Since the 1st of January 2021, the UK is now regarded as a ‘third country’ outside of the EU. Two separate markets have now been formed between the EU and the UK. This will create barriers to trade in goods and services and to cross-border mobility and exchanges that did not previously exist – in both directions.
The long awaited EU-UK Free Trade Agreement (FTA), known as the ‘EU-UK Trade and Cooperation Agreement’, was finalised on 24 December 2020. While this is good for relations and reduces some costs involved, this FTA is fundamentally different to the freedoms enjoyed when the UK was a member of the EU and the Single Market.
The EU-UK FTA goes well beyond traditional EU FTAs (such as with Canada or Japan) by providing for zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin.
The full text of the Agreement has yet to be released as it is pending ratification of all 27 EU member states and the European Parliament. As such, many of the specifics have yet to be known. However, a useful overview of the cross border trading can be accessed here https://brexit2020.intertradeireland.com/.
Some specifics that are known to be contained in the Deal include:
(1) Rules of Origin and Certificates of Origin
Certificates of origin are not required by HMRC for goods moving between the EU and UK. For goods imported to benefit from this duty-free treatment, exporting companies must make a claim for preferential treatment. The claim has to be based on a statement of origin, made out by the exporter, stating that the product qualifies for preferential treatment.
As of the 1st of January 2021, imports of goods and subsequent supplies of goods from UK to an EU Member State will be subject to VAT in the Member State concerned, at the rate that applies to the same goods in that Member State.
Goods being exported to UK will generally be exempt from VAT, although you must be able to prove that the goods have left the EU. Member States generally base this proof on the exit certification given to the exporter by the customs office of export.
(3) Importing from a Third Country through the UK
Example scenario: A business in Ireland imports goods from China through a UK distributor. The Irish business pays import duties in the UK. What should the Irish business be aware of when importing those goods into Ireland?
Import duty is based on the origin of the goods; where they were manufactured, not where they were purchased. Goods purchased wholesale from China and resold from a separate entity in another country would still be classified by Customs as Chinese goods. In the case that the product is shipping physically from China to the UK and then onto Ireland, the Irish business may be liable to pay customs duties twice.
In order to avoid this, it may be worth looking into, for example, customs warehousing in the UK and at other options to source this product through a European supplier/distributor or directly from the Chinese supplier.
(4) EU-Northern Ireland Trade
From 1 January 2021, the Protocol on Ireland and Northern Ireland applies and EU rules for customs, VAT and excise duties continue to apply to all goods entering and leaving Northern Ireland from/to the EU. This means that the rules that apply to the movement of goods between two EU Member States will also apply to goods moving between Northern Ireland and an EU Member State, and vice versa.
For customs, the Protocol means that:
There will be no customs formalities for goods moving between Northern Ireland and EU Member States. EU customs formalities will apply to goods entering or leaving Northern Ireland to/from the rest of the world, including the UK. There are exceptions with regard to this for goods considered at ‘no risk of subsequently being moved into the Union‘, i.e. those that will not enter the EU Single Market
Checks and controls will take place on food and live animals entering Northern Ireland from third countries, including the rest of the UK, to make sure they adhere to the EU’s sanitary and phytosanitary (SPS) requirements.
Checks and controls will also take place on goods subject to any other prohibitions and restrictions listed in the Protocol and on goods entering Northern Ireland from third countries, including the rest of the UK to make sure they comply with the relevant rules.