Brexit and its implications of a No-Deal Brexit have been on our minds since the UK voted leave in 2016. On March 12th of 2019, the British Parliament rejected once again the agreement prime minister Theresa May had negotiated with the EU. As the scheduled leaving date of March 29, 2019 is approaching rapidly, we realise the seriousness and increasing likeliness of a potential No-Deal Brexit.
A No-Deal Brexit is the termination of Britain’s EU membership without an agreement. This would impact various areas such as trade, citizen rights, customs and others, which leads us to the tax implications and how they can impact your business. In order to stay ahead of a potential No-Deal Brexit day, here are the key tax-related and legal matters that we recommend you consider and prepare for.
Indirect Taxes (VAT)
In the case of a hard Brexit, there would be no transitional agreement. As of 30 March 2019, Great Britain would be treated as a third country for VAT purposes.
- The Government has stated that the present EU-VAT system will continue to be used, although we believe that after a certain period of time, changes will be introduced. Therefore, we recommend that businesses start considering trade with the UK as a non-EU country in order to be prepared.
- Imports: Slightly altered non-EU import laws will be put into place for goods imported from the EU. Importing to/from the UK will not be considered as Intra EU movements anymore.
- Exports: When exporting from the UK to EU businesses and consumers, the sales tax will be zero rated. Also, similar rules for exports to Non-EU countries will be applied to Exports to/from the UK. We recommend for businesses to prepare for new VAT procedures when goods are crossing the border of the UK and going through customs.
- EU-Directives: When it comes to direct taxes, such as corporate income tax, the directives will not be applied or be available to UK companies.
- Interest and Royalties: Changes will be made to withholding taxes applicable to royalties and interest but also to dividends. Which means, EU directives in the field of direct tax (including Corporate income tax, Payments of Dividends, Interest, Royalties) will no longer be applied.
No-Deal Brexit for German companies
German and foreign businesses established in various industries (auto, pharmaceuticals, chemicals, etc.) that are operating in the UK will be negatively affected by a no-deal Brexit. It has been stated that the German Chamber of Commerce and also the Finance Ministry will be advising SMEs companies with educational roadshows on the right preparation for the upcoming radical changes.
Meanwhile, Ecovis offices around the world are prepared to advise businesses on the impact a no-deal Brexit would have on their specific tax situation – warning of the many drawbacks but at the same time pointing out the potential assets in a no-deal Brexit.
The specific implications strongly depend on the jurisdiction of your firm. In most cases, those will have to be assessed case by case. For German businesses, selected tax implications are listed below.
Type of Tax
Drawback or Asset
Tax deduction for limited taxpayers
|No more deduction of operating expenses and advertising costs||Drawback|
Reinvestment of assets
|No deferral possibility for reinvestment in the UK||Drawback|
Services for non-entrepreneurs in the UK
|Taxation in the country of service recipient, registration obligation in the other state||Drawback|
|No more tax required||Asset|
|No application of differential taxation on UK purchases||Asset|
Beyond tax implications: GDPR compliance
After March 29, 2019, without a deal the UK would be considered a third country under GDPR regulations. It is believed that the UK’s data protection level will not be in complete compliance with the GDPR. As a result, in order to make sure the UK data framework is secure and works correctly, changes will be made to the GDPR and also the Data Protection Act.
Please contact us for more information on how to prepare your business for a No-Deal Brexit and for an individual consultation regarding the tax and data security implications for your firm.
Richard Hoffmann is a partner at Ecovis Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining Ecovis. In addition to being a member of the board of Ecovis International, he is Supervisor for the China business of several respected German companies and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: email@example.com
Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up for our Newsletter, give us a call +86 10-65616609 or contact us directly via firstname.lastname@example.org.