Brexit was the withdrawal of the United Kingdom from the European Union on 1 January 2021. Key from a business perspective is that the UK is no longer a member of the internal market and customs union of the EU. This means that the EU member states function as a single trading area with no border checks or tariffs, a combined VAT system and little requirement for import and/or export documentation. What impact does Brexit have on you as a UK entrepreneur? And how can we help?
Trading with the EU
Since the end of the transition period (1 January 2021), businesses who are supplying goods from the UK to the EU need to consider export requirements for the first time. These include:
The rules as of 1 January 2021 are similar to those which are used when exporting goods to non-EU countries. It is very important that you have a registered office in the UK. In addition, you’ll need an Economic Operators Registration and Identification Number (EORI). Which type of EORI number you need depends on the country you’re transferring goods to. The consequence of not obtaining an EORI is that you may encounter delays at customs and increased costs for the export.
Documents, licenses and commodity codes
Because of the Trade and Cooperation Agreement (TCA) the UK and the EU have agreed to 100& tariff liberalization. This means there will be no tariffs or quotas on the movement of goods between the UK and EU. Traders will have to comply with the ‘’rules of origin’’ to enjoy tariff liberalization. However, as a result of Brexit, customs formalities are required.
The duties, rules and restrictions for exporting your goods depend on the destination country. It is also important to check if the person or business you’re sending your goods too is able to import them into their country. They might need to make an import declaration in their country and/or need licenses and/or certificates to receive goods from the UK.
Depending on the sector you’re working in, you might need to get licenses or certificates yourself for the export of your goods. The reason for this is that some goods are ‘’controlled’’ goods and require a license to export. Examples are animals and animal products or military goods.
Moreover, you need to find the right commodity code to classify the goods you’re exporting. Through the classification of goods, it becomes clear what amount of duty needs to be paid upon entering the EU.
You will need to issue key documents to your freight carrier, such as the road consignment note, the Movement Reference Number (MRN) from the export declaration, relevant export licenses and other relevant documents. This is the case because the TCA between the UK and EU requires customs declarations and paperwork to process the movement of goods. Goods have to go through two conformity assessments (instead of one like before Brexit) when a business wants to place its product on both the UK and EU market. This creates a lot of additional costs and complexity for businesses. These additional customs checks have the potential to cause a lot of delays at the borders and consequently these delays can have knock-on impacts on the supply chains in which the goods are distributed.
Until 1 January 2021 the UK remained within the EU customs and VAT systems. This meant that UK businesses there didn’t have to register for VAT in EU countries. This also meant that UK businesses were able to use various VAT simplifications on their EU trade such as distance selling thresholds or simplified online EU VAT reclaims. As of 1 January 2021, the UK isn’t part of the internal market anymore and faces the VAT rules of 27 different countries in the EU.
VAT on exports
As of 1 January 2021, exports to countries in the EU are treated the same as to non-EU countries. This means that the exports should be zero-rated for UK VAT. This applies for both B2C as for B2B. This means that you apply a 0% VAT rate. You don’t pay UK VAT but you still have to include the exports in your VAT accounting and take the VAT of the recipient country in account.
VAT on services
The most changes on VAT after Brexit are those for the exports of goods. When it comes to selling services, the changes to VAT are limited.
Under the place of supply rules, B2B sales of services continue to be generally subject to tax in the country of the customer and administered through reverse charge, with some exceptions.
B2C sales of services will continue to be generally subject to tax in the country of the seller, again with some exceptions.
Brexit affects businesses in more ways than trade as well. For example, when you employ EU nationals in the UK, they could also be impacted. Their rights to reside and work in the UK have changed. For both the UK and EU, there will no longer be general access to each other’s markets. For example, financial services no longer have access to customers through ‘’passporting’’.
Also, professional qualifications are no longer automatically reciprocally recognized. Moreover, there is no free movement of persons anymore between the UK and EU. You’ll have to check if and what sort of visa you need when entering the EU.
In summary, the changes for UK businesses which are trading with the EU are significant. For example, the export of goods from the UK to the EU has already decreased with 18% in the first quarter of 2021 in comparison to the last quarter of 2020 (transition period Brexit).
Solving the problem: Dutch entity in the EU
Setting up a legal entity in the EU is a very effective way to reduce the adverse effects of Brexit. This is much easier and more cost-effective than most people realize. Having a legal entity in the EU will allow you to hire staff in the EU, or even keep your current EU staff who are moving from the UK to the EU. Also, a legal entity in the EU will make it easier to avoid high tariffs, pay suppliers, set up operations in the EU and operate bank accounts. You’ll be able to enjoy the perks of the free transfer of goods and services within the EU instead of constantly transferring from the UK to the EU. Also, having a base in the EU will significantly reduce the amount of paperwork and minimize tariffs.
The Netherlands contains an advantageous fiscal climate for businesses and a stable investment climate. Moreover, the Netherlands is part of an extensive tax treaty network and through the innovation box regime, there are incentives for innovation. Also, the location of the Netherlands allows for easy penetration into markets throughout Europe. Not only the location helps with the gateway into Europe. The country also has a highly advanced transport infrastructure such as Schiphol Airport in Amsterdam and the biggest port of Europe in Rotterdam. Last but not least, approximately 90% of Dutch people speak English and many people are multilingual.
All in all, setting up a Dutch entity is a great way to mitigate the disadvantageous effects of Brexit. And we can help you with that! For a price of €749 we can assist you from beginning to end with the establishment of your Dutch entity. You can start the procedure through this link. If you have any questions regarding your options, feel free to contact us first!