On 1 January 2021, the UK left the EU VAT Regime (as well as the Customs Union and Single Market). It is now to be viewed as a third country, meaning that a range of VAT and customs rules and simplifications have ceased to apply, but also that some new benefits and opportunities may arise.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

Yes. The UK still has its VAT system, which has evolved to account for its status as a third country.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

Although Northern Ireland is part of the UK, all supplies of goods to and from Northern Ireland will, as a result of the Protocol on Ireland and Northern Ireland, remain subject to the same VAT regime that applied before 1 January 2021.

Accordingly, a supply of goods from the EU to Northern Ireland and vice versa will still qualify as an exempt intra-Community supply of goods (if all other conditions are met). The Northern Ireland customer will have to report a VAT taxable intra-Community acquisition of goods in Northern Ireland. Here it is important to note that the newly introduced ‘XI’ VAT number should be used for these transactions in order to distinguish them from UK VAT transactions.

Intra-Community reporting obligations (incl. Intrastat) will also continue to apply. Furthermore, the simplifications for call-off stock arrangements and VAT triangulation could still apply and, until the e-commerce VAT package enters into force on 1 July 2021, the distance sales threshold of £ 70.000 is maintained.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

If you are selling goods from Luxembourg to UK taxpayers and the goods are transported to the UK, your supplies will now be considered as exports of goods, instead of qualifying as intra-Community supplies of goods. However, they will still remain exempt from VAT in Luxembourg. In practice, and from a compliance perspective, this means that such exports need no longer be included in the intra-Community reporting listings (Intrastat and European (EC) Sales listing). All goods imported into the UK will be subject to UK VAT (at the relevant rate of 0%, 5% or 20%).

By the same token, when you purchase goods from UK taxpayers with a place of delivery in Luxembourg, you now perform imports of goods instead of intra-Community acquisitions of goods. As a rule, these purchases are taxed in Luxembourg like intra-Community acquisitions of goods.

However, it is important that you file customs declarations when importing and exporting any goods to/from the UK, or when moving your goods to the UK. These customs documents must be kept as proof of the exportation or importation of the goods.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

First of all, please note that the distance sales regime (permitting sellers to charge Luxembourg VAT below an annual sales threshold of GBP 70,000) no longer applies.

This means that if you supply goods with transport to UK private individuals, you must treat these supplies of goods as exports, fulfil customs formalities and use a UK VAT number where required.

UK VAT legislation has implemented new rules depending on the value of the consignments, and taking into account the place of location of the goods at the time of the supply.

These rules can be summarised as follows:

Scenario 1: the goods are not located in the UK at the time of the sale

  •  Sales of goods below £135 from outside the UK:
    For such sales, UK VAT will be accounted for at the point of sale (“supply VAT”) rather than the point of importation (“import VAT”). In practice, this means that although the goods can still be imported into the UK by the seller or its shipping agent under simplified customs procedures, no import VAT will be collected.
    Assuming you do not use an online marketplace (“OMP”) to facilitate the sales (see question 6 below), you will have to register for VAT with the UK VAT authorities (“HMRC”) (or appoint a fiscal representative) and charge UK VAT at the time of the supply.
  • Sales of goods above £135 from outside the UK:
    Sales of goods to consumers (B2C) above £135 can be sold on either tax-exclusive or tax-inclusive terms. If you sell goods on tax-exclusive terms, the UK consumer will need to pay any import VAT and customs duties due, collected by the parcel operator. If you sell goods on tax-inclusive terms, you will have to import the goods into the UK first, account for import VAT on your UK VAT return and charge UK VAT on the sale to the consumer.
    If you use an OMP to facilitate the sale, please refer to question 6 below.

Scenario 2: the goods are already located in the UK at the time of the sale

In this case, you will have already imported the goods into the UK or acquired them from a local supplier, and will have paid VAT accordingly. The sale of the goods to the UK consumer will be subject to UK VAT.

If you use an OMP to facilitate the sale, please refer to question 6 below.

As you may notice, the new VAT rules applicable in the UK are complex. They merit a targeted analysis of the terms and conditions of your specific sales/contractual arrangements with your customers, as well as with your OMPs if you operate through e-commerce platforms. This will inevitably lead to a significant compliance burden for many overseas suppliers of goods.

