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VAT update

BREXIT movement of goods

On January 7th 2021, the Tax Department issued clarification announcements in relation to the exit of the United Kingdom (UK) from the EU.

The announcement from Tax Department was in relation to the on-going movement of goods from the (UK) to the Republic, but also the VAT treatment of business expenditures, incurred by taxable persons of other Member States, in the UK during 2020.

In addition, the Customs & Excise Department published an announcement with regards to the preferential customs duties (tariffs) for goods that comply with the 'rules of origin'.

1. On-going movements of goods from the United Kingdom to the Republic

The dispatch or transport of goods from the UK to the Republic of Cyprus (and vice versa) which started before the end of the transition period (i.e. during the period 1/2/2020-31/12/2020), but will end after the transition period, according to Article 51(1) of the Withdrawal Agreement, will be considered for VAT purposes as an intra-community supply/acquisition of goods, and not as an import/ export. All reporting obligations related to these transactions (i.e. declaration in the relevant VAT return and in the Recapitulative tables - VIES) will still apply.

For goods which movement started before 31/12/2020 but arrived in the Republic after the end of the transition period (i.e. from 1/1/2021), at the time of arrival goods, customs authorities may request the importer to prove, by means of a transport document or any other document, that the dispatch or transport started before the end of the transition period.

2. VAT refunds to taxable persons in other Member States, for business expenses incurred in the UK during 2020

After the withdrawal of the UK from the EU (i.e. 31/12/2020) the provision of the directive 2008/9/EC, laying the detailed rules for the refund of VAT, to taxable persons not established in the Member State of refund, but established in another Member States shall not apply in relation to the UK, and as from 1/4/2021 the e-portal will not recognize the UK as a member state.

Requests for VAT on business expenses incurred in the UK in 2020 can be done until 31/03/2021. Regarding the VAT incurred in the UK from 1/1/2021, relating to the supply of goods or services by other taxable person from the UK or on the importation of goods in the United Kingdom, provided that such goods and services are used for your business purposes in the Republic, requests will be based on the provisions as set out in the 13th VAT Directive (Directive 86/560/EEC).

3. Custom and Excise preferential tariffs and ‘rules of origin’

The EU and the UK in their Trade and Cooperation Agreement, have agreed a regime which secures nil or preferential customs duties (tariffs) for goods that comply with the 'rules of origin', effective from 1 January 2021.

More specifically, goods imported between EU and UK will be nil rated for custom duties, provided that the goods meet the ‘rules of origin’. This mean that the goods must largely originate (produced and processed) from the respective countries.

The agreement does not provide for the Customs and Excise Departments of the UK or the EU to the issue any certification for these goods. Proof of the origin and claims in customs declarations must be made to support this and importers must be able to properly classify goods with UK and EU commodity codes (‘statement of origin’ or the ‘importer’s knowledge).

Failure to comply with this will mean EU or UK import tariffs will still apply.

 

Statement of origin: a statement with which the importer can proof that the goods comply with the rules of origin and should be included on the sales invoice or similar commercial document. It can be provided even after the exportation of the product.

Importer’s knowledge: This should include evidence from the original producer or exporter that the goods meet the ‘rules of origin’.