Tax Consequences of Brexit

After the United Kingdom (UK) leaves the EU, it will be considered a third country, either as of 31 October 2019 (in the case of an unregulated withdrawal from the EU without a transitional period, the so-called “hard Brexit”) or at the end of a transition period (in the case of a regulated EU withdrawal, while a “deal” continues to be negotiated between the UK and the other EU member states).

Brexit has enormous tax implications:

1. Income tax

For private individuals who move to the UK after Brexit, any investment (i.e. potential capital gain) to which Austria will have lost the tax rights due to Brexit must be taxed immediately (exit taxation).

The previous option of deferring capital gains tax until the actual sale of the investment in a later year will no longer apply.

2. Corporation tax

a) Dividends

Dividends from an Austrian corporation payable to a UK parent company are no longer exempt from capital gains tax under Section 94 (2) of the EStG (based on the “Parent-Subsidiary Directive”). However, a new double taxation agreement (DTA) between Austria and Great Britain has already been negotiated and is expected to come into force on 1 January 2020. According to the agreement, dividends will continue to be paid to the UK without a withholding tax; verification of the parent company’s capital (offices, employees, not of a holding company but of its operational activity) will be required as before.

b) Licenses

Based on the new DTA, it will still to be possible to pay out licenses to the UK without a withholding tax.

c) Interest

Interest on loans is not subject to a withholding tax in Austria under national law, so there are no changes here.

3. Sales tax

After Brexit, intra-Community deliveries will no longer be exempt from VAT for the transport of goods from Austria to the UK. It must therefore be determined whether the conditions for VAT-free export deliveries to third countries are fulfilled. Conversely, the transport of goods from the UK to Austria will subject to import sales tax.

For services offered to UK companies (“B2B”), VAT still needs to be shown on the invoice and the reverse charge is applicable.

On the other hand, for services to non-companies (“B2C”), Austrian VAT no longer needs to be shown on the invoices, but sales tax is payable in the UK.

The companies concerned should therefore check their invoices in good time and must be prepared to issue their invoices differently in future.

After Brexit, it may be necessary for UK entrepreneurs to appoint a fiscal representative in Austria pursuant to Section 27 (7) UStG 1994.

4. Reorganisation

Cross-border mergers between Austria and the UK are still possible on a tax-neutral basis if the company maintains a permanent presence in Austria.

However, the contribution of shareholdings in a UK company will no longer be possible at book value, in accordance with Section 16 (1a) UmgrStG, so that hidden reserves must be disclosed and taxed at the time of exit (exit taxation).

5. Customs

After Brexit, the UK will become a third country and will therefore be subject to the customs legislation for third countries. Customs clearances and controls will be carried out using the customs duties laid down in the Combined Nomenclature. Certain goods are subject to import and export bans or restrictions.

Austrian companies should therefore familiarise themselves with the new customs formalities as soon as possible. It’s important to realise that permits for special customs procedures will become invalid. Affected Austrian companies should therefore apply in good time for a new permit.

Tips:

• The state chambers of commerce are holding information events to support affected Austrian companies (in cooperation with the Federal Ministry of Finance and the local customs offices).
• At the customs offices and the Central Customs Information Office of the Federal Ministry of Finance, affected Austrian companies have their own Brexit representatives available to answer questions.
• In addition, the BMF provides information on current developments on its homepage (bmf.gv.at).