World news
10 January 2019

Brexit: time for a deal running short

Although the exit agreement between the United Kingdom and the EU is ready, it has not yet been ratified. The key vote in the British parliament lies ahead: if the deal is not passed, there will most likely be a no-deal Brexit. In this uncertain situation, the European Union has intensified preparations for Britain leaving the EU without a deal.

Pavel Gorel
Lucie Leopoldová
Lukáš Sova

At the end of the past year, the European Commission prepared a contingency action plan outlining actions in the event of a no-deal scenario. These actions only cover selected priority areas where the EU has to protect its interests. 
Indirect taxes and customs duties
In terms of VAT and customs duties, these documents mainly address what will happen to goods whose transportation has been commenced before Britain’s departure from the EU, but is to be completed after that date. The European Commission’s answer is already known: if there is no deal at the moment when the goods arrive at the EU customs border, the goods will no longer be considered EU goods. This means that the goods will be subject to customs duties and, at the same time, the supply will not be an intra-Community supply of goods, but an import, which is subject to VAT.

Another practical question arises in connection with reclaiming VAT: as it is not yet clear whether under a no-deal scenario Britain will still allow to reclaim VAT on goods exported to the EU, we recommend applying for VAT refunds as soon as possible. Applications may be filed for a quarter or for a year.

Access to a joint application for reclaiming VAT will not be the only one closed off after Brexit: the provision of digital services to the UK will no longer be covered by MOSS schemes either. Taxpayers from third countries registered in MOSS in the UK will therefore have to reregister in another member state.

One of the European Commission’s main interests is to preserve residency rights of UK citizens in EU member states, provided that EU citizens keep similar rights in the UK on a reciprocal basis. The European Commission has been encouraging EU member states to take necessary actions to ensure timely legalisation of residence of UK citizens currently residing in their territories.

Already mid last year, the Ministry of Internal Affairs issued a recommendation to UK citizens residing in the Czech Republic: if they want their rights preserved after Brexit, they should apply for a certificate of temporary residence. The certificate may be issued for stays in the Czech Republic lasting longer than three months. If they have lived in the Czech Republic for at least 5 years, they may apply for a permanent residence.

Although these permits are not a precondition for residence in a member state’s territory, they will provide conclusive evidence that the UK citizen did legally reside in the given territory before the departure date of the United Kingdom, and therefore in timely manner will legalise the citizen’s residence in case of a no-deal scenario. The citizen’s existing rights in the EU states will thus remain unchanged.

The final conditions for the stays of UK citizens in the Czech Republic will be contained in the Act Regulating Some Relationships in Connection with the United Kingdom of Great Britain and Northern Ireland Leaving the European Union (the Brexit Act), which has already been approved by the Czech government. It aims to regulate some relationships between the Czech Republic and the United Kingdom in case of a no-deal Brexit. The bill addresses the issues of citizens’ residence, access to the labour market, public health insurance, supplementary pension insurance and construction savings, as well as direct taxes: in this respect, for the purposes of tax liability for the taxable period in which this act enters into force, British tax residents will be considered tax residents of a EU member state; however, this rule should not apply to withholding tax and securing the tax, where the UK would be viewed as a third country from the date of exiting the European Union.

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