain’s postponed accounting system enables importers to declare the import VAT due through their periodic VAT return. Therefore avoiding payment of VAT at the time of import. However, postponed accounting only applies to taxpayers filing monthly VAT returns. Doing so in turn leads to an obligation to file declarations under the Immediate Supply of Information (SII) regime. SII requires continuous reporting of detailed transactional data within four business days. Given these additional reporting requirements and potential penalties for non-compliance, businesses must then carefully consider whether the use of postponed accounting is beneficial.

What next?

Import VAT can create significant cashflow issues. To mitigate this it’s essential to be aware of available reliefs. Therefore post-Brexit, make the necessary application for deferred or postponed VAT accounting in the country of import.

For more post-Brexit related content:

Goods, Services, and VAT Recovery Post-Brexit – What do Businesses Need to Know?

UK Border Controls Post-Brexit – What you Need to Know About Importing Goods

UK Postponed Import Accounting for VAT

If you listen carefully, you can hear the tick tock of the Brexit clock growing ever louder. As 31 December looms into view, there’s lots to consider from a VAT point of view. One area business must get up to speed with is the movement of goods between the EU and the UK post-Brexit.

Whether the UK Government agrees a Free Trade Agreement (FTA) with the EU in the coming weeks or not, the UK looks set to become a third country for VAT purposes from 2021. This means that any goods moving between the UK and the EU are imports and exports.

What does this mean for those importing into the UK?

If there is no FTA, businesses will quickly need to get acquainted with customs duty. It will be liable on goods imported into the UK, at rates set out in the UK Global Tariff list (UKGT). Unlike VAT, customs duty is not recoverable, so understanding if any mitigations are possible is essential. As is ensuring that you do not apply the duty multiple times to the same goods, or profit margins will be eroded.

A further point to consider is that import VAT will be due on goods imported into the EU from a country outside the EU (which, after Brexit will include the UK). It will also apply to imports into the UK from any country. The impact of import VAT on cashflow could be significant. However, relief is on hand in the form of postponed VAT import accounting.

Postponed import VAT accounting in the UK post-Brexit

From 1 January 2021, the UK introduces postponed accounting for import VAT. Post-Brexit, postponed accounting for import VAT will apply not only to imports from the EU – but to all goods imported from outside of the UK. This is intended to ease cashflow pressures and will provide important benefits to importers. For UK businesses that purchase goods from suppliers in the EU, this is really significant.

The UK is late to the postponed accounting party compared to its EU neighbours. Many Member States already have postponement mechanisms in place. The option to postpone makes a country attractive to importers, and where it doesn’t exist there may be a deferred payment option in place. UK businesses must get up to speed with these different systems to establish the most effective supply chains.

What’s next?

UK businesses need to prepare for the changes to future transactions with EU Member States. In the coming weeks we’ll provide more information on postponed accounting, including a run-down of applicable options in the UK’s key EU trading partners.

For those importing into the UK there are important steps to take. Businesses must ensure they are able to import goods. This means completing customs declarations and also ensuring an EU EORI number is in place. Postponed import accounting for VAT is a measure which could have positive benefits for UK businesses that import. So understanding the process is essential.

For more post-Brexit related content:

Goods, Services, and VAT Recovery Post-Brexit – What do Businesses Need to Know?

UK Border Controls Post-Brexit – What you Need to Know About Importing Goods

In our Brexit and VAT series, we delve into some of the most important issues of the day to bring you clarity and advice.

Last week we looked at goods, services, and VAT. This week, we address UK border controls post-Brexit and importing goods.

Movement of goods post-Brexit

Currently, the concept of dispatches and acquisitions applies to goods that move between Great Britain and the EU. After 31 December, the movement of goods will be subject to export and import treatment. When it comes to exports, zero rating can apply if the relevant conditions are met. However, imports are liable to import VAT and potentially customs duty.

The path to post-Brexit clarity on imports has been long and winding. In February 2020, the UK Government introduced a range of measures to ease the potential impact of a hard Brexit. The introduction of Transitional Simplified Procedures (TSP) for customs entry into the UK intended to reduce burdens on business. The UK Government also announced postponed accounting for import VAT. This allows for the tax to be accounted for at the time of the return filing rather than at import.

After signing the transition deal, the Government abandoned these measures. Controversy around the removal of postponed accounting for import VAT and the catastrophic progress of the COVID-19 pandemic are likely to have affected the UK Government’s thinking. The Spring Budget in March reintroduced postponed accounting. Then in June, Downing Street introduced updated guidance and a phased implementation in three stages for border controls. This approach serves to mitigate, to some degree, the changes brought about by the pandemic and speaks to the capacity of the UK Government itself in the coming months.

Three stage approach to border controls post-Brexit

• Stage 1: January 2021. In this stage, basic customs requirements such as sufficient records for the import of standard goods will be introduced. In line with TSP, there will be up to six months to complete customs declarations. Any duty payable will be on submission of customs declaration, not at the time of entry.
• Stage 2: April 2021. In stage two, all products of animal origin (POAO) and all regulated plants and plant products will require pre notification and health documentation.
• Stage 3: July 2021. The final stage of implementation will require businesses moving all goods to make declarations at the point of import. Any customs duty will be due at this time.

