On 24 December 2020, United Kingdom and EU signed EU-UK Trade and Cooperation Agreement for the situation after Brexit. The scope of the Agreement includes new rules applied to relationships between UK and EU after 1 January 2021. Summary information regarding the agreement is available on the website of the European Commission here.
UK left EU in January 2020 and, based on the Withdrawal Agreement, entered a transitional period until the end of 2020 during which it was still subject to EU rules that it could no longer influence.
From the point of view of VAT, UK becomes the so-called third country as of 1 January 2021. It ceases to participate in the internal market and is no longer part of the customs union. In terms of VAT, business with UK will be treated in the same manner as business with e.g. USA or China. The only exception will be business between EU member states and Northern Ireland, which will further be subject to EU member state rules.
- EU-UK Trade and Cooperation Agreement guarantees customs-free trade between UK and EU. However, the goods will have to fulfill the so-called preferential rules of origin stipulating that they have to originate, at least to 50%, from UK or EU (some sectors can have stricter rules).
- Cross-border sale of goods is subject to VAT rules on import and export of goods as of 1 January 2021. Goods entering the EU or exported from EU to the UK will be subject to customs proceedings and to rules of VAT Act for import and export of goods.
- EU-UK Trade and Cooperation Agreement provides for a more detailed procedure in a situation where dispatch or transport of goods from the UK to EU, or vice versa, was initiated before the end of the transitional period and ended after its termination in a specific situation where such goods reached the EU / UK frontier after the termination of the transitional period. Such supply will still be considered as an intra-EU supply and not as import or export of goods, and will be included in the EC Sales List. Tax ID of UK-based customers will be stated with the GB prefix.
- Re-import of goods. If goods were dispatched or shipped from one EU member state to UK before the end of the transitional period and returned in an unchanged state back to the EU after the end of the transitional period, such movement of goods shall be considered as the so-called re-import. Within the Czech VAT law, re-import is exempt from VAT under the condition that it is also exempt from customs duties.
- Trading goods with Northern Ireland. Trade with Northern Ireland will have a different VAT treatment. EU VAT regulations relating to goods will continue to apply in Northern Ireland after the end of the transitional period (as of 1 January 2021). Northern Ireland will be treated as an EU member state for at least 4 years after the termination of the transitional period. Tax ID of Northern Irish VAT payers will be stated with the XI prefix. Transactions involving movement of goods between Northern Ireland and Czechia will be treated as intra-EU supplies, including all specific cases (such as consignment of goods through e-shops) and special regimes.
- Cross-border provision of services. As of 1 January 2021, services shall be treated in the same manner as services provided to a taxpayer established in a third country and vice versa. This also concerns services provided to subjects established in Northern Ireland. The exception which applies to movement of goods does not apply to services. Standard services (i.e. excluding those stated in Articles 9a through 10i of VAT Act) provided to the entrepreneur established in the UK (including Northern Ireland) are not to be included in the EC Sales List and shall be stated on line 26 of the VAT return.
- When providing standard services to a person not liable to tax (i.e. non-entrepreneur) resident in the UK (including Northern Ireland), the Czech VAT payer will apply the standard Czech VAT.
- Mini-One Stop Shop (MOOS). Mini-One Stop Shop (MOOS) is used by entrepreneurs providing telecommunication services, radio and television broadcasting and other digital services to end customers in EU. These services are in general subject to VAT in the state where the end customer (non-entrepreneur) is resident. The so-called Mini-One Stop Shop represents a facility to simplify the act of levying VAT. In case of Czechia, this is a web portal maintained by the Czech tax administration. Entrepreneurs based in Czechia and providing such services to customers in the UK will no longer be able to use the portal for filing tax returns and paying VAT due in the UK. They will have to adhere to rules valid in the UK, which will mainly entail registration to VAT in the UK, and filing of VAT returns there.
- Consignment of goods. EU-UK Trade and Cooperation Agreement does not contain any special provisions on consignment of goods e.g. via e-shops. Until 31 December 2020, an e-shop consigning goods to the UK had to levy the applicable UK VAT after reaching the prescribed annual turnover. Newly, the obligation to register for VAT in the UK will arise upon the first delivery. A different regime applies to supplies of up to GBP 135, where the relevant VAT will be levied when filing the VAT return and not during the customs proceedings when the goods enter UK. If the seller does not realize the transaction directly, but through an on-line business platform, the on-line business platform operator will be responsible for the levying of VAT. When consigning goods worth more than GBP 135 or making supplies including several pieces of goods with a value exceeding GBP 135, the same procedure known for import of goods into EU will be adopted. This means that the subject declaring the goods as entering free movement (importer) will pay the import VAT in the UK (as well as customs duties, if any) directly to the customs office, as part of customs proceedings. The importer will subsequently be able to claim a VAT refund, as long as they have a British VAT number.
- Three-party transactions. The simplified procedure applying when importing goods within EU as a so-called three-party transaction will no longer apply to participants from the UK.
- Call-off stock. The simplified procedure for call-off stock will no longer apply to subjects resident and registered to VAT in the UK maintaining a stock of goods within the EU, or for subjects registered to VAT in the EU with a stock of goods based in the UK. If a UK-resident subject used the special call-off stock regime in Czechia where it had goods present, it will newly have an obligation to register for VAT in Czechia. Similarly, VAT payers with a call-off stock in the UK, will newly have an obligation to register for VAT there.
- VAT Refund. It is necessary to pay attention to UK VAT refunds in respect of supplies made until the end of 2020. The standard deadline for seeking a VAT refund from supplies made to another EU member state is until 30 September of the following year. In case of a UK VAT refund, the application will have to be filed until 31 March 2021. This will not apply to VAT paid as part of goods from supplies made within the territory of the Northern Ireland from a subject who was issued a Tax ID for VAT purposes with the XI prefix.
Source: Further detailed information regarding VAT treatment as of 1 January 2021 in connection with Brexit is available on the tax administration web.