Brexit: Customs and VAT consequences

Customs and VAT rules are harmonised in the EU and consequently implement directly the fundamental principle of the free movement of goods and services. The UK's decision to leave the EU may imply that a barrier will be set up in relation to customs and VAT. This may be important to Danish businesses trading with UK businesses and to Danish businesses affiliated with UK businesses.

This article will briefly describe the expected consequences of the UK's goodbye to the EU in terms of customs and VAT rules.

Customs duties

Customs legislation is common to all EU Member States and as a result regulations and direc-tives, not national legislation, determine the rules on inwards customs processing and also the tariff rates on the goods and products imported into the EU.

As a result, the UK's goodbye to the EU will also mean a goodbye to the UK's direct association with the EU's common customs rules and the UK will have to adopt its own customs rules. It is still too early to predict the substance of such rules and the UK's association with the EU in terms of customs.

However, Danish businesses may already at this point begin to prepare for the situation that customs to some extent may be levied on goods imported from the UK. Customs may also be levied in the UK on the goods exported by  Danish businesses to the UK. This will not only in-crease the price of such goods but it will also make trading with the UK far more difficult due to the customs barrier that may be set up.

In this relation, the businesses must agree who is to be in charge of importing the goods and they must also agree whether the buyer or the seller is to pay any customs costs.


VAT legislation is harmonised in the EU and it is a fundamental principle of the legislation that when goods and services are traded across borders, VAT is only payable in one country. Accordingly, when the Danish VAT rules provide that goods or services sold to another EU Member State are to be sold exclusive of VAT, the rules of the purchasing Member State pro-vide that VAT is to be added to the goods or services in the buyer's country and that the buyer is to settle the VAT.

This makes it simple and flexible to trade across borders because the businesses avoid having to pay foreign VAT and they also avoid having to register for VAT in other EU Member States.

The UK's goodbye to the EU means a goodbye to the harmonised VAT rules. Danish business must largely be expected to be able to continue to sell their goods exclusive of Danish VAT to UK businesses because such sales will be export sales that are also VAT exempt under the current rules.

VAT on imports will be added to purchases from the UK but such VAT will not differ much from the EU VAT paid by businesses today when they buy goods from the UK.

On the other hand, services must be expected to become subject to increased VAT charges. In the current situation Danish VAT is not to be invoiced when a Danish advertising agency provides a service to a UK business and the UK buyer must pay VAT on the service in the UK. This applies irrespective of whether the service is exploited in the UK or in Denmark.

When the UK is no longer a member of the EU, it will have consequences for the VAT treatment whether the service is exploited in the UK or in Denmark. If the service is exploited in Denmark, Danish VAT is to be charged on the service. This also applies to legal services, payment for trademarks and patents, data processing services, telecom services etc This increase in the VAT charges may make trading with Danish suppliers less attractive to UK businesses.

Do not jump to conclusions

As stated the UK's future association with the EU is yet unknown. At this point the best advice is that Danish business monitor the development and do not jump to conclusions. Already at this point it may, however, be relevant to take into account any custom obligation in connection with the conclusion of long-term contracts so that the buyer and the seller make it clear who is to pay the extra customs costs.

Latest news on Tax Law

Tax Law