As of stage one, controlled goods like alcohol and tobacco will be subject to checks. In the event there is no preferential agreement with the exporting country, for example a Free Trade Agreement with the EU, the new UK Global Tariff lists (UKGT) will apply. The UKGT is a worst-case scenario document, showing the tariffs that will apply to imported goods in the absence of a Free Trade Agreement. The sharp eyed among us will note the changes between the current UKGT and the 2019 temporary list. In the latter, 88% of goods were tariff free, whilst the new UKGT reduces the level to 60%.

Mechanisms for change

In addition to the checks, controls and costs of imports, there are a series of changes to mechanisms for importing goods that businesses must consider post-Brexit. Customs Freight Simplified Procedures (CFSP); the existing electronic customs declarations system; and Entry In Declarants Records (EIDR) will be available without application until 30 June 2021. This is as long as businesses meet the relevant conditions. After this, they’ll require approval.

Postponed VAT Accounting, introduced by HRMC on 1 January 2021, will provide some respite for businesses. It will apply to both imports from the EU and those from outside of it, and crucially, it won’t require an application. However, it doesn’t free businesses from the payment of duties, which will be applicable in line with the UKGT list.

Hopes were high for positive change on Intrastat, the mechanism for EU-UK trade statistics. Renowned for its headache causing qualities and reliance on manual data manipulation, an end to Intrastat was expected by many to be a Brexit bonus. When publishing the Border Operating Model in July 2020, HMRC confirmed that Intrastat arrivals declarations will continue to be required from those businesses that have a liability to submit in 2020. There will be no requirement for dispatches to be submitted.  It should be noted that the position for businesses in Northern Ireland will be different. This is due to the Northern Ireland protocol.

What are the next steps?

Understanding import obligations and preparing well in advance of each stage of the phased implementation for border controls post-Brexit is essential.

The sands of transition period time are draining away. As we edge ever closer to the final Brexit deadline, there are a raft of VAT related considerations for businesses to attend to.

Though uncertainty reigns about the shape of the trading relationship, most of the Brexit scenarios up for debate would render the UK a third nation for VAT purposes. This means there are VAT implications to Brexit which will be substantial and, in many cases, immediate.

Our Brexit and VAT articles in the coming weeks, will address some of the key areas of concern for business providing information, advice and actionable insights. Here, we tackle goods, services and VAT recovery post Brexit.

Moving goods, moving goal posts

On 1 January 2021, the treatment of goods moving between Great Britain and the EU will change. At present, the concept of dispatches and acquisitions applies to GB-EU trade. Post 1 January, it will be replaced by exports and imports. Though zero rating for exports exists if the relevant conditions are met, crucially, imports are liable to import VAT and potentially customs duty.

To ease the impact of this, Member States including France, Belgium and the Netherlands implement postponed accounting, allowing for import VAT to be accounted for on VAT returns. This maximises cash flow, but may require an application or licence – both of which are conditional, can be revoked, and aren’t automatic like the current mechanism for accounting for acquisition tax. HMRC is implementing postponed import VAT accounting for goods arriving from the EU – this is automatic and will also be available for imports from countries outside the EU.

Usual service will be maintained

When it comes to the treatment of services, businesses can breathe a tentative sigh of relief. The UK is expected to maintain the application of VAT place of supply rules in line with the VAT Directive. However, businesses will need to consider the liability to be registered in the EU and the UK on an ongoing basis. With this in mind a word of advice – any business that engages in UK-EU trade of goods should review supply chains and contingency plan for all scenarios in the new year.

VAT recovery post-Brexit

Getting VAT back is a primary concern for businesses. The bad news is that it’s likely to become more complex. If a UK company is registered in the EU it can continue to recover VAT via returns, but it may be necessary to appoint a fiscal representative. If a business is neither registered nor liable to register, recovery will be via the 13^th Directive, which has many drawbacks. Firstly, it’s a paper-based system with its own unique time limits. Secondly, it may cause issues of reciprocity, potentially preventing UK businesses from making claims in some countries.

EU businesses registered for VAT in the UK can continue to recover input tax via the VAT return. However, if a business is neither registered nor liable to be, recovery will be via a paper-based system. It’s important to note that the UK currently applies the reciprocity principle if a UK business would be denied a claim in the country of the claimant. For EU businesses, this means running the risk that they are denied VAT returns if there is no reciprocity between their country and the UK.

Whatever the individual situation, planning must be a priority. Claims can be made for 2020 under the current mechanisms, but deadlines will be reduced. Claims under new processes must be evaluated to ensure that no recoverable VAT is lost.

What next?

As we move into the final phase of the Brexit process, time is of the essence. With the type and likelihood of a deal still unclear, the best steps for any business trading cross border are to proactively plan, review supply chains and consider registration liabilities.