UK-German trade: How Brexit affects your business

Now that the UK is no longer part of the European Union, UK-German trade is no longer subject to the rules and procedures governing intra-EU trade.

From an EU perspective, the UK is now a ‘third country’ (i.e. a country outside of the EU) and thus subject to the same treatment as any other third country. Similarly, the UK will subject EU states to the same status as any other country.

That said, there are special trade conditions that have been agreed in the EU-UK Trade and Cooperation Agreement. Notably, the agreement allows for zero duties on imports if goods can be shown to originate in the EU or UK.

Is my business affected by Brexit?

Even with the trade deal in place, the new bureaucracy involved in trading goods between the UK and Germany is considerable. New import VAT procedures have been established. And unlike in the case of intra-EU trade, goods are now subject to customs protocols. 

It is therefore essential to ensure all the relevant paperwork is correctly and comprehensively fulfilled to prevent costly delays of goods. 

Reclaiming UK VAT

Imports into the UK from EU states are now subject to UK VAT. The same rates will now apply as with imports from the rest of the world. 

Previously, a company registered in Germany that exported goods to the UK could claim back applicable VAT under the EU refund mechanism. (The same applied for a UK company reclaiming import VAT from Germany). Now that the UK is considered a third country, the EU refund mechanism no longer applies.

German companies that are not registered for UK VAT must now reclaim cross-border VAT via the UK equivalent of the 13th directive. 

Any taxable person established in the EU that is not VAT registered in the UK is eligible to reclaim import VAT via the mechanism. You can appoint an agent or manage refunds directly. 

UK Postponed VAT accounting

Businesses registered for UK VAT that import into the UK can now take advantage of postponed VAT. Postponed VAT enables the business to account for VAT on its tax return, rather than pay the VAT at the point of entry.

The mechanism was designed to provide a cash flow benefit to the importer. Using postponed VAT accounting, the company will no longer be required to pay the VAT at the point of entry and then later reclaim that amount on its VAT return. Rather, input VAT and output VAT will be accounted for together when filing VAT. 

In accounting terms, VAT has been accounted for as if it were paid and then reclaimed. In ‘real world’ terms, the cash flow benefit can be considerable because the VAT amount does not need to be paid up front. 

German import VAT deferment

What about if you are importing into Germany? Postponed VAT accounting is not available in Germany. However, there are conditions under which an importer can apply for a VAT deferment.

Notably, Germany’s Second Corona Tax Aid Act, which was implemented to provide cash flow relief during the COVID pandemic, allows for the due date for VAT import payment to be moved to the 26th of the second month following the import.

The deferment effectively moves the date on which import VAT is due to be paid until after the date at which the refund is due, thus enabling businesses to avoid the cash flow squeeze of import VAT. Under ordinary conditions, traders are required to pay import VAT within ten days of import.

In order to take advantage of the deferred import VAT, businesses must acquire a deferment account from German tax authorities.

Duty-free trade

In addition to applicable import VAT, goods may also be subject to duties. 

However, in certain cases, no duties will apply. Trade between the UK and the EU is governed by the EU-UK trade deal. According to the terms of the deal, duties do not apply to goods imported into the UK if the goods can be shown to have originated in the EU. (The equivalent applies in the case of exports from the UK to the EU.) 

In order to take advantage of duty-free trade, the relevant documentation needs to be supplied demonstrating that the appropriate rules of origin have been met. 

Where rules of origin criteria are not met, duties must be paid. Unlike VAT, duties cannot be reclaimed.

Customs procedures

Now that the UK is no longer part of the EU, trade between the UK and EU is subject to additional customs procedures.

Any EU business exporting goods from Germany, the UK will now be required to comply with ordinary customs procedures. Businesses must complete a customs declaration and ensure proper records are kept. 

When importing goods from the UK to Germany, broadly equivalent customs procedures will apply. 

German companies now require an EU EORI number to export from Germany to the UK. UK companies that export to the EU must now apply for a UK EORI number starting with GB. (Note, however, that in the case of goods that are being moved to Northern Ireland, the applicable EORI number begins with XI.)

Note that in many cases, a business may require both UK and EU EORI numbers. For example, a UK business will require a UK EORI number to export from the UK to Germany. If they intend to also make the customs declaration in Germany themselves, they will require a second EORI number issued by the EU. 

Agricultural goods

From April 2021, additional customs procedures will apply on all products of animal origin. Any business importing POAO must pre-notify customs authorities. In addition, all such goods must be accompanied by the relevant health certificates. 

Similar sanitary and phytosanitary controls apply in the case of UK agricultural goods imported into the EU. 

A holistic Brexit trade solution

Brexit has undoubtedly added new layers of complexity and bureaucracy to trade between Germany and the UK. The goods news is that each step of the customs and VAT compliance process is reasonably straightforward. Moreover, British and European authorities are working hard to provide clarity and support.

That said, given the number of moving parts involved in the new customs procedures, such as the customs declarations and certificates, rules of origin requirements  and EORI numbers, companies need to take measures to ensure nothing is missed. Even one bureaucratic omission could lead to goods being held up at the border.  

At the same time, the complexities of VAT compliance mean that it is all too easy to miss an opportunity to reclaim import VAT or to improve cash flow. Accidental noncompliance could even lead to penalties.

VAT IT has designed a holistic Brexit solution to ensure that your entire supply chain runs smoothly, with no costly delays. As experts in European VAT, we will optimize your import VAT compliance, manage customs and duties and ensure you get the most competitive access to infrastructure. 

German businesses trading with the UK

For many German businesses, navigating through customs, shipping and international VAT compliance (especially in a post-Brexit market) can get overwhelming and confusing. Download our guide to help you navigate your business through murky waters.