The 31st December 2020 will be the last day of the Brexit transition period according to the latest news. Deal or no-deal, the United Kingdom is going to be out of the European Union and this situation might affect many different fields, as goods and services, border controls, automotive, medicines, fishing, citizenship, etc.
At this point, the UK will leave the European Union and it will be a “hard Brexit” without a deal. However, not everyone knows that there will be a huge fiscal impact on our lives. It is important to focus on the tax and fiscal consequences of the Brexit, because a lot of companies and citizens are conducting their businesses in the UK (United Kingdom) and in an EU (European Union) Member State. This impact should be take into account in the case of no-deal in order to avoid unexpected tax cost.
The possible impact of this situation may affect every company who trade and do business between the UK and a member state of the EU (European Union), as well every person who has financial investments in the UK and fiscal residency in Italy and vice versa.
In the following lines, it is possible to find a brief explanation of the fiscal consequences of this uncertain situation. Our firm, thanks to our expertise and knowledge, can help and assist you to find the best option in order to avoid unpleasant surprises and protect your businesses.
Hard Brexit: direct taxes
Dividends between UK and Italy: The withholding taxes of 5% and 15% will still be valid, because they are provided for by the Convection between UK and Italy for the avoidance of double taxation. It will not be possible to apply for the fiscal advantages of the EU regulation. As for example: the exemption of payment for the withholding tax related to the dividends distributed to a holding, the reduced withholding tax related to the dividends paid to an UK company, or the reduced withholding tax related to pension funds.
Interests between UK and Italy: It will not be possible to apply for the fiscal advantages of the EU regulation. Such as: the exemption of the withholding tax related to the interests of the long-term loans provided by the UK financial intermediaries to Italian companies (because they will no longer be considered as institutional investors). The withholding tax of 10% will still be valid, because it is provided for by the Convection between UK and Italy for the avoidance of double taxation.
Fees from Italy to UK: It will not be possible to apply for the fiscal advantages of the EU regulation. The withholding tax of 8% will still be valid, because it is provided for by the Convection between UK and Italy for the avoidance of double taxation.
Proceeds paid from UK to Italy: It will not be possible to apply for the fiscal benefit of a reduced withholding tax of 26% for the Italian retail investor that receive proceeds from UK mutual funds. This income must be disclosed in the Italian tax return and it contributes to the overall income.
The issues, that will face the companies if the UK leaves the EU without an agreement, are numerous and quite complex. There will be an obligation to carry out custom formalities between the UK and the European Union. In addition, there may be a lengthening of the trade time and consequently an increase of the cost related to the compliance of custom procedures.
Therefore, there will be a significant impact concerning VAT and the excise duties, because the operations will be considered as exports and imports and not as intra-community supplies/acquisitions.
Furthermore, the change of the UK’s status will also have important implications for services. That is why, the companies, which provide or receive services, may be subject to change their active and passive billing process. Because the UK organizations will no longer be considered as EU taxable subjects.
An additional issue might be a fiscal misalignment between the UK Tax Agency and the Italian one. Because the Italian tax period corresponds to the calendar year, on the other hand the UK fiscal period starts in April and ends in April.
Moreover, there might be an issue link to the group VAT compliance because it will no longer possible to consider taxable subject the UK companies that are identified as VAT subjects, according to the Italian regulation. These organizations have to appoint a new legal representative in Italy. Therefore, the UK companies may decide to apply for a VAT fiscal representative rather than register for VAT directly.
Brexit: what we can do for you
Thanks to our experience and professionalism, we can provide support and assistance in your decisions. We can help you to evaluate all aspects related to your financial and tax situation. Our firm MGI Vannucci & Associati has many years and recognized experience in tax consulting in Italy.
If you want more details and get additional information, please contact us through the “contact form” below. We can advise you and establish the best tailor-made solution for your needs.