Brexit and customs duties: watch out for VAT!


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If the agreement of December 24, 2020 between the EU and the United Kingdom on customs duties has made it possible to see more clearly, too few companies are prepared on the subject of VAT. A not insignificant point of detail which can nevertheless be very expensive.

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“An essential aspect remained unanswered before the conclusion of the trade and cooperation agreement of December 24, 2020 between the European Union and the United Kingdom. If the principle of re-establishing borders and customs formalities on January 1, 2021 was acquired, there was still some uncertainty about tariffs, explains Laurent Dommergues, specialist in international corporate taxation at GMBA, an accounting, tax and social, auditing and consulting firm for companies and associations.

An exemption from customs duties for products “of preferential origin”

This agreement provides for all products a exemption from customs duties from January 1, 2021, subject to compliance with the rules of preferential origin that it provides. This exemption, requested in the customs declaration, is conditional on the concept of “originating product” one of the two parties.

The UK’s exit from the European Union means that goods shipped from the UK to France (or vice versa) cross two borders: the UK border and that of the EU member state concerned. This triggers two customs and fiscal operations: an export to the United Kingdom and an import to the European Union (or vice versa). Importation gives rise to the collection of VAT and customs duties, unless the goods meet the rules of preferential origin defined by the agreement of 24 December.

Companies which only carried out operations within the European Union had to learn and must continue to learn to “think customs”. However, beware of Northern Ireland which is subject to very specific rules.

“The main contribution of this agreement is the immediate dismantling of customs duties for all products respecting the rules of preferential origin. This makes it possible to avoid a sometimes significant additional cost for economic operators, which would have been passed on to consumers. The fact remains that all the other consequences of exiting the internal market are imposed on companies that trade with the United Kingdom: customs export and import formalities, customs controls and indirect costs linked to Brexit “, underlines Laurent Dommergues.

Vigilance on the payment of VAT

Import VAT is in principle recoverable for companies and different exemption and neutralization mechanisms can be used on both sides of the border. “However, from many traps exist and it is essential to be advised upstream to avoid them, specifies Laurent Dommergues. An insufficient level of preparation or a poor structuring of operations can in certain cases lead to difficulties in recovering the VAT paid on importation or even a rejection of the right to deduct by the administration “. Thus, if a company does not carry out the input formalities, it will recover the VAT but after having paid it. Whereas a company which will have anticipated the subject will not pay it. And, “too few companies are prepared on the subject”, concludes Laurent Dommergues. This results in many disputes. A good reason to prepare the subject well in advance.

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