Although since February 2020 the United Kingdom is no longer part of the European Union, the consolidation of the agreement agreed between the United Kingdom and the European Union ended on December 31, 2020, formalizing it between both parties with another ambitious agreement on the past 24 from December. Therefore, the fiscal and customs consequences that the departure has originated are already a reality and that are already applicable from January 1, 2021. As of the first day of 2021, the United Kingdom must be treated for all purposes as a third country, not part of the European Economic Area or the Customs Union.
The changes in tax and customs matters affect both individuals and companies in their until now usual relations with the United Kingdom. Thus, Brexit has substantially modified the treatment of the main tax figures: personal income tax, IRNR, VAT and IS. Oscar Garcia, director of the tax area of LABE Lawyers, an office that has a specific area for international taxation, explains what will be the changes that will occur in the matter.
VAT, tax implications
Here we detail the commercial and tax implications that apply since last January 1, 2021:
- Intra-community acquisitions (AIB). From now on they will be considered imports, paying VAT and, where appropriate, customs duties when the import occurs, unless the company opts for the payment of deferred VAT, registering in the monthly refund scheme, obliging us , on the other hand, to send the details of the billing records through the SII (Immediate Supply of Information).
- Intra-community deliveries of goods (EIB). The that until now were intra-community supplies of goods (EIB) will become exports, Without this implying a big change, since both EIBs and exports are exempt from VAT so as not to penalize exporting activity, although taking into account, where appropriate, the tariffs that the United Kingdom may apply to European products and, above all , to products sold from Europe whose origin is from a third country.
- Talking about distance sales, the current regime will no longer be applicable, Spanish companies should not charge VAT on sales to individuals, as it is an import made by British buyers.
- Formal obligations. This new operation considerably reduces the formal obligations required to date, by not having to declare from now on these operations in Intrastat or in the form “349 Summary declaration of intra-community operations”, ceasing to have this consideration to be subject from now to customs formalities. They will also not have the obligation to identify themselves by VAT NIF, but they must have an EORI number in the case of customs operations.
We explain how Brexit affects your taxation since January 1, 2021?
- Dividends and intangible assets. In its regulatory development, the Corporation Tax declares the exemption in certain income, mainly those derived from dividends and intangible assets. This exemption was derived from the status of the United Kingdom as a Member State of the EU, a condition that ceased to exist from the first day of this year. However, it should be noted that there is a bilateral agreement between the United Kingdom and Spain to avoid double taxation, an agreement that will continue to apply. For this reason, these income, which are no longer exempt in application of internal regulations, would continue to be exempt income invoking the right to apply the Convention.
- Change of address. When assets are transferred from Spain to the United Kingdom derived from a change of residence, the tax debt generated in Corporation Tax by the transferred Spanish companies cannot be deferred in any case.
- Loss of deductibility of certain expenses and some tax benefits. The realization of contributions to pension funds UK employment will no longer be a deductible expense. The expenses assumed by Spanish entities subject to Corporation Tax in business activities Investigation and development (R&D) and technological innovation in the United Kingdom, they will not count for the calculation of the deduction base for this tax. Neither will the deduction for film productions, audiovisual series and shows live with authors, actors or creative technical staff with British nationality or residence.
- Certain special regimes will no longer apply. The European Economic Interest Groups Investees owned by Spanish and British companies will not be considered as such and the special tax regime for allocating income to partners will not apply. Neither can the Special regime for mergers, splits, contributions of assets, exchange of securities and change of registered office, in changes of domicile to the United Kingdom, with the loss of the deferral of the taxation of latent income on the assets transferred as a result of carrying out said operations. By last, Non-application of the special tax transparency regime to Member States will lose its validity for investee companies in the United Kingdom, the income obtained by the entity domiciled in British territory being subject to the imputation regime at the Spanish partner’s headquarters.
Keys for non-residents
How will the non-resident income tax (IRNR) affect individuals and companies?
As of January 1, 2021, the income obtained in Spain by a non-resident of the United Kingdom, The specific provisions contained in the Spanish regulations for non-residents (IRNR) will continue to apply to them. However, as mentioned above, the bilateral agreement between the United Kingdom and Spain must be kept in mind to avoid double taxation, with said agreement being applied with priority over Spanish internal regulations.
