Important Changes in VAT after Brexit

1. Introduction

Since January 1, 2021, from a VAT perspective, the United Kingdom has transitioned from an EU member state to a third country. This has significant impacts on business transactions related to the United Kingdom. This article summarizes the key changes following Brexit and provides practical guidance for various business transactions.

2. Background: United Kingdom's Exit from the EU

2.1 Legal Background

On January 31, 2020, the United Kingdom exited the European Union. Until December 31, 2020, harmonized VAT law still applied in the United Kingdom. After Brexit, it is important to distinguish between Great Britain and Northern Ireland, as Northern Ireland is still considered an EU member state for goods traffic.

2.2 VAT Distinction between Great Britain and Northern Ireland

Great Britain became a third country, while Northern Ireland continues to enjoy certain privileges. It has been clarified that Northern Ireland is treated as an EU member state for goods traffic, but is now considered a third country for services.

3. Goods Deliveries

New regulations apply to goods deliveries to and from Great Britain after Brexit.

3.1 Goods Deliveries from Great Britain

Goods imports from Great Britain must be declared as imports. The import VAT owed is generally deductible as input tax. The time of performance for a goods delivery is the start of transportation.

3.2 Goods Deliveries to Great Britain

Deliveries to Great Britain are considered VAT exports. The formal proof obligations have changed, and the export certificate is now the standard for proof.

4. Services

In the VAT assessment of services, it is important to distinguish according to the customer base and the time of performance.

4.1 Services Started in 2020

The time of completion of the service is considered the time of execution. Special regulations apply to services billed in individual sections.

4.2 Catalogue Services

For catalogue services, the place of performance shifts to the residence of the recipient for services to private individuals. This affects VAT submission.

5. Impact on (Online) Retailers

Important changes arise for retailers regarding delivery thresholds and VAT submissions, especially for deliveries to Great Britain.

5.1 Distinction Great Britain/Northern Ireland

The mail order regulation continues to apply to Northern Ireland, while mail order thresholds for Great Britain are eliminated.

5.2 Goods Value Limit

There are specific regulations for goods deliveries to Great Britain up to the goods value limit of 135 GBP and when using a fulfillment center.

6. VAT in Sales via Electronic Marketplaces

Special regulations apply to sales via electronic marketplaces, particularly regarding tax liability and VAT collection.

7. Input Tax Refund Procedure

For companies that have paid VAT abroad, there are regulations for reclaiming these input taxes.

8. Potential Audit Focuses of Tax Offices

Tax offices place special emphasis on the correct adjustment of invoices and proofs after Brexit.

9. German Travel Services Regulation

For travel services by companies to Great Britain, new tax regulations apply from January 1, 2021, which must be observed.

This article provides an overview of the key changes in VAT after Brexit and aims to serve as a guide for companies to manage tax adjustments.