As from December 31, 2020 the Brexit is a fact. As a result, the UK will be treated as a third country for VAT purposes.
This will have consequences for UK companies which are performing sales in the EU (taking into account new distance selling rules and import-one stop shop as of 01/07/2021 as well). The consequences have been listed below for two different scenarios.
1. UK company performing sales in EU without holding stock in EU
When a UK company performs sales, directly from their warehouses in the UK to customers in the EU (both B2B & B2C), without holding stock themselves in the EU – it will have the following consequences:
a) EU Customers will take care of importation of goods in the EU (depending on incoterm)
Since this is not common practice we will not discuss this (theoretical) option.
b) UK company has to take care of importation of goods in the EU (depending on incoterm)
- Sales have to be reported as export in the UK. An EORI number (UK) is required to perform the export.
- Since the UK company has to take care of the import in the EU, the UK company has to register for VAT in the country of import.
- In case of B2C supplies to EU customers, the UK company can make use of the I-OSS (import one stop shop) if the value of the shipment does not exceed € 150. In case this value is exceeded, the UK company needs to register for VAT purposes in the respective country/countries of import (where the EU customers are located).
2. UK company performing sales in EU with holding stock in EU
In case a UK company transfers goods to a storage location in the EU (let’s assume Belgium), and distributes the goods further to EU customers (B2B & B2C) from the warehouse, this will have the following consequences:
a) Supply of goods from UK to storage location in EU (Belgium)
- Transfers have to be reported as export in the UK. An EORI number (UK) is required to perform the export.
- Goods have to be imported in Belgium. This requires a VAT registration for the UK company (fiscal representative is not needed) and an EORI number in Belgium.
- For UK companies who regularly import goods into Belgium we can advise to apply for a ET 14.000 permit. Based on this, the UK companies do not have to prefinance the VAT on each import into Belgium.
b) Distribution of goods from storage location in Belgium to EU customers
- Goods which are distributed from the storage location in Belgium towards customers in Belgium (both B2B & B2C), are subject to local Belgium VAT and should be reported in the Belgian VAT declaration of the UK company.
- Goods which are distributed from the storage location in Belgium towards B2B customers in the EU, are treated as intra community supplies and should be reported as such in the Belgian VAT declaration of the UK company.
- Goods which are sold from the storage location in Belgium towards B2C customers in the EU, are subject to the OSS VAT regime as of 01/07/2021 and should be reported in the OSS VAT return for e-commerce.
- The current EU VAT regime (prior to 01/07/2021) ‘place of supply’ rules require sellers to charge the VAT rate of their customer’s country of residence – known as the destination principle. For EU cross-border sales this means sellers have to VAT register in each country where they are selling goods.
- The OSS VAT return will replace the obligation to VAT register in every country where sellers are making sales to EU consumers from stocks in a single EU location. The OSS filing is in addition to the regular domestic VAT return. Firstly, sellers will charge VAT at the rate of their customer’s country of residence. They can use the delivery address of their customer to identify the country of residence. Then determine the correct VAT rate, as well as applying reduced or nil VAT rates, according to the varying rates and goods classifications of each member state of their customers.
Conclusion
We can conclude that scenario 2 (stock in EU) has some significant advantages compared to scenario 1 (stock outside EU):
- The administrative burden is much lower, as bulk transport to EU can take place.
- The speed of delivery could be higher:
- Given the presence of the goods in EU.
- The administrative burden is lower and has less impact on the delivery window.
- The transportation cost could be lower:
- Because the bulk transport is much more efficient.
- BtoC transport from from Belgium towards the EU is cheaper than from the UK towards the EU.
The impact of each advantage depends of course on your exact situation. The impact of these new Brexit rules on your costs and efficiency will be much higher as the volume of BtoC sales increases.
Accusol can assist you with the application for a Belgian EORI number/an ET 14 000 permit, the filing of VAT returns, the application for VAT refunds, as well as the registration for VAT in Belgium.
