The VAT chapter for European trade post Brexit

From 2021, with the official implementation of Brexit and the exit of the United Kingdom from the European Union, companies from European countries will no longer be able to obtain the refund of VAT paid in the United Kingdom and, specularly, companies from the United Kingdom will no longer be able to obtain the refund of VAT paid in European Union countries. However, this is not yet official news and has already been established. Many people in the world of business are asking for specific agreements on the post-Brexit VAT chapter.

Under current legislation, from 1 January 2021, the provisions of Directive 2008/9 on the refund of VAT paid in a Member State other than that of residence will no longer apply to post-Brexit relations with the United Kingdom, but those of Directive 86/560, which regulates relations with countries outside the European Union.

For purchases of goods and services made during 2020, attention should be paid to the fact that the deadline for the submission of applications has been set at 31 March 2021. An earlier deadline, therefore, than the ordinary deadline of 30 September provided for by the directive. Requests submitted by 31 March 2021 must be processed by the competent authorities by 31 January 2022, as after that date access to the IT procedure will be denied. For the avoidance of problems, however, it would be preferable, since it is not precluded, to send the request by 31 December.

Until the end of 2020, nothing will change for companies and citizens interested in trading with the UK before Brexit: EU legislation and procedures on the free movement of persons, services, capital and goods will remain in force in the UK. Only after 31 December 2020, unless otherwise agreed, the United Kingdom will no longer be part of the customs and tax territory (VAT and excise duties) of the European Union. The movement of goods between the UK and the EU will therefore be considered trade with a third country.

Under the harmonised system, the right to a refund of VAT paid by the taxable person in a Member State other than the one in which he is established is based on the same substantive conditions as the right of deduction, since it is a mere method of recovering the tax, which is not actually exercisable for “cross border” purchases. The right to refund is subject to the existence of certain conditions. First, the taxable person must not have a territorial link in the country of refund which would oblige him to register in that country. The refund may not be claimed by a taxable person who, during the relevant period, had in the Member State in which he made the purchases the place of his business or a fixed establishment or, in the absence of a place of business or fixed establishment, his permanent address or usual residence. Where one of these territorial connecting factors exists, the taxable person shall be deemed to be “established” and therefore cannot avail himself of the refund procedure.

For detailed information on post Brexit consultancy forms and the advantages offered by the Maltese Government please contact the Malta Business Agency offices by filling in the following form: