Regarding the movement of the goods between Northern Ireland and European Union, Northern Ireland, despite Brexit, remains a member of the single internal market and within the customs union (also referred to as a so-called dual regime). On the other hand, services are subject to completely different conditions and in this case, it is necessary to consider Northern Ireland as a third country (i.e. a non-EU member).
Given the above, it is possible to provide and purchase goods under the same conditions as before Brexit, including the tax exemption, etc. In this case, it is possible to apply the new VAT ID code for Northern Ireland “XI”.
As already mentioned, for services, the whole United Kingdom (further referred to as UK) including Northern Ireland is understood as a third country. Regarding this matter, we would like to draw your attention to services provided by a Czech taxpayer and consumed within the territory of the Czech Republic (for more information please see § 9a of Czech VAT Act). For the received services, the Czech Republic remains as the place of performance and thus, the only a change is in the reporting of these services within the VAT return.
From 1 January 2021, the United Kingdom is considered as a third country, which affects the reporting, among other things also in the context of value-added tax. Export or import occurs in the case of crossing the borders of the customs union, in this case of crossing the borders of the United Kingdom.
For export, in accordance with the Value Added Tax Act, the standard tax document is considered an invoice issued by the supplier of goods (not an export document), and the day of the taxably supply is considered to be the day of exit from the territory of the European Union. However, this could be quite complicated in practice because in many cases, the day of the taxable supply is often not known at the time of issuing the invoice due to the fact that the invoice is issued before the goods are handed over to the carrier and before the so-called customs clearance.
Based on the cooperation of the Chamber of Tax Advisors and the General Finance Directorate, a coordination committee was established, and the result is that one of the following dates may be stated as the day of the taxable supply on the tax document (invoice):
In particular, when the goods are delivered (meaning the right to dispose of the goods as the owner is transferred) before the goods leave the territory of the EU, taxpayers may indicate the date of delivery as the date of the taxable supply according to the agreed delivery clause and do not need to wait for the goods to leave the territory of the EU.
Nevertheless, if this situation does not occur and the invoice is issued at a time when the goods have already left the European Union, it is necessary to state the specific date when the goods left the territory of the EU as the date of the taxable supply. At this point, it is important to emphasize that the decision of the customs office on the export of goods to a third country (or other means of proof) is strictly required as evidence for exemption of export. The customs declaration must be submitted electronically and an electronic data message in XML format is a proof of export whereas this message contains a confirmation from the customs office of the exit of the goods from the European Union.
By default, the service from another Member state is reported on row 5/6 + 43/44 of the Value Added Tax return and in section A.2 of the Ledger Statement. There is often a situation where the service has been received from another Member State and the price has been subsequently adjusted by a credit note. According to the Czech VAT Act, the credit note should generally follow the original invoice.
After Brexit, the situation may be a little bit more complicated when the position of the state changes. It is, specifically, in cases where the service was received from the United Kingdom, for example during 2020 and properly declared in the VAT return as well as in the VAT Ledger Statement. Throughout the year 2021, ie after Brexit, the price may be adjusted by a credit note. If the adjustment is in accordance with Section 42 of the Vzech Value Added Tax Act, the adjustment of the tax base is considered as a separate taxable supply made on the day when the facts decisive for the correction of the tax base were acknowledged.
Therefore, if the tax base was corrected in 2021, it is considered to be a separate taxable supply with a negative tax base and it is necessary to report it in accordance with the situation and valid rules at the time of the decisive date for the tax base correction – meaning 2021. Due to the fact that in 2021 it was already a supplier from a third country, the described correction can be reported on rows 12/13 and 43/44 of the Value Added Tax Return and at the same time in section A.2 of the VAT Ledger Statement.
Due to the current COVID-19 situation and its influence on basically every aspect of our lives, import and export is not an exception. These difficult conditions would most likely lead to enormous export and import issues between the European Union and the United Kingdom. Because of these reasons, an agreement has been reached between the EU and the UK which allows, from January 2021, postponing customs clearance when arriving to the UK up to 6 months after the import was carried out. In other words, the rules are not fully applied until August 2021.
However, as regards the goods of animal origin, it is a prerequisite to bring forward all the required documents by April 2021.
The business structures between suppliers and customers are often very complex and Brexit is changing number of established models. However, many companies forget to properly adjust the business model that would take this change into account. Besides the registration to value-added tax, it is also necessary to mention the possible registration of obtaining an EORI code (abbreviation for Economic Operator Registration and Identification).
This code is used for communication with customs offices. Generally only one code is required within the European Union, nevertheless, Brexit has made the United Kingdom a third country, which leads to the necessity of another registration for acquisition of another EORI code. The main reason is the fact that communication with the UK customs offices requires the local EORI administration, which must be set up in the case of customs matters.
Brexit has changed a number of rules that we were used to until the end of the last year. Therefore, we would highly recommend verification of all transactions involving the United Kingdom. The correct and feasible setup of a business from the tax point of view is vital for a long-term and sustainable business.
Also, please note that this article is only for informative purposes and it is not an official statement. However, the tax law may be treacherous and confusing, and therefore in case you have any doubts related to tax issues, do not hesitate to contact us, we will be happy to assist you with your business and provide you with our tax advisory services.
Contact our expert