Are you a UK business owner that buys or sells goods, or provides services within the European Union? Then this post is definitely for you.
We are going to unpack the key changes to VAT after Brexit, and the implications that these have for exports, imports, the Mini One Stop Shop (MOSS), and establishing your own business in Cyprus. Knowing and understanding this information is essential to operating effectively, strategically, and legally – and so whether you are one of our clients, or this is your first time seeing our name, we want to help as many people as possible to succeed in 2021.
EQ:IQ has been successfully helping both businesses and individuals with corporate and personal services for over 10 years. We are a team of highly professional and experienced chartered tax accountants and lawyers. This is why we are the absolute best people to offer advice on Brexit, VAT, and any other offshore service that could help your UK based business thrive abroad in Cyprus.
Changes To VAT After Brexit
As we all know, Britain left the EU on January 31st 2020. Since then, VAT has undergone significant changes. These changes have severe implications for businesses, and have changed the way that many operate.
Many UK businesses are being forced to consider registering for VAT in Europe. One key reason for this is because goods are now subject to import VAT. Another, is that the UK is no longer a member of the EU Mini One Stop Shop (MOSS). This is a return scheme that can only be accessed by businesses that are part of an EU member state.
However, the European country in which a business chooses to register for VAT should be chosen wisely. This is because UK businesses with a foreign registration in the EU will be obliged to appoint a special fiscal representative. This appointment is subject to state-by-state exemptions.
Further Brexit VAT changes of note, include:
- Additional registrations may be needed due to the loss of EU VAT triangulation simplification.
- Online VAT reclaim system cannot be used by UK businesses incurring EU VAT on travel, hotels and other expenses.
- Two Economic Operators Registration and Identification (EORI) numbers are required to move goods between the UK and the EU.
VAT On Exports
This refers to the tax placed upon goods and services provided by UK businesses outside of the UK.
Export Services VAT
If your company sells services to non-UK businesses, they will usually be subject to tax in the country where your customer is located. This is administered through reverse charges.
The sale of services to consumers will generally be subject to tax in the country of the seller, i.e. the UK. Exceptions may apply – an example of this is intangible services, where no UK VAT is due. Instead, local VAT is due in the country where the consumer is based.
If the sale is subject to VAT in a non-UK country, you will need to register for VAT and charge local VAT at the relevant rate of that country.
Export Goods VAT
Any goods sold within the EU are subject to import VAT from 1st January 2021. It is recommended that contracts are reviewed with customers in light of this change. Distance selling rules, which used to be in place for EU sales, no longer apply from this date.
When goods are supplied to a non-UK company or consumer, the export should be treated as zero rated for VAT purposes, although some exceptions may apply. This means that no UK VAT is due and that 0% should be shown on the VAT invoice. You will need to include these sales as exports in your accounting. A company must retain evidence to prove that goods have left the UK. Suitable examples of evidence include a sales invoice, a customs declaration and transport documents.
Usually, goods must be exported, and evidence gathered, within 3 months of the sale. In some cases, when exporting goods to consumers, you may be required to register for VAT in the relevant EU countries you sell to. A company would need to pay import VAT in that country and charge local VAT. A special fiscal representative may need to be appointed in the relevant EU country. Not all EU member states require this, so the requirement must be reviewed based on the countries to which you sell.
Mini One Stop Shop
From 1st January 2021, it is no longer possible to operate a Mini One Stop Shop (MOSS) for UK digital product sellers. This applies to companies that sell digital services directly to consumers in the EU, such as games, apps, online software, and telecom and broadcasting services. However, it is possible to register as a non-union MOSS scheme in an EU member state. The company must also be registered in the UK for VAT, if not already.
EU VAT will be applied to goods from all suppliers of digital services to EU consumers. From 1st July 2021, the scheme will apply to all business-to-consumer cross-border services, where the place of supply is deemed to be in the EU, such as those within the legal and professional services.
VAT On Imports
This refers to the tax placed upon goods and services that are transported into the UK, from a business that is not based there.
Import Services VAT
When a company imports services from a non-UK business, they are generally subject to VAT in the country where the customer resides, i.e. the UK. The import is treated as zero rated by the seller. Some services may be deemed to be supplied where performed, so they could be subject to VAT in the country of the seller, the purchaser, or of a third country depending on the facts.
Import Goods VAT
When you import goods to the UK, they are subject to import VAT, regardless of the country and including EU countries. The business importing the goods is responsible for the tax.
VAT Import Schemes
There exist a number of schemes, designed to make administration easier in these complex times. It is beyond the scope of this blog post to detail each scheme, however it is important that you are aware of the options that may be available to you. If you would like any further information on these import schemes, then please don’t hesitate to contact EQ:IQ today.
Postponed Accounting Of Import VAT Scheme
UK companies importing goods into the UK can apply for this scheme, which means that they do not need to make cash payments of import VAT. This can be declared and recovered via the VAT return, which may be preferred from a cash flow perspective.
It is important to note that this is a temporary scheme, currently only available until 1st July 2021.
Small Value Sales Scheme
From July 2021, the €22 VAT exemption on small parcels being imported into the EU for delivery to consumers will be withdrawn. Instead, VAT must be charged at the point-of-sale for consignments not exceeding €150. This is declared and paid via a new submission, the Import One Stop Shop (IOSS). This will create a more efficient customs clearance experience, that is quicker and easier.
Online Marketplaces Scheme
From 1st July 2021, online marketplaces are responsible for collecting, and accounting for, VAT where they facilitate a sale. The online platform operator will be treated as having received the supply from the underlying supplier, and as having supplied it onwards to the customer in the jurisdiction of taxation. Therefore, the marketplace will charge UK VAT to the UK purchaser.
Sellers and deemed supplier marketplaces may alternatively opt to pass the import tax collections to postal operators, express carriers and customs agents. Under special arrangement, the customer pays the VAT to the declarant (the person presenting the goods to customs). The special arrangements operators will then pay the tax authorities on a monthly, cash-received basis. The deadline will be the 16th of the month, following the month of import.
Establishing Your Business In The EU For Tax Purposes
Since the UK left the EU, changes to the law and to taxation have been plentiful and complex. The implications of said changes have been similarly difficult to navigate. One thing that they all have in common, is that many of these complexities can be simplified by opening a branch of your business in the EU.
Establishing your business under EU jurisdiction can ensure that you continue to provide your services as you did before, to all of your consumers, while accounting for all of your VAT in one place. This means that you will not experience Brexit VAT implications.
Cyprus, as a member of both the EU and EEA, is a popular destination for UK businesses. Some of the benefits of opening a VAT registered branch here include:
- It is part of the EU for VAT purposes
- There are low corporation tax rates
- Finance and tourism are booming
- Common law basis is similar
- Low setup and annual costs for businesses
- Simple MOSS registration process
With so many reasons to open a branch in Cyprus, the only real concern is ensuring that you do it right.
How Can EQ:IQ Help?
We have a wealth of experience in helping our clients to navigate tax pitfalls, and in creating the most efficient corporate structure for their business needs. At EQ:IQ, we pride ourselves in our transparent, communicative approach. We strive to be innovative, tax-efficient and cost-effective, which is why we are always able to offer a professional, financial solution that is guaranteed to help you thrive.
For more information, please don’t hesitate to get in touch. A member of our friendly team would be more than happy to discuss your individual needs, and exactly how EQ:IQ can help. Contact us today by completing an online form, phoning 00357 2502 9100 or emailing firstname.lastname@example.org.
And if you are interested in reading more detailed, informative and educational posts, then feel free to take a look at some of our other blogs.