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A first glance at the Brexit deal - VAT and customs - Edward Apap & Mirko Gulic

29 Mar 2021 09:05 | Anonymous

The Accountant – Issue 1 of 2021 (MIA Publication)

On 1 January 2021, the United Kingdom left the EU, with a trade deal in place. While the Trade and Cooperation Agreement (‘TCA’) between the EU and the UK governs their future relationship, it also impacts EU businesses that deal with the UK - not least when it comes to VAT and customs considerations.

The TCA is predominantly a trade agreement and, while it helps mitigate certain duties and tariffs from a customs perspective, for VAT purposes the UK is still a third (i.e. non-EU) country.

Consequently, the VAT obligations and implications for transactions involving the UK are expected to change significantly.

When it comes to goods coming into the EU, a distinction should be made between goods departing from (or going to) Northern Ireland (‘NI’) and those departing from (or going to) the rest of the UK (i.e. to / from Great Britain (‘GB’)).

Given the sensitive nature of the Ireland (‘IE’) / NI relationship and the reluctance to (re-)introduce any borders between the two territories, for the purposes of transactions in goods, the IE/NI border has been effectively pushed into the Irish Sea for customs and VAT purposes.

Goods moving to / from Northern Ireland

For VAT and customs purposes, NI is to be treated as a territory within the EU when dealing in goods. Consequently, Brexit should not have any major impact on any movement of goods between NI and the EU.

What will change however is the VAT identification number of entities established in NI. Such entities should now be identified with a VAT Identification number containing an ‘XI’ prefix.

Goods moving to / from Great Britain

Customs considerations

As from 1 January 2021, goods departing GB to Malta (or vice-versa,) are to be accompanied by the usual customs documentation as though they were arriving from (or departing to) any other third country.

However, with the TCA in place, goods that are declared to be originating in the UK can be imported into Malta (or goods being exported from Malta to GB) without any customs duties.

For this to be the case however, it is important that such goods are accompanied by a ‘Statement of Origin’. This is to be issued by the exporter confirming that the goods have indeed originated in the UK (or in the EU).

This exemption only applies to goods that meet the prescribed rules of origin and, as a result, products that do not comply with these rules, may still be subject to customs duties upon import.

VAT considerations

The movement of goods between the EU and GB, is to be treated as though such goods are coming into the EU from (or departing to) any other non-EU country.

Therefore, for goods coming into Malta from outside of the EU (including GB), importation VAT (unless specifically exempt) should be paid in order to release these goods into free circulation. Such import VAT may be recoverable in a business’ VAT Return.

In principle and other than for importation VAT financing considerations, a taxable person moving goods to/from GB should continue to remain in a VAT neutral position after Brexit.

Considerations for services

As from 1 January 2021, there is no longer free movement of services or mutual recognition of qualifications between the UK and the EU.

However, while this may add bureaucratic barriers for services provided between the two sides, Brexit should not have a major impact on the determination of the place of supply of a service for VAT purposes (although the place of supply of services for certain B2C supplies will be impacted).

If a Maltese taxable person is providing:

  • Services to a taxable person established in the UK which fall under the general place of supply rules; or
  • Electronically supplied services to an end-customer established in the UK;

the place of supply shall still be in the UK. However, the reverse charge or MOSS mechanism cannot be assumed to continue to apply and the Maltese supplier may need to consider UK VAT compliance obligations.

Furthermore, since the input tax related to the provision of certain exempt without credit services provided to customers established outside the Community may be recovered, certain businesses dealing with UK customers may benefit from additional input tax recovery opportunities.

Certain provisions regarding VAT declarations and refunds

The TCA allows for an effective transition period in relation to certain submissions concerning transactions involving the UK that took place in 2020, including requests for refunds under the 8th Directive for UK VAT incurred by an EU taxable person. Such refund claims, however, needed to be submitted by 31 March 2021.

Mirko is a Senior Manager at PwC specialising in VAT. He has extensive experience in indirect taxation advising on all aspects of VAT to various industries. Mirko is also a member of the MIA Indirect Taxation Committee.

Edward is a Manager within the PwC VAT team. He has been heavily involved in various tax advisory projects relating primarily to indirect taxation. He has also delivered training as part of the PwC Middle East VAT team.


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