We would like to inform that from 1 January 2021 the transitional period ended and the United Kingdom (hereinafter – the UK) had left the customs and VAT area of the European Union and becomes a third country.
Delivery of goods
Therefore, Article 41 of Lithuanian VAT Law (export) shall be applied instead of Article 49 of Lithuanian VAT Law (intra-EU supply of goods) to sales to the UK companies. Accordingly, when goods are purchased and delivered to Lithuania from the UK companies, these goods are subject to the import procedure and taxed with import VAT.
Special status for Northern Ireland
Unlike the rest of the UK, Northern Ireland acquires a special status on a temporary basis (for four years) as only in transactions for the supply of goods Northern Ireland is treated as the European Union country. Companies in Northern Ireland shall receive a special EU VAT registration number with the prefix “XI”.
Therefore, Article 49 of Lithuanian VAT LAW (intra-EU supply of goods) is applicable for the sale of goods to companies in Northern Ireland. Accordingly, the purchase of goods to Lithuania from Northern Ireland companies shall not be subject to import procedures. However, please be noted that the mentioned special status is only applicable for the supply of goods as for the supply of services Northern Ireland shall be treated as a third country.
Distance selling to the UK
From 1 January 2021 the EU distance selling VAT scheme shall not operate in the UK (except Northern Ireland). This means that all goods supplied to UK residents and imported into the UK are subject to local VAT.
From 1 January 2021 the UK has canceled the VAT exemption for small shipments (£ 15) entering the UK from third countries.
Moreover, from 1 January 2021 shipments imported into the UK with a value not exceeding £ 135 are subject to VAT not at the time of import of the goods but at the time of delivery of the goods. The obligation to calculate, report and pay VAT in the UK have the supplier of the goods or the online platform through which the goods are supplied to the UK residents.
Triangulation simplification
Please be informed that from 1 January 2021 due to the withdrawal of the UK from the EU, triangulation simplification exemption is not applicable if one of the parties of the mentioned trade scheme is a company registered for VAT purposes in the UK. Please be noted that such triangulation simplification is applicable only between the companies registered for VAT purposes in EU Member States. Thus, triangulation simplification would be applicable in case of trade with Northern Ireland due to its special status.
Services
From 1 January 2021 the UK, including Northern Ireland, has left the EU VAT regime for services. Therefore, companies providing services to the UK legal entities and individuals should assess whether or not they are required to register for VAT purposes in the UK and pay local VAT. Also, it should be noted that certain type of service could be treated as not subject to VAT.
Obligation for the fiscal agent
The State Tax Inspectorate has informed that the UK companies registered for VAT purposes in Lithuania are not obliged to appoint fiscal agent in order to be registered for VAT purposes in Lithuania if the Trade and cooperation agreement between the European Union and the European Atomic Energy Community and the UK and Northern Ireland will enter into force, which provides administrative cooperation in the field of VAT between the mentioned countries.
Until the mentioned agreement is not signed, it should be noted that there is no obligation to appoint a fiscal agent in Lithuania due to information published by the European Commission which informs that at the moment the temporary application of the mentioned agreement is applied (at the moment the Lithuanian Tax Authority does not have information on the signing of the mentioned agreement). However, if the Trade and cooperation agreement will not be signed, the UK companies will be obliged to appoint fiscal agent in order to be registered for VAT purposes in Lithuania.
VAT refund
From 1 January 2021 Lithuanian companies have lost the possibility to refund VAT from the UK (except Northern Ireland) through the EPRIS system. However, please be noted that at the moment other VAT refund procedures from the UK (except Northern Ireland) are not clear.
Impact of BREXIT on direct taxes
The State Tax Inspectorate has informed that the Parliament has adopted changes in Lithuanian Law on Corporate income tax (Article 59-1), Lithuanian Law on Personal income tax (Article 40), Lithuanian Law on Fees (Articles 6 and 19) and Lithuanian Law on Charity and Support (Article 15) which aimed at reducing the negative impact on Lithuanian citizens and businesses living or operating in UK, also UK citizens living in Lithuania and UK businesses operating in Lithuania after leaving the UK the EU, ensuring the continuity of the tax environment.
The changes establish that following the withdrawal of the UK from the EU, the provisions of the above-mentioned laws will continue to apply to the UK to the same extent as to the EU Member States, i.e. for a period of 2 years (from 1 February 2020 to 31 January 2022), all exemptions and reductions applicable to EU Member States shall apply to the same extent to the UK.
The above-mentioned changes are as following:
·Lithuanian Law on Corporate income tax was supplemented by Article 59-1 which provides that, from the date of the UK withdrawal from the EU, the provisions of the Lithuanian Law on Corporate income tax will continue to apply to the UK for a transitional period of two years to the same extent as to the Member States of the EU (for example, dividends received from the UK will be exempted from corporate income tax, even if the conditions for the participation exemption rule are not met (less than 10% of the shares are held), the reorganization tax exemption will also be applicable to UK residents for tax purposes, taxable entities operating in Lithuania will be allowed to reduce taxable profits by tax losses taken over from UK residents for tax purposes and etc.;
·Lithuanian Law on Personal income tax was supplemented by Article 40 which indicates that that, from the date of the UK withdrawal from the European Union, the provisions of the Lithuanian Law on Personal income tax will continue to apply to the UK for a transitional period of two years to the same extent as to the Member States of the EU and the following income will be considered as non-taxable:
-income from the sale of immovable property situated in the UK or of movable property registered in the UK, meeting the established conditions;
-interest income, meeting the established conditions;
-income from lottery winnings, provided that they are paid by units of the UK which, in accordance with the legislation, pay a tax on the turnover of the lotteries;
-life insurance, compulsory health insurance and pension contributions, meeting the established conditions, paid to funds established in the UK for the benefit of employees and etc.
Please be informed that according to above-mentioned changes, a permanent resident of Lithuania also will be able to reduce his/her taxable income to the same extent as that applicable to EU Member States by life insurance contributions, meeting the established conditions, when the contributions recipient is a unit established in the UK or pension contributions, meeting the established conditions, to pension funds operating in the UK.
Also, please be noted that the withdrawal of the UK from the EU would not affect the elimination of double taxation on income.
·Article 6 of Lithuanian Law on Fees has been supplemented by point 30, also Article 19 has been added to the mentioned Law, which stipulates that from the date of the withdrawal of the UK from the EU, for a transitional period of two years no national fees will be charged on the below mentioned procedures:
-processing of documents regarding the issuance of a residence permit in Lithuania;
-the issue of a residence permit in Lithuania to UK citizens and their family members;
-issuing visas to family members of an UK citizen who are third-country nationals;
-recognition of professional qualifications for persons who have obtained a qualification in the UK and etc.
·Lithuanian Law on Charity and Support supplemented by Article 15 which indicates that that form the withdrawal of the UK from the EU, for a transitional period of two years support is also recognized when it is provided to legal entities or other non-profit organizations established in the UK and the profits generated cannot be distributed to their participants.
Should you have any questions, please do not hesitate to contact Leinonen Tax team and we would be happy to provide you with more information about the mentioned changes which may be relevant to Your business.
The information above was prepared by the Leinonen tax team.
