Date: 11 January 2021

In relation to the exit of the United Kingdom (UK) from the EU on 1 January 2021, the Tax Department issued on 07/01/21 relevant clarification announcements regarding the movement of goods and the VAT treatment for business expenditure occurred in the UK. Furthermore, the Customs & Excise departed published a clarification announcement with regards to goods which meet the “rules of origin” and will be subject to 0% importation duties.

1. Movement of Goods between the United Kingdom (UK) and the Republic of Cyprus after Brexit

The VAT treatment for the movement of goods between the UK and the Republic and vice versa depends on the dates when the movement of goods started and concluded.

Any movement of goods concluded during the transition period 01.02.2020 – 31.12.2020 is considered to be an intra-community movement of goods according to the CY VAT Act.

In situations where the movement of goods started during the transition period but will be concluded after the end of it; according to the Art 51, par 1 of the Withdrawal Agreement will be considered, from VAT perspective, as an intra-community acquisition of goods. Therefore, VAT should be declared as output tax in the relevant VAT return. Additionally, dispatchment of goods to the UK should be reported in the Recapitulative tables (VIES) if the aforementioned conditions apply.

2. VAT Refund for business expenditure incurred in the UK (Directive 2008/9)

After the exit of the UK from the EU and the end of the transition period, input VAT incurred in the UK according to the provisions of the Directive 2006/112/EU for taxable persons established to a Member state other that the Member State where the expenditure occurred, will not be reclaimable.

From 01 April 2021 the e-portal will not recognize the UK as a member state, therefore applications for VAT return incurred in the UK will not be feasible. However, for expenditure incurred until 31 December 2020 VAT return applications should be made by 31 March 2021.

Regarding VAT incurred in the UK after 01 January 2021 relating to the supply of goods or services from UK taxable persons or for the importation of goods in the UK, the provisions of 13th VAT Directive (86/560/EU) will be applicable. Therefore, as long as those goods or services are used in the Republic for the course of the furtherance of the business, such VAT claim should be allowed.

3. Trade deal between EU and UK – Customs & Excise department Announcement

According to the trade deal, goods which meet the “rules of origin” will not bear any importation duties.

Goods which meet the “rules of origin” are those that are either produced exclusively in the country of origin or goods where materials from third countries that had been subjected to extensive process in the country of origin were used.

It is worth mentioning that the Customs & Excise departments of the UK or EU are not required to issue any certification for these goods. However, appropriate evidence is required for the zero-import duty to apply. The evidence is either “a statement of origin” or the “importer’s knowledge”.

The “statement of origin” should provide enough information to identify the product and can be provided after the exportation of the product.

The “importer’s knowledge” should be based on evidence that the product meets the “rules of origin” of the trade deal.

How can KPMG assist?

Should you like to further discuss the content and potential impact of the Circular to your business, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.

KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.

Our tax professionals are able to review your company’s current tax position and provide relevant advice and planning on a range of indirect taxes, including VAT, customs duties and excise taxes (such as tax audits, reorganizations and acquisitions, etc.). Furthermore, we can help your company with its administrative obligations and contacts with administrative bodies.