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By Philippe Noirhomme (Partner of VATDESK)
What does Brexit mean for VAT purposes?
As from 1 April 2019, the UK shall become a non-EU country like for instance Norway, Switzerland or USA, unless an agreement between all 28 countries is found to postpone the deadline date. No matter whether a trade agreement is eventually concluded by EU and UK.
Behind political statements and pending negotiations, Brexit will trigger financial and economic changes with numerous very concrete effects – even if still not yet noticeable – inter alia on the VAT rules applicable to non-profit organizations.
VAT is a consumption tax applicable in all 28 EU Countries and regulated by EC-Directive 2006/112 together with other implementing legal acts.
What will happen to the VAT system after UK leaves?
In terms of VAT, the following consequences can be pointed out:
1.VAT on Goods
Tangible goods imported from the UK to any EU country will be subject to customs clearance procedures within the EU including the payment of import VAT and potential customs duties. In other words, goods will no longer freely circulate across the Channel. Therefore, goods purchased by EU associations originating from UK could prove to be more expensive than when produced within the EU.
Inversely, tangible goods exported from any EU country to the UK will be subject to customs clearance procedures set forth in the UK, leading to UK import VAT and potential customs duties.
2.VAT on Services
Since UK will no longer be held to comply with EC-Directive and Regulation, the UK authorities could want to levy UK VAT on services carried out by UK suppliers for EU recipients in B2B and/or B2C situations, no matter the VAT liability within the EU.
That could generate double taxation or no taxation situations. Similar situations exist with Switzerland and Norway.
On the other side, activities carried out by EU organizations in the UK may be liable for UK VAT, in spite of current EU legislation avoiding double or no taxation within EU.
3.VAT on Events
UK associations organizing events within the EU will have to register for VAT purposes in the EU country where those events are to take place, with a possible obligation to appoint a tax representative.
EU associations established in an EU country organizing events in the UK are likely to be liable for UK VAT registration with the obligation to appoint a UK tax representative.
4.VAT Exemption
UK associations which are currently eligible for a VAT exemption according to EC-Directive may lose their status based on domestically adopted UK VAT regulation.
In addition, VAT exemptions applicable to EU associations may not be relied upon in the UK.
5.Recovery of VAT
The recovery of VAT incurred in an EU country by UK associations could be hampered by formal requirements that the Tax Authorities of EU countries may require from non-EU organizations according to the 13th EC-Directive (inter alia the reciprocity treatment whereby recovery is made conditional upon identical recovery by UK to its own nationals).
UK Authorities will be free to adopt rules impeding the recovery of UK VAT by foreign businesses. EU associations which are considering organizing events in the UK should bear in mind that organizational costs could therefore be higher when the venue is situated in the UK.
CONCLUSION
EU and UK associations should not underestimate the impact of Brexit. Quite the contrary. Getting prepared and anticipating is the best way to counter potential negative consequences of Brexit and moreover the most efficient way to find solutions (including eventual relocation within EU) before 1 April 2019, i.e. just 16 months from now. To this end, EU and UK associations are invited to look into their current activity and take action.
The final countdown is running.
Should you want to know more on how Brexit could impact your organization? Please feel free to contact European VAT Desk at info@vatdesk.eu or surf on www.vatdesk.eu.