Again, there are so far exempt incomes that have ceased to be so due to our internal regulations, an exemption that has been abolished when the United Kingdom lost its status as a Member State of the European Union. Therefore, in the absence of what the Double Taxation Agreement between Spain and the United Kingdom says for each specific case, these relationships will be taxed from now on with regard to interests and capital gains derived from movable property, the profits distributed by the companies subsidiaries resident in Spain to their parent companies in the United Kingdom, the canons Interest and capital gains derived from movable property, the profits distributed by the subsidiary companies resident in Spain to their parent companies in the United Kingdom, the royalties between associated companies and the exemption for reinvestment in habitual residence will be lost.
The biggest impact will come with the increase in taxation that implies being considered a third country for the purposes of Spanish IRNR. Our regulations do not allow the deduction of expenses considered as deductible neither in personal income tax nor in companies to non-residents in third countries, but to those located in the EU. Therefore, from now on, it will be taxed on its gross and not net income, and its tax will also be increased from 19% to 24%. Among these incomes we can cite work income, real estate income (for rent) or imputable income from real estate (when the property is not rented).
Special mention should be made of the taxation of those British citizens with real estate in Spain, who will see their tax bill increase considerably by not being able to apply the 60% home rental deduction, unlike non-EU residents.
What changes has Brexit caused in personal income tax?
If a resident in Spain makes a change of address To the United Kingdom, the income pending imputation must be included in the tax base corresponding to the last tax period to be declared. For this reason, from now on, it will not be possible to choose to present a complementary self-assessment without penalty, late payment interest or any surcharge, as long as said pending and imputed income has been obtained.
From now on, the capital losses derived from equity transfers of homogeneous listed securities of British nationality, followed by a reinvestment in them during the year following the transfer, with the provision of a period of two months for them being null and void.
Contributions and contributions to pension funds in the United Kingdom. The valuation rule regarding remuneration in kind derived from contributions paid by promoters to pension funds in the United Kingdom cannot be applied. Neither may any reduction be applied in the tax base for contributions to them.
In the case of proceeding with the application of the exit tax, which taxes certain capital gains due to change of residence, when said change is to the United Kingdom, the special treatment for transfers of residence to another Member State of the European Union or the European Economic Area may not be applied, if there is an effective exchange of tax information .
The 20% special tax applicable to prizes from lotteries, bets and raffles organized by public bodies or entities established in other EU Member States will not be applicable to those organized by entities equivalent to those residing in the United Kingdom. On the contrary, these premises will be taxed in personal income tax as capital gains.
How will Brexit affect customs in the UK?
As mentioned previously, as of January 1, the commercial exchanges carried out between Spain and the United Kingdom will be considered exports and imports. This entails new formal and economic implications that will affect shipments and receptions with the United Kingdom.
After the agreement between the European Union and the United Kingdom on December 24, in which the elimination of tariffs was agreed, the customs control is effective. Therefore, customs declarations will be required from now on for shipments and receipts of goods to and from the UK. For its presentation it will be necessary to have an EORI number, which in Spain we can obtain through the electronic headquarters of the Tax Agency. The presentation of the declarations can be made by the operators themselves or by using a customs representative.
In order for said change to affect the trade as little as possible, he tells us Oscar Garcia that the new border control system will be implemented in three phases, which will enter into force in January, April and June 2021.
The first stage is intended for products in the “uncontrolled” category. These products will be allowed to defer the filing of customs declarations and the payment of duties and taxes for up to 6 months. At this stage, controlled products such as alcohol or tobacco will be asked for a standard customs declaration.
As of April 1, in the second stage, controls, physical inspections will be intensified and health documentation will be requested for products of animal origin and all plants and vegetables.
Finally, during the month of July all the procedures in general will be incorporated when the product reaches the point of entry (the payment of tariffs (if applicable), entry declarations, activation of checkpoints, sanitary or phytosanitary controls …).
If you are affected by these changes produced after the final Brexit, do not hesitate to contact him Department specialized in international taxation of LABE Lawyers, offering you specialized advice adapted to your case.
Óscar García is director of the tax department at LABE Abogados.