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18 July 2017 - Anja Markmann

United Kingdom's EU exit and the impact on customs issues

Brexit
The following sets out the implications of Brexit for businesses in terms of importing and exporting.

Brexit will mean greater time, effort and expense involved in trade between the UK and the EU
Brexit will mean greater time, effort and expense involved in trade between the UK and the EU © WFB/Burghart

How will Brexit affect the trading of goods between the UK and the EU? Our guest contributor Anja Markmann, who is responsible for customs and international trade law at Bremen Chamber of Commerce, explains what is likely to change from April 2019 onwards when goods are sent between Bremen and the UK. Follow what happens when chocolate is shipped from Bremen and a yeast-based spread from the UK; discover how customs duties change in a scenario where the UK is completely outside the EU.

Current situation: the UK is an EU member state until March 2019

Cross-border trade within the EU and the customs union is generally free of customs duties and import restrictions. Businesses with a VAT registration number are not required to charge VAT on cross-border transactions within the EU. Pound sterling has floated freely against the euro since the inception of the common currency in 1999. Companies in the UK and the rest of the EU are able to plan on the basis of procurement and sales prices without customs duties. However, price planning does need to take account of possible fluctuations in the exchange rate.

We look at the examples of chocolate from Bremen and Marmite from the UK to find out more about the customs implications of the UK leaving the EU.

Chocolate from Bremen destined for London

At the moment, things are still simple: A Bremen chocolate manufacturer receives an order for a delivery to London. The export to the UK does not require any export declaration, although the product must comply with the British labelling regulations for this foodstuff. The manufacturer in Bremen issues a commercial invoice without including VAT at the rate applicable in the country of sale, i.e. the UK. This is permitted as long as both businesses possess a valid VAT registration number. The benefit is that the business in Bremen does not have to collect or pay over any VAT in the UK. The chocolate arrives in London without any border checks or hold-ups. The British business issues a confirmation of receipt.

Marmite shipped to Bremen from London

It is a similar story if goods are sent from the UK to Germany. A company in Bremen orders Marmite, a popular vegetarian yeast-based spread, from the sales office in London. The British sales office issues a commercial invoice with zero VAT, quoting its own VAT registration number and that of the recipient in Bremen. The jars of Marmite are despatched to Bremen using a freight forwarder. The labelling on the jars must comply with the German regulations for this foodstuff. The consignment is transported without any delays at the border. The German customer confirms that the goods have actually been received in Germany. The Marmite consignment is paid for by means of a SEPA transfer in euros, which is free of charge, or a foreign transfer in pounds sterling, for which a charge is payable.

1 April 2019 – will it all be different?

A decision will be made by April 2019 as to whether the UK will remain in the customs union after leaving the EU. If this option is rejected – resulting in a hard Brexit – the UK will be able to act independently and come to its own free trade arrangements with countries of its choice or form economic areas with other states. If the UK does not remain in the customs union, it will then be completely outside the EU and treated by the EU as a 'third country'.

'UK as third country' scenario

This would mean that the chocolate from Bremen destined for London would be despatched to a 'third country'.

1. The chocolate company would have to submit an electronic declaration to the customs in Bremen via the internet, stating that the consignment of goods was being exported to the UK, and then await an electronic approval from the customs authorities. To this end, the company concerned would have to apply to the customs authorities for an EORI number (economic operator registration and identification number). The export notice (Ausgangsvermerk), which is issued electronically, would serve as proof that the consignment had been exported.

2. The chocolate company in Bremen would issue a commercial invoice stating that the goods were exported from the EU and therefore exempt from VAT. The commercial invoice would have to include the following details: brand, identification numbers, quantity and type of packages, exact description of goods, weight and content of each package, and the country of origin. The information would also have to include the FOB costs (to port of shipment) and, if used, the CIF costs (cost, insurance and freight to port of destination).

3. Documentary proof of the origin of the goods, i.e. a certificate of origin issued by a chamber of industry and commerce, could also be required.

4. The goods, together with all accompanying documentation, would be transported by a freight forwarder using the TIR carnet system. This system facilitates customs declarations by the contracting parties and allows the goods to be transported through transit countries without these countries levying import taxes or duties. However, a security needs to be lodged with an association that provides the necessary guarantee.

5. In the UK, the chocolate would be declared to customs for import purposes and checked at the border. When the goods cross the border, the relevant import VAT in the UK would be become due for payment. The goods would then be subject to customs duty at the third-country rate – expected to be 5 to 6 per cent (the average EU rate of duty for goods is 4 per cent). However, within the World Trade Organization (WTO), rates of duty can be up to 40 per cent.

6. At the border, the labelling of the goods would be checked to ensure compliance with UK law – when imported for the first time, the goods would be inspected by the British authorities to make sure they complied with all requirements, such as hygiene and consumer protection regulations.

7. The goods would be paid for by international transfer, for which charges would apply.

This would all amount to additional time and organisational effort for our chocolate manufacturer in Bremen.

As the exchange rate would no longer be fixed within the European Monetary Union, this could give rise to uncertainty in relation to the price of the goods. If the pound sterling were to fall in value, goods from Germany would become more expensive for British customers, as a consequence of which German products could lose some of their appeal. The new customs duties payable on the goods would also make the chocolate more expensive in the UK.

UK goods shipped to the EU

Marmite, the British yeast-based spread, would be sent to Bremen as a third-country product.

1. Before the product arrived in Bremen for the first time, the authorities in Bremen would check that it was safe for human consumption. The labelling would have to meet German regulations.

2. The goods would be imported using a system again involving an export declaration in the UK and an import declaration in Germany.

3. The documentation for the goods would have to accompany the consignment for importation purposes: the commercial invoice with details of brand, identification numbers, quantity and type of packages; exact description of goods; quantity or volume of goods; terms of delivery and payment; price of the goods (including details of costs based on FOB and CIF terms) and details of the buyer/seller.

4. The goods would be transported by a freight forwarder using the TIR carnet system and would be checked at the EU's external border.

5. German import VAT of 19 per cent would become due for payment, together with any rate of duty applicable to third-country products. In the case of a yeast-based spread, the duty would probably be 6 per cent, but up to 35 per cent is possible within the WTO.

6. The goods would be paid for by international transfer, for which charges would apply.

Because of the free-floating exchange rates, Marmite could become less expensive if the pound sterling were to depreciate. There is no certainty however.

Brexit will not prevent trade between the UK and the EU, but shipments will require considerable extra time, effort and expense. Furthermore, the costs arising from customs duties, any exchange rate fluctuations, payment transfer fees and/or other export formalities could rise.


Please do not hesitate to contact Anja Markmann, International Advisor, if you have any questions or suggestions concerning customs matters and Brexi, via markmann@handelskammer-bremen.de

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