VAT and Other Tax Consequences of the United Kingdom’s Withdrawal from the European Union

On January 30, 2020, the United Kingdom of Great Britain and Northern Ireland (UK) withdrew from the European Union.  Pursuant to the provisions of the Agreement on the withdrawal of the UK and the European Atomic Energy Community (OJ EU No L 29 of 31 January 2020 p. 7 (“Withdrawal Agreement”)), a transitional period would ensue, during which, inter alia, the EU VAT law for the United Kingdom would continue to apply.  This transitional period ended on December 31, 2020, UTC+1 (24:00 CET).

The BMF has commented on the consequences of the so-called Brexit regarding VAT in Schr. III C 1 ‑S 7050/19/10001 :002 v. 25.11.2020, DStR 2020, 2876.  The main changes are briefly outlined below:

1. Future VAT status of Great Britain and Northern Ireland

According to the BMF’s comments, the United Kingdom, therefore Great Britain and Northern Ireland, must generally be regarded as a third country territory within the meaning of Section 1(2a)  sentence 3 UStG for VAT purposes after December 31, 2020. However, some exceptions should be made with regard to Northern Ireland.  In summary, except under any transitional arrangements which may exist, transactions carried out after December 31, 2020 are governed by currently applicable regulations on VAT, as follows:  

  • Trade in goods and services with Great Britain and in services with Northern Ireland is treated as a third country transaction
  • Trade in goods with Northern Ireland as treated as a transaction within the EU.

Treatment of shipments of goods begun before January 1, 2021 in which the delivered goods enter the United Kingdom or arrive in the EU after December 31, 2020

Article 51 sec. 1 of the Withdrawal Agreement lays down a transitional regime for the movement of goods between a Member State and the United Kingdom which begins before January 1, 2021 and arrives after at some point after December 31, 2020.  The rules on the taxation of intra‑Community trade in goods shall apply to such transactions.  Accordingly, a VAT ID No. (country prefix “GB”) is required of UK‑based entrepreneurs for deliveries beginning before January 1, 2021.

Treatment of other rendered services which begin on or before December 31, 2020 and end after that date

The date on which a continued service is carried out is decisive for how it is treated under VAT law.  In the case of time-limited continued services, the service is deemed to have been completed at the end of the corresponding legal relationship (paragraph 13.1 sec. 3 UStAE).  If the provision of any continued service begins on or before December 31, 2020 and ends after that date, the circumstances at the time of termination are decisive for the VAT assessment of the entire service.  This applies to partial services, as well. iSd sec. 13 subsec. 1 no. 1(a) sentence 2 and 3 UStG.

Input tax refund procedure

  • Input tax paid before January 1, 2021

Claims for a refund of VAT paid before January 1, 2021 by a EU trader domiciled in the United Kingdom or by a domestic trader in the United Kingdom must be submitted by March 31, 2021 (Article 51 par. 3 of the Withdrawal Agreement).

  • Input tax amounts arising after December 31, 2020

Generally, input tax relief is granted in accordance with the provisions of Council Directive 86/560/EEC v. 17.11.1986 on the harmonization of the laws of the Member States on turnover taxes.  This applies to input tax amounts incurred in the trade of goods and services with Great Britain or in trade in services with Northern Ireland.  An entrepreneur domiciled in Germany who has incurred corresponding input tax amounts in the United Kingdom must apply for his refund directly to the refund authority in the United Kingdom in accordance with the regulations applicable there for entrepreneurs established outside the United Kingdom.

This does not apply to the refund of input taxes that is attributable to purchases of goods by EU domiciled entrepreneurs in Northern Ireland or by Northern Irish entrepreneurs in Germany. In this respect, the provisions of Directive 2008/9/EC will continue to apply.  Corresponding applications from entrepreneurs domiciled in Germany must be submitted to the BZSt in accordance with Section 18g UStG.

With regard to the practical handling of applications for input tax refunds before and after the United Kingdom’s exit from the European Union, reference is made to the information provided on the BZSt website (https://www.bzst.de) under the heading Unternehmen – Umsatzsteuer – Vorsteuervergütung bereitgestellten Informationen (English:  Businesses – VAT – Input Tax Refund).

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