When an Estonian VAT payer provides services to a UK person engaged in business, it is not important any more whether the recipient of the service is registered in the UK for VAT liability or not – upon the provision of the service, when a so-called basic rule is applicable (the place of supply is the country of the recipient, irrespective of the country where the service was actually provided), to any third country person engaged in business it is always the service with 0% VAT for the Estonian VAT payer.
The difference in comparison with today’s situation – zero-rated service which is provided to a third country person shall be declared only in line 3 of the VAT return (Form KMD), such supply shall not be declared in line 3.1 of Form KMD and also shall not be declared in the report on intra-Community supply (Form VD).
- When an Estonian VAT payer or VAT payer with limited liability receives from a UK person engaged in business any service, taxable in Estonia through reverse charge, after Brexit the taxable value of the service shall be declared in the informative line 7 of Form KMD, not in line 6.
- When an Estonian VAT payer provides services to a UK person not engaged in business, there will be a change in relation to immaterial services, listed in subsection 10 (5) of the Estonian VAT Act – the provision of such services (including electronic communication services and electronically supplied services – hereinafter digital services) to a third country person not engaged in business is the supply with 0% VAT which shall be declared in line 3 of Form KMD. When the recipient of such kind of service is an EU person not engaged in business – any other immaterial service shall be taxed with 20% VAT and shall be declared in line 1 of Form KMD and upon the provision of digital services the special arrangements for imposing VAT are applicable.
NEW! In connection with the end of the Brexit transition period, one should have in mind that from the MOSS declaration for the 1st quarter of 2021, this declaration can no longer reflect digital services provided to the UK end-users and the United Kingdom cannot be identified as a country of consumption.
For the 4th quarter of 2020, the MOSS declaration shall be submitted and VAT shall be paid as usual (by 20 January 2021 at the latest), and this declaration can still include any digital service provided to non-taxable persons in the United Kingdom.
If you continue to provide digital services after the end of the transition period to the UK customers, you should be guided by the relevant rules which can be read on the website "VAT rules for supplies of digital services to consumers". Any service for which VAT should be calculated and paid in the country of origin by an Estonian taxable person who provided the service shall not be declared in the VAT return submitted in Estonia.
- When an Estonian VAT payer transfers the goods to a UK person together with the transport of goods from Estonia to the UK (excl. to Northern Ireland), after Brexit it’s always the export of goods which is taxable with 0% VAT and shall be declared in lines 3 and 3.2 of Form KMD.
The transfer of the goods to a UK private person together with the transport of the goods from Estonia to the UK (excl. to Northern Ireland) by or on behalf of the seller is not distance selling any more then but also the export of goods, taxable with 0% VAT.
The transfer of the goods to a UK natural person in Estonia is treated as the export, if all requirements listed in subsection 5 (2) of the Estonian VAT Act are met (so-called tax-free sales).
According to the exception, layed down for Northern Ireland, after the end of year 2020 the transfer of goods from Estonia to a VAT payer of Northern Ireland together with the transport of the goods to Northern Ireland is still treated as intra-Community supply of goods (not as export) and the transfer of goods from Estonia to Northern Ireland to a non-taxable person is still treated as intra-Community distance selling (not as export).
This specificity applies to goods only – any service provided to persons in the United Kingdom (including Northern Ireland) from 1 January 2021 shall be taxed and declared according to the rules for the taxation and declaration of services provided to non-Community persons.
- When an Estonian person purchases the goods in the UK together with the transport of goods from the UK (excl. from Northern Ireland) to Estonia, after Brexit it is the import of goods, not intra-Community acquisition, and the provisions of the VAT Act related to import of goods are applicable. See also "Brexit and its effects on customs clearance and on the trade with the United Kingdom".
According to the exception, layed down for Northern Ireland, after the end of year 2020 the acquisition of goods by the Estonian VAT payer from Northern Ireland from a VAT payer together with the transport of the goods from Northern Ireland to Estonia is still treated as intra-Community acquisition of goods (not as import) and the transfer of goods from Northern Ireland to Estonia to a non-taxable person is still treated as intra-Community distance selling (not as import).
This specificity applies to goods only – the taxable value of a service received from any person engaging in enterprise in the United Kingdom (including Northern Ireland) and subject to reverse charge in Estonia shall be declared on the form KMD from 1 January 2021 as the taxable value of the service received from a non-Community trader, i.e. using the information line 7, not 6.
- If an Estonian VAT payer purchases the goods or services from a UK VAT payer after Brexit and VAT with the UK VAT rate is added to the price according to the UK VAT legislation, it is not possible any more to lay claim for refund of VAT, paid in the UK, through the EC cross-border VAT refund system, excluding upon the purchase of the goods with the UK VAT rate from a VAT payer of Northern Ireland (but not upon the receipt of a service with the UK VAT rate from a VAT payer of Northern Ireland).
VAT paid in third countries can be refunded to the Estonian entrepreneurs according to the reciprocal principle and it depends on whether the authorities of the correspondent third country have decided to start to refund the VAT to the Estonian entrepreneurs or not.
By now, we have received official confirmation from the UK tax authority that the UK will continue to refund VAT to taxable persons in the Member States of the European Union on the basis of reciprocity. When applying for a refund of VAT paid in the United Kingdom, an Estonian taxable person has to rely on the instructions of the United Kingdom tax authority. The deadline for submitting a VAT refund application relating to the UK for 2020 is 31 March 2021. By virtue of the decision of the UK tax authority, Estonia also will continue to refund VAT to the UK taxable persons. Guidelines of refund to foreign businesses of VAT, paid in Estonia »
The exception is Northern Ireland, where the provisions of the EU Directive are applied for a further four years after the end of the transition period to the refund of VAT paid on the acquisition of goods. The applications involving the VAT identification number of Northern Ireland (with the letter combination "XI") are subject to the same deadlines as for VAT refunds to other Member States: the deadline for applications for 2020 is 30 September 2021, and applications for 2021 can be submitted starting from 1 April 2021.
- If a UK person engaged in business will be registered in Estonia for VAT liability after Brexit, according to subsection 20 (6) of the Estonian VAT Act, a person of a third country engaged in business with no permanent establishment in Estonia shall appoint, upon registration as a VAT payer, a tax representative specified in the Estonian Taxation Act, who has been approved by the tax authority.
A UK person engaged in business who already has a VAT number in Estonia as of 1 January 2021, who wishes to continue in Estonia his/her business activities and retain his/her Estonian VAT number and who has not a permanent establishment in Estonia – such UK person shall appoint a tax representative approved by the tax authority by 1 February 2021 and also by that date shall notify the Estonian Tax and Customs Board about his/her choice and shall send the contract with the chosen tax representative by e-mail to address email@example.com.
- If a UK person engaged in business provides the digital services to the EU persons not engaged in business (incl. Estonian persons not engaged in business) after Brexit and wishes to follow the special arrangements for imposing VAT, the person must follow the provisions concerning the registration for VAT liability of third country entrepreneurs (it means, if the person wishes to follow the special arrangements, he or she registers for VAT liability in any freely chosen EU Member State).