The United Kingdom (Great Britain and Northern Ireland) has left the EU on January 31, 2020. The agreed transitional period ends on December 31, 2020, with the effect that the United Kingdom is to be regarded as a third-country territory for VAT purposes. Special rules apply to Northern Ireland.
For companies with business relationships to Great Britain and Northern Ireland, it is neces-sary to review their transactions in order to be able to carry out the correct VAT treatment in the New Year.
The German Federal Ministry of Finance published a letter on December 10, 2020 and provides practical advice:
1. Vat status of Great Britain and Northern Ireland
Generally, Great Britain and Northern Ireland will be considered as non-EU countries for VAT purposes after December 31, 2020. However, there is a special rule for Northern Ireland: The previously applicable rules will continue to apply to supplies. This means that Northern Ireland will continue to be regarded as belonging to the EU for supplies. However, this does not apply to services. The abbreviation "XI" will be preceded to the Northern Ireland VAT identification numbers (VAT-ID) and can be checked in the confirmation procedure in accordance with Section 18e of the German VAT Act (UStG). VAT-Ids with the abbreviation "GB" can no longer be checked.
Supplies to Northern Ireland entrepreneurs still need to be declared as tax-exempt intra-Community supplies and need also be declared in the recapitulative statement. Services to Northern Ireland traders, on the other hand, are no longer to be included in the recapitulative statement.
2. Vat treatment of supplies
After December 31, 2020, goods need to be declared for customs purposes upon import and export. However, this only applies to the movement of goods with Great Britain and not with Northern Ireland.
Movements of goods that begin before January 01, 2021 and end after December 31, 2020 are to be treated as intra-Community (i.e., as VAT exempt intra-Community supplies or taxable intra-Community acquisitions). The relevant requirements (including keeping records and supporting documents, reporting in ZM) need to be considered.
If goods leave the EU after December 31, 2020, these supplies are to be treated as VAT exempt export supplies of goods if the relevant documentary evidence is available (Section 6 (4) German VAT Act). On the input side, it is not required to declare intra-Community acquisi-tions, if it can be proven that the supplies were taxed with import VAT after 31 December 2020.
3. Vat treatment of services
First of all, it should be noted that no distinction is made between Great Britain and Northern Ireland in the VAT treatment of services (as opposed to supplies).
Most relevant for the VAT treatment is the time at which the service is rendered. Services are deemed to have been rendered when the underlying legal relationship has been terminated. Particularly in the case of ongoing services (e.g. rental services or subscriptions), it is important to determine when these are deemed to have ended. The same applies to partial services.
Thus, if the provision of a service to Great Britain or Northern Ireland begins before January 1, 2021 and ends after December 31, 2020, the service is to be considered as a service to a third country.
Services to an entrepreneur in Great Britain and Northern Ireland are generally taxable in Great Britain and Northern Ireland (so called "recipient location principle", Section 3a (2) German VAT Act). It is very likely that the reverse charge procedure will be also applicable. However, this depends on the future structure of the British and Northern Irish VAT law.
It should be noted that the services listed in Section 3a (4) sentence 2 German VAT Act (e.g. consulting services from a lawyer or certified tax advisor) to a non-entrepreneur from a third country are deemed to have been provided at his place of residence. It would be different, if the receiving non-entrepreneur is resident in the EU. In that case, the service would be deemed to be performed at the place of residence of the performing entrepreneur (Section 3a (1) of the German VAT Act).
4. Vat refund procedure
The Brexit does also have a direct impact on the input VAT refund procedure. It needs to be distinguished between input VAT amounts incurred before January 1, 2021 and after Decem-ber 31, 2020.
For input VAT amounts incurred before January 1, 2021, the regulation of the EU Directive of RL 2008/9/EC continues to apply. Accordingly, entrepreneurs from Germany can submit applications for the refund of UK input VAT via the portal of the German Federal Central Tax Office (BZSt). British entrepreneurs, on the other hand, need to use the HMRC Services Portal for input VAT refund applications, which will be then forwarded to the German Federal Central Tax Office. It should be noted, however, that input VAT refund applications for input VAT amounts incurred before January 1, 2021 need to be submitted by March 31, 2021 (!!) at the latest.
For input VAT amounts incurred after December 31, 2020 new rules need to be considered. The relief of input VAT will then basically follow the known procedure for entrepreneurs not resident in the EU.
This means that entrepreneurs need to submit the input VAT refund application directly to the responsible authority in the other state (German Federal Central Tax Office or UK authority).
However, there will be no changes for input VAT incurred on purchases of goods by German entrepreneurs in Northern Ireland or for Northern Irish entrepreneurs in Germany, as the provisions of the Directive 2008/9/EC will continue to apply to these cases.
5. Liability for supplies on electronic marketplaces
Basically, operators of an electronic marketplace are liable for unpaid VAT arising from supplies made by an online trader on the electronic marketplace. The operator can avoid this liability if he can provide the tax authorities with a so called "registration certificate" of the online trader in accordance with Section 22f (1) sentence 2 of the German VAT Act.
It should be noted that the provision of Section 3c German VAT Act (supplies to non-entrepreneurs below the supply threshold of EUR 100,000) will no longer apply to entre-preneurs from the UK after December 31, 2020. This means that the operator of an electronic marketplace will be required to submit a registration certificate in accordance to Section 22f (1) sentence 2 German VAT Act. However, there is a transitional period until January 31, 2021.
Registration certificates already issued to UK entrepreneurs before 31 December 2020 will remain valid after 31 December 2020. However, British entrepreneurs are obliged to appoint an authorized recipient in Germany as of January 1, 2021. A transitional period of one month also applies.
6. Mini-one-stop-shop-procedure for specific electronic services
Services according to Section 3a (5) of the German VAT Act (e.g. Streaming) that were made by a domestic or registered entrepreneur to private customers in the United Kingdom before January 1, 2021 can still be declared to the German Federal Central Tax Office under the MOSS procedure. However, it should be noted that tax returns up to and including Q4 2020 must be received by the German Federal Central Tax Office by the end of January 20, 2021. After this date, it will no longer be possible to use the MOSS procedure.
These principles also apply to sales pursuant to Section 3a (5) German VAT Act that have been provided to private customers in Germany by an entrepreneur resident or registered in the United Kingdom prior to January 1, 2021. Declarations not submitted in time, as well as services to private customers in Germany after December 31, 2020, must be declared directly in the general taxation procedure at the tax office Hannover-Nord in Germany.