Background
The United Kingdom (UK) withdrew from the European Union (EU) on February 1, 2020, with a transition period during which EU law generally continues to apply within and in relation to the UK. The transition period set forth in the Withdrawal Agreement ends on December 31, 2020. Consequently, as of January 1, 2021, the United Kingdom is a “third country” and is therefore no longer part of the single market or the customs union.
What does this mean for businesses and individuals?
Regardless of the outcome of the negotiations on the future relationship, however, the EU’s relationship with the United Kingdom will undergo a fundamental change at the end of the year and will differ significantly from the UK’s membership in the single market. This applies, for example, to the movement of goods—including the customs formalities, product certifications, and many other aspects that will then be required—as well as to data protection requirements, services, and mobility in general. Businesses and individuals must therefore prepare for the end of the transition period in any case—regardless of whether or not an agreement on the future relationship is reached by then.
A checklist (in German) from the European Commission to help businesses with ties to the United Kingdom prepare for Brexit can be found here.
From a tax perspective, treating the United Kingdom as a third country has implications for businesses and individuals in areas such as:
- VAT
- Tariffs
- Certain cross-border profit distributions (e.g., from a subsidiary to a parent company)
- Cross-Border Conversions and Restructurings
- Carryover of Capital Gains (Section 6b of the Income Tax Act)
- Business Tax (Elimination of the “nested tax exemption”)
- Inheritance and Gift Tax (Tax benefits and exemptions may not apply under certain circumstances)
- Exit Tax
We would be happy to work with you to analyze the tax and financial implications of Brexit on your company.
Sources: Federal Ministry for Economic Affairs and Energy (BMWi) and the European Commission
Photo: Pixabay
Disclaimer: We assume no liability for the accuracy or completeness of the information. The information provided here does not constitute a recommendation for action.
