On 1 January 2021, the United Kingdom has left the EU Single Market and Customs Union, and all EU policies. Although it is goods that a Trade Agreement has been reached, the separation can still be qualified as a 'Hard Brexit'.
The Trade Agreement has significant tax consequences for:
Logistics and trade - trade from and to the UK will have to deal with increased requirements (import and export declarations, customs, VAT registrations).
Business operations - in the EU Single Market there are various incentives to facilitate the restructuring of business as well as the repatriation of profits and fund.
Logistics And Trade
Companies involved in logistics and trade need to check whether the transferred goods qualify for the zero custom duties. Products that to do not originate in the EU and UK cannot benefit from the zero custom duties.
Companies trading goods that do not qualify for the zero can consider custom planning strategies to lower the custom duties (inter alia ware housing, inward processing).
UK and EU based companies will often be required to obtain a GB Economic Operator Registration and EU Economic Operator Registration
It is important to review the used Incoterms (International Commercial Terms). Depending on the used Incoterms it may be necessary to apply for a local EU or UK VAT number as well as EORI number
Business operations in the UK can no longer benefit from various EU directives providing benefits in various areas, such as:
- Exemption of dividend withholding tax
- Exemption of interest or royalty withholding tax
- Exemption of the taxation of cross border reorganization
- Convenient recovering of input VAT incurred in EU member
- No requirement to appoint a VAT representative if no
The Trade Agreement requires still significant implementation. It is anticipated that during 2021 a significant number of new regulations will be issued.
Therefore, we recommend companies to do the following:
Review the existing value and supply chain involving the UK. Sometimes small modifications can result in large benefits and/or the reduction of the administrative (compliance) burden
Review the operational company structure. Since EU directives will no longer be applicable it can be considered changing the role and the position of the UK entity in the company structure. Furthermore, for many UK companies it can be beneficial to have access to the benefits of the EU Single Market by establishing or increasing the local footprint of EU operations.