What does Brexit mean for your VAT?
The withdrawal of the UK from the European Union has VAT consequences if you do business with British buyers or suppliers. These consequences are greatest if the UK leaves on 31 December 2020 without any further agreements with the EU (“no deal”). But what are the most important changes and how can you best prepare for this?
You sell goods to the UK
With a no deal, you do not owe VAT in the Netherlands on a delivery to a business customer in the UK. Instead of an “intra-community delivery” (when you export goods from the Netherlands to businesses in other EU countries) you are dealing with export to a non-EU country. Depending on the delivery conditions, you or your customer declare VAT in the UK.
If you sell directly to consumers, you can now pay VAT up to the threshold of € 80,197 in the Netherlands. After a no deal, VAT is always charged in the UK. Here too the delivery conditions determine who is liable to pay VAT. Take this into account in your terms and conditions of sale.
After Brexit you always have to deal with the zero rate for export. Even when the buyer of these products is not a business but a private individual. Please note that the zero rate may only be applied if you can prove the export, for example by showing export or import declaration across the border or by showing transport letters or payments and invoices from abroad and in the name of the foreign customers.
When merchandise is collected in the Netherlands by a buyer who is not established in the EU, it is seen as a domestic delivery. The zero rate does not apply to this. However, this rate can be applied if the supplier can prove that the customer is a business entity and the goods are no longer in the European Union. If this cannot be demonstrated, the tax authorities can impose an additional tax assessment. It is therefore wise to charge Dutch VAT at all times and to correct it afterwards when the requested documents are available to prove that the zero rate has been applied correctly.
You buy goods from the UK
If you import good from the UK, you now declare an intra-community acquisition in the Netherlands. After Brexit you must declare and pay the VAT to customs. You can prevent this by applying for a so-called Article 23 permit. You do not have to pay VAT at the border, but you can transfer it to your VAT return.
Please note: When delivering goods to or from the UK, remember that customs duties may be due and that customs formalities will be required.
Rules for service
Based on the main rule, services provided to traders are taxed in the country where the buyer is established (some exceptions are specified in the legislation). This means that services provided by a Dutch entity to an entity in the UK are not taxable in the Netherlands. It is not yet known whether the UK will include these services in the levy, this depends on the VAT system that will apply after Brexit.
Based on the main rule, services provided to private customers are deemed to take place in the Netherlands. This means that the Netherlands is entitled to tax. After December 31st 2020, a service provided by an entity based in the Netherlands to private individuals in the UK is deemed to take place in the UK. In this case, the Netherlands is not entitled to tax and depends on the VAT legislation that will apply in the UK after Brexit, or whether VAT is due in the UK.
After Brexit it will also no longer be possible to make use the MOSS scheme for the provision of telecommunications, broadcasting and electronic services.
How to prepare for Brexit
You need an EORI number to do business with entrepreneurs outside the EU. Have you already applied for an EORI number? Also ensure whether you are able to settle customs matters or have them settled, for example by checking whether your software needs to be adjusted in order to be able to make a customs declaration.
As mentioned above, goods originated from the UK will have to be imported after Brexit. The VAT on these imports is immediately due unless you have a so-called Article 23 License. If you purchase goods from the UK, it is important to apply for Article 23 Authorization as soon as possible.
Entrepreneurs who participate in international trade can apply to Customs for the status of Authorized Economic Operator (AEO). This permit offers many advantages in international trade, such as a more flexible attitude of Customs through fewer physical and documentation checks. It is a consideration to focus on the benefits of the AEO status.
If you have any questions about how Brexit will impact your VAT, feel free to contact us.