On 24 December 2020 the United Kingdom (UK) and the EU entered into the UK-EU Trade and Cooperation Agreement (TCA) which will govern the relationship between the UK and the EU as of 1 January 2021.
European VAT is governed by the VAT Directive and case law by the Court of Justice of the European Union (CJEU). As a result of the Brexit the UK is now considered a third country and no longer bound by these sources. Therefore the UK is able to determine its own VAT rates, exemptions and reduced rates for certain supplies and services.
The sale of goods from the EU to the UK will now be treated as exports to third countries for which the zero rate applies. Please note that the zero rate only applies when the export can be proven (e.g. by an export or import declaration or by transport documents). Selling products directly to consumers in the UK results in VAT being due in the UK. In principle the delivery conditions determine who is liable to pay VAT.
For the import of goods you have to file an import declaration and pay the VAT to the customs authorities. This may be prevented by applying for an Article 23 permit. This permit allows you to declare the VAT in your periodic VAT return. When importing goods into the EU customs duties may be due and customs formalities have to be fulfilled.
As a consequence of Brexit the MOSS-scheme is not applicable anymore with regard to the supply of telecommunication, broadcasting or electronic services (digital services).
Corporate income tax and withholding tax
UK companies are no longer able to rely on EU legislation such as several tax-related EU Directives (e.g. Parent/Subsidiary Directive, the Interest and Royalties Directive, the Merger Directive). Key changes with regard to Dutch corporate income tax (Dutch CIT) are as follows:
For Dutch CIT purposes, a fiscal unity may be formed between i) Dutch sister companies being owned by a parent company in the EU/EER (sister fiscal unity) or ii) two Dutch companies with an EU/EER intermediate holding company (Papillon fiscal unity). Following Brexit, establishing such ‘sister fiscal unities’ with a mutual (in)direct UK parent company and 'Papillon fiscal unities' with an UK intermediate holding company will no longer be possible and existing 'sister fiscal unities' and 'Papillon fiscal unities' have been dissolved as per 1 January 2021.
The Dutch participation exemption is only applicable to shareholdings in UK companies if the Dutch corporate shareholder holds 5% or more of the issued share capital. For shareholdings in EU companies the participation exemption also applies, if the Dutch corporate shareholder holds 5% or more of the voting rights in the distributing company.
Any capital gains/hidden reserves of assets transferred as a result of a cross-border (de)merger or migration of a company will have to be taken into account for Dutch CIT. However, as a consequence of Brexit the possibility of paying the Dutch CIT in five annual instalments no longer applies as this advantage only is available to EU-member states.