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Brexit - Special status of Northern Ireland

All explanations on this page are based on Article 8 of the Protocol on Ireland and Northern Ireland, as explained by the European Commission in the notices to stakeholders: Withdrawal of the United Kingdom and EU rules in the field of VAT for goods (16 April 2020) and for services (15 June 2020).

Your attention is drawn to the fact that the European Union and the British authorities do not agree for now about the implementation of the Protocol on Ireland and Northern Ireland. The VAT regulation which applies in the relations between the European Union could thus differ from the regulation presented in these FAQs. In case of future changes, the content of these FAQs will be modified.

Brexit - Special status of Northern Ireland

  • In short

    Article 8 of the Protocol on Ireland and Northern Ireland (“the Protocol”), which is part of the Withdrawal Agreement (Council agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (OJ C384 I of 12 November 2019, p. 1) provides in a special status, regarding VAT, of Northern Ireland.

    In accordance with this protocol, Union legislation on VAT will continue to apply in Northern Ireland also after 31 December 2020 as regards goods so as to avoid a hard border between Ireland and Northern Ireland. For services, on the other hand, Northern Ireland is, together with the rest of the UK, considered as outside the EU from 1 January 2021.

    In order for the EU VAT system to function properly, it is essential that taxable persons carrying out  supplies of goods (including so-called “intra-Community supplies”) or intra-Community acquisitions of goods (including by non-taxable legal persons) in Northern Ireland, are identified for VAT purposes with a VAT identification number granted according to the EU rules. This allows a distinction to be made with the taxable persons making transactions according to the UK VAT legislation.

    Therefore, it is proposed that VAT identification numbers in Northern Ireland have the specific prefix “XI” (see: Proposal for a Council Directive of 7 Augustus 2020, with reference COM (2020) 360 final).

  • The Protocol on Ireland and Northern Ireland (IE/NI)

    The Protocol on Ireland and Northern Ireland (hereafter the “IE/NI Protocol”) applies as of the end of the transition period, i.e. as of 1 January 2021. The IE/NI Protocol is subject to periodic consent of the Northern Ireland Executive and Assembly, the initial period of application ends 4 years after the end of the transition period, i.e. on 31 December 2024.

    The IE/NI Protocol makes certain provisions of EU law applicable also to and in the United Kingdom in respect of Northern Ireland. In the Protocol, the EU and the United Kingdom have furthermore agreed that insofar as EU rules apply to and in the United Kingdom in respect of Northern Ireland, it is treated as if it were a Member State.

    The IE/NI Protocol provides that EU VAT rules concerning goods apply to and in the United Kingdom in respect of Northern Ireland. Transactions involving services are not covered by the IE/NI Protocol. This means that transactions in services between Member States and Northern Ireland will be treated as transactions between Member States and third countries/territories.

    This will have in particular the following consequences:

    At the level of goods

    • Transactions involving movements of goods between Northern Ireland and Member States will be considered as intra-EU transactions.
    • Transactions involving movements of goods between Northern Ireland and other parts of the United Kingdom will be considered as imports/exports.
    • Taxable persons established in Northern Ireland will be able to request a refund of the VAT paid in the Member States under the refund procedure established by Council Directive 2008/9/EC, insofar as the refund relates to VAT which they have paid on acquisitions of goods.
    • Taxable persons established in the Member States will be able to request a refund of the VAT paid in Northern Ireland under the refund procedure established by Council Directive 2008/9/EC, insofar as the refund relates to VAT which they have paid on acquisitions of goods.
       

    At the level of services

    • As from 1 January 2021, a service which takes place in Northern Ireland is considered to be supplied outside the European Union.
    • As from 1 January 2021, a service supplied by a taxable person established in Northern Ireland, which takes place in the European Union, is considered to be supplied by a taxable person established in a third country.
    • As from 1 January 2021:
      • a taxable person established in Northern Ireland who wants to use the system of the Mini One Stop Shop (MOSS) for telecommunication services, radio and television broadcasting services and electronic services which he supplies to clients established in the European Union (B2C) will have to register in a Member State (non-EU system).
      • taxable persons established in Northern Ireland who don’t want to use the MOSS system any more, will have to contact the Belgian tax administration in order to get themselves identified via a responsible representative for the services which they supply to non-taxable persons, established in Belgium.
    • As from 1 January 2021, telecommunication services, radio and television broadcasting services and electronic services which are supplied by a community taxable person to clients established in Northern Ireland can no longer be introduced in the Mini One Stop Shop system (MOSS).
    • Taxable persons established in Northern Ireland will be able to request a refund of the VAT paid for services supplied to them in the Member States under the refund procedure established by the 13th VAT Directive.
  • Supplies of goods

    As of the end of the transition period, all EU VAT rules concerning transactions in goods (supplies of goods, intra-EU acquisitions of goods and exports/imports of goods) will continue to apply in Northern Ireland as if it were a Member State of the EU.

