Tax News 2020

Brexit - are you ready for the changes after 31 December 2020?

Barbora Palenikova

It will only take 17 days, until the planned formal ‘divorce’ between the United Kingdom and the EU is concluded. By 31 December 2020, that is the end of the transition period, the EU legislation, as well as the internal market and customs union rules continue to apply also for trading with the United Kingdom. Below, we are providing the summary of the tax and customs changes likely to happen after the expiry of the transition period.

Trade with the United Kingdom after 1 January 2021  

The no-deal alternative of the relations between the EU and the United Kingdom seems to be increasingly likely everyday despite the continued negotiations. If the hard Brexit materialises, from the tax and customs’ perspective, the United Kingdom shall become a third country and that will come with various forms of implications for businesses as well as private individuals.

After 1 January 2021, any goods imported to and exported from the United Kingdom will be subject to customs supervision and possible customs checks pursuant to the EU Customs Code. Any businesses planning to trade with the United Kingdom that haven’t been assigned the EORI number yet should not hesitate and ask the financial administration authorities as soon as possible for one in their member state of establishment.

We would also like to point out that in the EOS (Economic Operator Systems) database, you should also enter your Slovak VAT ID, if you as a business subject are planning to do any trade between the United Kingdom and Slovakia. You need to ask the relevant authority in the member state of your establishment to enter your VAT ID into the database.

Where a foreign entity does business in the territory of the Slovak Republic through its establishment, this establishment should be using the EORI number of its parent entity.

Natural persons who do not perform any business activity do not need to apply for an EORI number. Where these natural entities will be importing non-business goods from the United Kingdom to the territory of the Slovak Republic after 31 December 2020, they should register in the Central Register of the Financial Administration by completing the form using the Live Agent app available on the Financial Administration website.

In tourism, the limitations on the maximum allowed volume of goods should apply; this concerns primarily tobacco products and alcoholic beverages, imported to the EU territory duty-free as well as free from VAT and excise tax. Travellers’ luggage can be subject to customs checks when entering the EU from the territory of the United Kingdom.

One should also expect certain limitations or delays when transporting goods from/to the United Kingdom. A supplier without assigned  EORI number should anticipate major delay at the border as well as potential additional costs for storage of goods until the whole customs proceeding is completed.

After 1 January 2021, the United Kingdom should not be subject to the common VAT regime for the EU members states anymore. It is advised to be prepared for changes when supplying goods to the United Kingdom. This change may marginally also influence the supply of services. All internal systems should be set-up in advance, and you should also communicate intensively with your suppliers and customers with regards to the changes coming after the New Year. Supply of goods and services to the United Kingdom after 1 January 2021 will not have to be declared in the VAT summary report anymore.

It should be noted that these changes will take place overnight whether the businesses are ready or not. That is why it is of key importance to get ready as soon as possible to make sure your business operations smoothly continue after the New Year without any major setbacks.

Changes will also concern the distance sale of goods (mail-order sale), which should also be subject to customs supervision and potential checks, too.

Taxable persons intending to import to or export from the United Kingdom will have to get informed with regards to their registration and VAT duties in the UK.

VAT payers should report and pay the import VAT in the United Kingdom by way of filing a VAT tax return. The above will not apply in case the buyer is willing to take over all the formalities related to the import of goods instead of the supplier.

When goods are imported from the United Kingdom to Slovakia, the import VAT will be imposed directly in customs proceeding upon releasing the goods to free circulation just like the current practice in relation to third countries. The VAT payer or its representative will apply only for import VAT deduction via the VAT return or via VAT refund procedure.

Northern Ireland will find itself in a specific position after 31 December 2020, as after the end of the transition period, this territory will apply the current common VAT regime for the EU member states for at least for the next 4 years. In practice, this means that supply of goods and services to/from the Northern Ireland should be subject to the current regime. This means that for example supply of goods to Northern Ireland – if the conditions are met – should still be free from the tax pursuant to Section 43 of the VAT act, or possibly, acquisition of goods from the Northern Ireland should still be subject to the relevant provisions on the acquisition of goods from another member state pursuant to Section 11 of the VAT act).

The application for tax refunds after the Brexit

After the Brexit, foreign taxable persons established in the United Kingdom which purchase goods and services or import goods subject to VAT in the Slovak Republic and which simultaneously do not perform any transactions in which they would become an entity obliged to pay VAT should not be entitled anymore to apply for VAT refund electronically by way of their local financial authority for the years 2021 and following (as laid down in 8th Council Directive 2008/9/EC). These foreign taxable entities may apply for entry VAT by way of applications for taxable entities established in third countries in the deadline until 30 June of the following year (13th Council Directive 86/560/EES). The application is filed with the Bratislava Tax Authority after complying with the conditions provisioned in the statutory regulations. This form of application for VAT refund is more demanding in terms of paperwork as the applicant must – besides other documents – deliver to the Bratislava Tax Authority the originals of all invoices and customs documentation for which it applies for the VAT refund.

The applications for the refund of the British VAT applied to goods and services for the year 2020 or for one part of the said period can be filed by the VAT payers established in the member states not later than by 31 March 2021 electronically using the existing channels and procedures by way of their local financial authority. Conversely, the VAT payers established in the UK will need to apply with the respective member states for refund of the ‘Union’ VAT within the same deadline.