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Brexit Free Trade deal Constraints

11 January 2021

Brexit

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The early weeks of implementation of the EU-UK trade deal for goods has identified that it is not as straightforward as it appears.

  1. UK businesses selling goods to EU b2b

The nil rate of customs duty on arrival in the EU only applies to goods which are primarily of UK origin.  By default the goods must have 60% UK value, termed the Country of Origin (COO) rules.  If for example a UK business imports trainers manufactured from China into the UK for onward sale to a EU retailer, the goods will attract UK customs duty on arrival in the UK and EU customs duty on arrival into the EU.  The EU has free trade deals with other countries so goods arriving from developing countries often do not attract customs duty.   The COO rules are particularly important for UK businesses who import parts or components for manufacture or process into a final product, which are subsequently sold to the EU.

 

  1. UK businesses selling goods to EU b2c

In 2021 there are three available options as follows;

  • Register for “non-union” VAT MOSS in a EU member state and charge the customer the local VAT rate.  Submit the MOSS return with all EU sales and make a single payment, which is distributed by the tax authority to other member states as per the return.
  • Register for VAT in each EU member state where you have EU consumers.  Charge the customer the local VAT rate. If the UK business does not have a local establishment it may have to appoint a local fiscal representative.  This option will allow the UK business to hold stock inside the member state.  This EU VAT registration can also be used with a union MOSS return to sell b2c to other member states.
  • Sell the goods as a VAT zero rate export from the UK, delivered by post or by a courier company.  Import VAT is due (unless the goods themselves are zero rated) on arrival in the EU, before the goods are delivered to the consumer, if the goods have a value above €22.  The import VAT is irrecoverable by the buyer. If the goods are not of UK origin, customs duty is potentially due also.  The best solution when using this option is to arrange for the courier company to pay the import VAT on your behalf and adjust your sales price accordingly.  Leaving the customer to pay the import VAT places an administrative burden upon them and delays delivery.

Possible other solutions or simplifications.

If the UK seller has a trading entity inside the EU, divert sales to EU consumers to the subsidiary or parent company. The goods can be initially sold from the UK entity to their associated EU entity, a zero rate export of b2b goods.  The importer will have to pay import VAT but this will be recoverable via their VAT return.

Sell via an online trading platform such as Amazon, who can collect EU VAT (and declare to the local tax authority) on sales with a value below €150.

No import VAT or customs duty is due on sales to EU consumers with a value below €22 until 30 June 2021, when new EU rules for b2c sales of goods by overseas businesses are introduced.  Excise goods such as alcohol and perfume are an exception to this concession.  After 1 July register for the new OSS or iOSS return system in the EU.