EU trading and overseas VAT office post-Brexit

by | Nov 8, 2021

Arram Berlyn Gardner is a multi award winning firm of Chartered Accountants, Auditors, Tax and Business advisers based in the City of London. In this blog post our tax team take a look at the VAT issues business are facing as a result of Brexit.

As the dust settles after Brexit, it has become clear that for companies exporting to the EU, setting up a VAT office within European borders is the most effective way to circumnavigate additional charges, red tape and taxes that come with Brexit.

Indeed, we have spent a lot of time lately helping companies set up such offices – often in Ireland.

Here is a run-down of what you need to know about trading with the EU in this new landscape.

Exporting goods to the EU

What was once a free movement of goods and services across borders has now become a multi-step process.

First, you need to identify the exporter of record. This will be the person/entity responsible for the paperwork: UK customs, export clearance, transport, insurance and so on. It would normally be the UK-based supplier.

Second, you will need your UK Economic Operator Registration Identification number – EORI for short. HMRC issued these to UK businesses prior to Brexit, but they are easily obtainable if you do not have yours.

Third, you’ll need to see if an export licence is required. This is not always the case, but items like foodstuffs and chemicals will need one.

Fourth, you must get your paperwork together if you want to zero-rate your VAT. This means proof of export such as customs declarations and sales invoices.

Fifth, you must choose whether to complete your export declaration yourself using commercial software or by using a customs intermediary like a freight forwarder, fast parcel operator or customs agent/broker.

Sixth, whether you make the declaration yourself or via a middleman, you will need to record a long list of information including:

  • a commodity code
  • the points of departure and destination
  • the consignee and consignor
  • what the goods are
  • the volume and packaging of goods
  • relevant licences or certificates
  • the transport method
  • a statement of exporter origin so the importer can qualify for zero tariffs.

Seventh, use the above information to obtain a consignment number. This allows you to transport the goods.

Eighth, your importer will need to complete import customs declarations (which is a process in itself) or, as is popular, you can assume responsibility for this on a delivered duty paid (DDP) basis.

Ninth, intrastat declarations to HMRC are no longer required unless the goods are moved from Northern Ireland to the EU. Intrastat was the name given to the system for collecting trade statistics relating to the UK and EU.

Exporting services to the EU

There is not such a convoluted process for exporting services to the EU, and there has not been as much change as a consequence of Brexit.

But it is important to understand which country’s VAT regime is applicable. This is determined by a set of two rules.

The general rule applies to B2B services in the following way. You make your service zero-rated for UK VAT and they use the reverse charge to account for the VAT in their own return. You must prove that your customer was overseas, normally by taking reference of their home VAT or tax ID number.

For B2C services, the general rule dictates that you should charge UK VAT to your EU customers.

Special rules apply to certain specified services. They mean you have to register for VAT in the country where your customer is resident.

This applies to the supply of:

  • digital services
  • entry fees to physical events
  • land and property services
  • restaurants and catering
  • hire of means of transport
  • passenger and freight transport
  • professional services
  • advertising services
  • technical services
  • staffing services
  • consulting
  • intellectual services
  • intangible services
  • data processing services
  • financial services.

 

Under the special rules, UK financial services are able to recover input VAT triggered by sales to EU customers.

Benefits of a European office post-Brexit

As you can see, if you export one of the services subject to the special rules, you will need to set up a VAT office in the country where you are supplying the services to continue trading.

But for all other types of trading, where cumbersome regulations and processes must be followed, having an overseas VAT office in the EU may ease the red tape and give you a greater degree of control.

This must be balanced against the capital outlay and operational costs of running an overseas office.

We specialise in helping professional services, financial services and property businesses, and we have varied experience with other sectors too.

If you would like help assessing whether an overseas VAT office in the EU is the right move for you, please get in touch with us on 020 7330 0000 and a member of our team will be happy to assist you.

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