Please also note that the above rules do not apply where the consumer in the UK is a duly registered UK VAT taxpayer (see question 4 above).

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

If you are acting as an OMP, you now have to adhere to additional VAT compliance rules for supplies to UK consumers, depending on the value of the consignments and the location of the goods at the time of the supply.
The following rules apply:

Scenario 1: the goods are not located in the UK at the time of the sale

  • Sales of goods below £135 from outside the UK:
    In this case, you are viewed as the supplier to the consumer, and are therefore liable for charging VAT.
  • Sales of goods above £135 from outside the UK:
    If you, as OMP, facilitate the sale of goods shipped from outside the UK to the UK-based consumer, the normal customs procedures apply first: the seller will have to import the goods into the UK and account for import VAT on their UK VAT return. However, since the OMP is deemed to be the supplier of the transaction and must charge UK VAT to the consumer, the seller will make a zero-rated supply to you, the OMP.

Scenario 2: the goods are already located in the UK at the time of the sale

In this scenario, you, as OMP, are deemed to be the supplier for B2C sales, irrespective of the location of establishment of the business selling the goods or of the OMP.

In such circumstances, the seller may have already cleared customs and accounted for import VAT prior to the sale, or reclaimed input VAT if the goods were purchased in the UK.

Prior to the deemed-supplier transaction by the OMP, the seller will first sell the goods as a zero-rated supply to the OMP, which will have to be reported on the UK VAT return. The OMP will then sell the goods on to the consumer as a regular supply with VAT.
In view of the above, Luxembourg (and EU) OMPs must comply with new UK VAT registration and compliance rules when facilitating sales with UK consumers.

Of course, if the UK customer is identified as a business under its UK VAT number, then the (B2B) sale must be exempt from VAT by the seller (i.e. zero-rated), and the customer will account for UK VAT under the reverse charge mechanism on their VAT return. This applies to both direct B2B sales from the seller and B2B sales through an OMP (see question 4 above).

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

There are limited changes due to Brexit on supplies of services for B2B transactions. The reverse charge mechanism still applies, but services supplied to UK businesses should no longer be reported in the EC Sales listing.

In a nutshell, if you supply services that do not come under specific VAT localisation and taxation rules (as opposed to property-related services, for instance, for which any VAT due will be linked to the property location), your services will remain taxable in the UK under the reverse charge principle and your customers will have to account for any UK VAT due thereon.

If you receive services (not subject to specific rules) from a UK taxpayer, the place of taxation of those services is Luxembourg and you will have to self-assess the Luxembourg VAT due, if any.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

If you supply insurance or financial/banking services to UK customers (irrespective of their VAT status as businesses or non-VAT taxable persons/private individuals), you will now be entitled to recover VAT incurred on related expenses. Previously, this VAT was non-recoverable. This aligns the rules for supplies by financial and insurance businesses to UK customers with the current rules for non-EU businesses.

If you are working as a financial or insurance institution, you should therefore review your contracting arrangements to ensure they are optimal from a VAT perspective and mitigate VAT costs for your customers and their clients.

Please also note that existing VAT grouping measures can also permit significant VAT savings, as non-EU VAT groups fall out of scope of European VAT rules.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

A holding company that provides financing to its subsidiaries located in the EU is generally not in a favourable position. This is because granting loans constitutes a VAT-exempt activity which does not give rise to the right to deduct input VAT, but often comes with compliance obligations, and therefore costs as well (e.g. arising from the necessity to declare and pay the Luxembourg VAT due on the receipt of foreign taxable expenses).

A holding company that provides financing to UK subsidiaries is now considered as being engaged in non-EU financing activities giving rise to a right to deduct input VAT.

Therefore, if you are engaged in an interest-bearing loan activity towards your UK subsidiary, you should be entitled to recover the VAT incurred within that context.

