The exit of the United Kingdom involves that merchandise transactions with the European Union will not be considered intra-Community transactions.
The United Kingdom plans to exit the European Union. If an agreement that includes a transitional period is not reached, it will imply that the UK will abandon the single market and the custom union.
Due to the uncertainty of this scenario, the Spanish Tax Agency has published on its web information about the consequences that the Brexit would entail in relation to VAT.
This exit will imply that the transactions of merchandise between Spain, or any other country member of the European Union, and the United Kingdom, cease to be considered as intra-community operations in order to become subject to custom formalities.
This will mean that, when an entry of merchandise from the United Kingdom into the Spanish VAT application territory occurs - this is, Peninsula and Balearic Islands-, VAT must be paid at the time of importation unless the entity is registered in the deferred VAT system, in which case, VAT will be paid in Form 303 corresponding to the month in which it has been processed.
In the cases where companies have the obligation to submit Form 303 quarterly, the company may request the obligation to submit the form monthly by registering in the Monthly Return Registry or REDEME, being also obliged to submit the Immediate Supply of Information (SII).
When calculating the tax base of VAT related to imports, the value of the merchandise in customs will be considered adding taxes, duties, and other levies accrued as a result of the import except from VAT.
In addition, accessory costs such as commission, packaging, transport and insurance costs until the first place of destination within the European Union must be included.
As for the goods transported from the Spanish VAT application territory to the United Kingdom, they will be considered exports, and therefore, will be exempt from VAT.
In order to avoid double taxation, intra-community acquisitions that are transported from the UK to any of the State Members, will continue being considered intra-community acquisitions.
On the other hand, in relation to the provision of services, the location rules described in the VAT Law will be applied, thereby, certain services described in Article 70 of the Law will be subject to Spanish VAT, provided that they are located in the United Kingdom but taking into account that the effective exploitation or use is carried out in the Peninsula or Balearic Islands.
Because the operations between Spain and the United Kingdom are no longer considered intra-community, they will not be reported in Form 349.
Additionally, taking into account that these operations will be considered as imports or exports, the Spanish entities should have an EORI number.
Regarding the request of VAT refunds by entrepreneurs established in the United Kingdom, it will be necessary that they name a resident in the Spanish VAT territory as legal representative as well as the reciprocity of treatment in the UK with respect to Spanish companies.
Furthermore, in relation to Special Taxes, the occurrence of this scenario would imply that from the exit of the UK the shipments/receptions of products subject to Special Tax become exports/imports and therefore, the custom union regulation will be applied.
In conclusion, the exit of the United Kingdom without an agreement that includes a transitional period will imply changes in the consideration of the transaction of merchandise as well as in the provision of services between Spain and the United Kingdom in relation to VAT.
B Law & Tax
International Tax & Legal Advisors