Brexit 11 months to get ready

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Brexit: 11 months to get ready?

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30 January 2020

Brexit: 11 months to get ready?

The many developments in the Brexit process have made it somehow difficult to follow and understand.

With the signature of the agreement between the European Union and the UK, we now have a bit more clarity.

The UK should leave the EU on 31 January 2020. After 31 January 2020, the UK will enter a transitional period, which is due to end on the 31 December 2020. The first date could thus be qualified as the “political exit” date and the second date as the “effective exit” date. In theory, it is possible to extend this transitional period until either 31 December 2021 or 31 December 2022. However, the UK Government has indicated it does not intend to extend it.


During the transitional period

During the transitional period, the indirect tax treatment (VAT and customs) of supplies between the EU and UK should be unaffected. For example, cross-border supplies of goods between taxable persons would remain treated as a VAT exempt intra-community supply of goods in the Member State of departure of the goods and a VAT taxable intra-community acquisition of goods in the Member State of arrival of the goods. Additionally, no custom duties are due.

Similarly, services between taxable persons established in the EU and the UK would generally remain subject to VAT in the country of the beneficiary of the services. Financial services rendered by Luxembourg (and other EU) services providers to UK clients would remain exempt without the right to recover input VAT.
 

After the transitional period

The EU and the UK are currently discussing a Free Trade Agreement (FTA) to enter in force after the end of the transitional period, thus, in theory, from 1 January 2021.

Among others, this FTA will have also to determine the VAT treatment of the cross-boder transactions after the transitional period.

However, as matters stand today, the most likely position is that movements of goods between the UK and the EU would be treated as import and export of goods with associated impacts on VAT systems, formalities and processes. In principle, customs duties would also be due on UK goods imported to the EU and vice-versa. However, the content of the future FTA might influence the precise treatment of these transactions and applicable formalities.

It is not just suppliers of goods that would be affected, but also suppliers of (for example) Financial Services or Electronically Supplied Services who are all facing potentially significant changes. Will Financial Services rendered to UK customers entitle providers to VAT deduction?
 

Refund of UK VAT: act before 31 March 2021

Lastly, it is important to note that the refund of VAT incurred in the UK (e.g., VAT on hotels, restaurants, fairs, seminars, transports in the UK) via the Luxembourg VAT authorities website will be available only up to 31 March 2021. After this date, the UK VAT would still probably be refundable but under other modalities. It is important that concerned businesses take advantage of the current system to introduce their claims as quickly as possible.

Businesses involved in trade with the UK have less than a year to analyse the impact of the Brexit and to get ready. For example, they may have to consider the use of customs authorizations to streamline systems and processes. We will keep you updated as soon as relevant information becomes available.

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