You should therefore check the current VAT registration status of your company and apply for a VAT number under the standard regime, or amend your registration under the simplified VAT regime with a view to exercising a right to deduct the input VAT incurred on local expenses or self-assessed in Luxembourg on foreign taxable services received.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

Note that “intangible” services include transfers and assignments of copyright, patents, licenses, trademarks and similar rights, as well as legal advice, IT, banking, financial and insurance services, and supplies of staff services.

If you do not qualify as a VAT taxpayer and receive the intangible services mentioned above, you should not be deemed liable to pay any VAT in Luxembourg under the VAT self-assessment rule.

This means that no VAT will apply in the UK or in Luxembourg, which may represent significant cost savings depending on the amounts in question.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

Alongside the rule described in question 10 above, note that Luxembourg VAT is no longer chargeable on certain supplies of services to UK non-business customers (i.e. private individuals or passive shareholding companies). Previously, those supplies may have incurred Luxembourg VAT.

This change covers supplies of intangible services in the form of transfers and assignments of copyright, patents, licenses, trademarks and similar rights, as well as legal adice, IT, banking, financial and insurance services, and supplies of staff. Thus, it could represent significant cost savings.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

If you supply digital services (i.e. telecommunications, broadcasting and electronically supplied services – such as downloadable or streaming media, apps, online software, e-learning, e-books, online journals, and dating or similar membership websites) to non-taxable customers/private consumers located in the UK, those supplies will be located in the UK and incur UK VAT.

Be sure to apply for a regular UK VAT number with the HMRC without delay, and to report your sales to UK customers on a quarterly basis: VAT registration_

No thresholds apply, and all UK sales are to be reported immediately.
Importantly, simply using the internet, or other electronic means of communication, to communicate or facilitate trading is not necessarily equivalent to supplying digital services as detailed above.
You will not be considered as supplying digital services if you merely use the internet to perform the following:

  • supplies of goods, where order placement and processing is done electronically;
  • supplies of physical books, newsletters, newspapers or journals;
  • supplies of services of lawyers and financial consultants who advise clients through email.

You should therefore identify the precise nature of the underlying activity in order to assess the correct VAT treatment for it.
Finally, it is also important to note that if you supply digital services to consumers via a third-party platform or marketplace, the digital platform is responsible for accounting for VAT on the supply instead of you.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

Generally, post-Brexit rules should not have a major impact on your business (except the need to comply with export/import of goods rules for the movement of goods between your main locations and your UK branch).

No taxable supply of services will occur between the branch and the Luxembourg head office: these continue to be viewed as a single VAT taxpayer irrespective of whether the branch is outside the EU.

In assessing the correct VAT treatment for transactions carried out by both entities, the main thing to note is that the relevant turnover and expense should be allocated for VAT purposes to the entity that effectively carried out the corresponding activities.

In particular, questions may arise within this context where using a certain allocation could save on VAT. It is recommended that you assess the situation in detail to accurately determine the correct VAT treatment to apply.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)

If you have incurred UK VAT on some of your expenses during the year 2020 (for instance, on seminars, transport or accommodation costs), you may still be allowed to recover this VAT through the VAT refund claim procedure set out in the 8th Directive. This is subject to certain conditions and must be done via the Luxembourg VAT refund portal by 31 March 2021.

For UK VAT on costs incurred after 31 December 2020, it will be necessary to contact the UK VAT authorities to determine the procedure and next steps to be observed.

As a rule, Luxembourg taxpayers and European taxpayers can no longer submit their refund claims electronically via their local tax authorities as they have in the past. Instead, they will have to follow the same procedures provided by the UK government for non-EU established businesses. These claims can be made starting 1 April 2021 through the 13th Directive. In order to qualify, the business must not be VAT-registered in the UK yet, and must not have carried out any taxable transactions there.

To proceed with a claim, Luxembourg/EU taxpayers should complete the VAT65-A Form no later than 6 months after the “prescribed year” (from 1 July to 30 June) ends. Such claims must be filed no later than 31 December. This form should be submitted along with supporting documents, such as the original invoices issued, as well as an official certificate proving that your business is duly registered in your home country. The original invoices will be returned upon approval of your claim. A new official certificate will be needed every 12 months.

Your contact for more details: 
Sophie Weyten (sophie.weyten@arendt.com
)
(18/03/21)