    Supplies of goods within Northern Ireland

    VAT will be due on supplies of goods that will take place in Northern Ireland at the rate applicable in Northern Ireland.

    Transactions involving movements of goods between Northern Ireland and the Member States

    Transactions involving movements of goods between Northern Ireland and Member States will be considered as intra-EU transactions. All EU rules applying to cross-border supplies and movements of goods between the Member States will also apply in the relations between Northern Ireland and the Member States (e.g. intra-EU supplies and acquisitions of goods, distance sales regime for goods to and from Northern Ireland, goods installed or assembled in a Member State or Northern Ireland, new means of transport moving from Northern Ireland to a Member State or vice versa).

    Transactions involving movements of goods between Northern Ireland and third countries/territories or other parts of the United Kingdom

    Transactions involving movements of goods between Northern Ireland and third countries/territories and between Northern Ireland and other parts of the United Kingdom will be subject to the VAT rules on imports and exports.

  • VAT Refunds

    According to the IE/NI Protocol, the EU rules for VAT refunds will be applicable in and to Northern Ireland to the extent that they relate to purchases of goods or imported goods. They are detailed hereafter.

    Taxable persons established in Northern Ireland with VAT paid on purchases of goods or imported goods in a Member State

    Taxable persons established in Northern Ireland can request a Member State where they are not established to refund the VAT paid there, via the VAT Refund procedure.

    Taxable persons established in a Member State with VAT paid on purchases of goods or imported goods in Northern Ireland

    Taxable persons established in a Member State (provided they are not established in Northern Ireland) can request  the competent authorities in Northern Ireland to refund the VAT paid there. The VAT Refund procedure (the standard procedure of Directive 2008/9/EC) applies here as well.

  • Proposal for a Directive

    Extract from the  Proposal for a Directive, dated 7 Augustus 2020, COM (2020) 360 final

    “As from 1 January 2021, the EU VAT legislation will no longer apply to the UK. However, on the basis of the Protocol on Ireland and Northern Ireland (hereafter the “Protocol”), which is part of the Withdrawal Agreement, Northern Ireland will remain under the EU VAT legislation regarding goods with a view to avoiding a hard border between Ireland and Northern Ireland. For services, on the other hand, Northern Ireland is, together with the rest of the UK, considered as outside the EU.

    This inevitably leads to a dual or mixed VAT system in Northern Ireland whereby supplies, intra-Community acquisitions and imports of goods that are located in Northern Ireland, according to the rules on the place of taxable transactions laid down in Title V of the VAT Directive, are subject to the harmonised EU rules, while supplies of services made in that same territory are not subject to the EU VAT system.

    In order for the EU VAT system to function properly, it is essential that taxable persons carrying out supplies of goods in Northern Ireland (including so-called “intra-Community supplies”) or intra-Community acquisitions of goods (including by non-taxable legal persons) as listed in Article 214, are identified for VAT purposes according to the EU rules. This is also necessary to ensure the proper functioning of the optional special schemes for taxable persons supplying services to non-taxable persons or making distance sales of goods.

    From that perspective, it is important that those taxable persons (and, where appropriate, non-taxable legal persons) are identified in Northern Ireland via a separate EU VAT identification number, granted according to the EU rules and that is different from any UK VAT identification numbers (starting with “GB”) which will be granted according to the UK legislation. It is possible that this EU VAT identification number will have to be attributed in addition to the VAT identification number applied in the UK in case, for example, a business supplies both goods and services in Northern Ireland.

    For businesses, in particular those involved in the trade in goods to and from Northern Ireland, it should be clear and easy to understand which rules apply, that is either those in force in the EU or those applicable in the UK. The EU VAT identification number plays an important role in the functioning of the EU VAT system, e.g. to justify the exemption for so-called “intra-Community supplies” of goods (via the VIES system), to determine the applicable VAT refund procedures (EU VAT refund system or the 13th Directive), VAT grouping, triangular transactions and chain transactions (“intermediary operator”), call-off stock arrangements, “customs procedure 42”, the “safety net” (place of intra-Community acquisition in the Member State that has issued the VAT).

    Therefore, it is proposed that VAT identification numbers in Northern Ireland have the specific prefix “XI”.”