Since 1 January 2021, the Brexit transition period has now expired. One of the many aspects companies are currently worried about are the tax consequences that arose due to the end of the transition period, with the most time-sensitive being the VAT. Therefore we listed the most important aspects of the changes in VAT matters, from the German point of view.
Treatment of supplies
Up from 1 January 2021 the United Kingdom of Great Britain and Northern Ireland (in the following UK) is treated as a Non-EU country regarding the German VAT. However, due to various special regulations, the treatment of supplies from and to Northern Ireland remains the same as it would, if it was an EU country. Therefore, the changes in the treatment of supplies only affect Great Britain (in the following GB). This means, that goods imported from GB to Germany are now no longer treated as an intra-community acquisition in Germany and goods imported from Germany to GB are no longer treated as intra-community supplies.
Under German VAT law, these operations are now classified as “imports” for goods that are shipped to Germany and “exports” for goods that are shipped from Germany to GB.
The most important consequence of the change of classification is the worsened liquidity. In the past, the shipping of goods from GB to a German company had no effect on the liquidity at all. However, as of now, German companies that import goods from GB have to pay import-VAT as soon as the goods cross the border. Since the import-VAT is refunded as part of the monthly VAT returns, this can take several weeks.
Treatment of services
In VAT matters that are concerned with services, GB and Northern Ireland are both treated as a Non-EU country. The consequences of the treatment of services under the German VAT law are only minor, compared with the consequences for supplies. Services performed after the 31 December 2020 as well as services performed before the 31 December 2020 are both subject of the reverse-charge procedure under German VAT law. However, for services performed after the 31 December 2020 the invoices does not need the notation “Reverse-charge procedure” to enable the German company to deduct the input VAT.
Additionally this means, that services performed to a UK company which have been performed before the 1 January 2020 have to be included in the respective recapitulative statements and services performed after the 31 December do not have to be included.
VAT refund system
In the past, companies that were not registered in Germany but received services with German VAT (e.g. due to a hotel visit in Germany) were capable of applying for a refund of said VAT. Since this refund system is possible for both EU as well as Non-EU countries, UK based companies are still able to apply for the refund of German VAT. However, the procedure and deadline will most likely change for the years up from 2021.
For VAT due to services performed in 2020, the UK still benefits from the transition period agreements and is therefore allowed to apply for the refund of VAT like an EU country would. The deadline for this application is 31 March 2021.
Please keep in mind that the German tax law – especially in matters concerning international tax – is rather complicated with various special regulations, exceptions and exceptions from exceptions. We therefore only stated the most important changes. Please contact us if you need consulting services regarding any matters listed in our blog.