Brexit and the Implications for VAT and Trade

Little time remains until the United Kingdom is set to exit the European Union, as the official Brexit day has been set for 29 March 2019. Without a clear withdrawal agreement yet in sight, the United Kingdom will be treated as a non-EU country. However, there are still many factors under discussion, and a number of outcomes could still be possible in the run up to that date.

What is certain, however, is that from the date of the actual exit, transactions with the UK will change. These will go from having intra-community status, to being treated as imports and exports between 3rd country territories. This means that the UK may have to pay import VAT, and vice versa.

The implications of this in Cyprus have been outlined via three separate announcements issued by the Cyprus VAT Authorities. These are as follows:

1. Refund of VAT incurred in the UK by Cyprus taxable persons

a. Taxable persons in Cyprus who have incurred UK VAT up until 31st December 2018 may proceed with the submission of an electronic application for VAT refund by 10th March 2019. After this date, the Council Directive 2008/9/EC on VAT refunds will no longer be applicable, and any incurred VAT may be lost.

b. Taxable persons in Cyprus who incur UK VAT in 2019 will be able to apply for their refund via the procedures of the 13th Directive, which outlines the rules relating to refunds to non-EU businesses, provided that these provisions are met. It is not yet clear, however, how this will be put into practice, as Cyprus currently requires reciprocity with the refunding non-EU member state in order for the 13th Directive to apply. No such reciprocity has been agreed upon to date, therefore the practical implications of this remain to be seen going forward.

2. Intrastat Declarations

a. Intrastat was introduced to collect data on the movement of goods between EU Member States upon the abolishment of formal import and export procedures within the single market. However, following Brexit, the Cyprus Tax Department has stated that Intrastat statements should only include transactions to and from the UK up until 29th March 2019.

b. From 30th March 2019 onwards, imports and exports to and from the UK will no longer be considered intra-community, and will therefore not be declared on an Intrastat statement.

3. Recapitulative statements (VIES returns)

a. VIES (VAT Information Exchange System) provides a mechanism whereby checks can be made in EU Member States on the validity of claims to zero-rating, and applies to intra-EU trade. As such, once Brexit goes into effect, only the supply of goods and services to the UK up to 29th March 2019 should be report on the VIES return.

b. Exports and imports to and from the UK which will take place after 29th March 2019 will no longer be considered intra-community trade, and will therefore not be stated on the Recapitulative Table.