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~ Spotlight on ~

he world of e-commerce cheered when, on rather than paying import VAT on or soon after the time
the first day of February 2019, the Free Trade that the goods arrive at the UK border. This will apply both
TAgreement between Europe and Japan en- to imports from the EU and non-EU countries.
tered into force. EU businesses already export over
€58 billion in goods and €28 billion in services to The case is different with e-commerce imports: for parcels
Japan every year. Now trade will become even easier, with a value up to £135, a technology-based solution will
especially for European fashion brands selling over allow VAT to be collected from the overseas business selling
the internet. the goods into the UK. Overseas businesses will charge VAT
at the point of purchase and will be expected to register
However, the situation is not so easy with respect to with an HMRC digital service and account for VAT due. It
other territories and trade flows. seems a system similar to that introduced in Australia last
year. On parcels worth more than £135, VAT will continue
In 1996, the European Union launched free trade negotia- to be collected from UK recipients in line with current
tions with the South American countries of Brazil, Uruguay, procedures for parcels from non-EU countries.
Paraguay and Argentina, the founding members of the con-
tinent’s common market known as Mercosur. Twenty-four If an EU/UK Free Trade Agreement is stipulated, most
years later, they are still at it. likely customs duties will no longer apply to shipments
between the EU and the UK (or the other way around), but
To this day, selling fashion products online to Brazilian VAT will still apply, as a Free Trade Agreement is a different
or Argentinian consumers is almost impossible because of concept than belonging to a customs union.
customs duties.
It will be hard for the UK to address all the trade issues fol-
Free trade negotiations between the EU and India began lowing Brexit.
in 2007. They are also at a standstill, as are talks to hatch Anybody that has been involved with trade negotiations
a free trade deal between the EU and the Association of continues to be amazed when Brexiteers “extol the pot of
Southeast Asian nations which began the same year. Ditto gold”: waiting for when the U.K. leaves the EU and it can
for EU trade talks with the Gulf Cooperation Council made strike its own bilateral deals, including with emerging na-
up of Bahrain, Saudi Arabia, United Arab Emirates, Qatar, tions such as those as in Asia. After all, they claim, this is
Oman and Kuwait. They date back to 1990. where the majority of global economic growth will occur
in the coming decades. But what the free trade Brexiteers
What about the UK after Brexit? The future is still ignore are a few basic facts. A country of 60 million people
unclear. has a lot less negotiating leverage than the EU and its 400
If no EU/UK agreement is reached before 29 March 2019, million consumers. Furthermore, customs barriers are a
we will experience the so-called “Hard Brexit”, meaning critical factor for the growth of the digital economy.
that most e-commerce shipments from Europe to the UK
will be subject to customs duties and VAT at the UK border, Is the UK still on time to reverse the Brexit process? The
with no small consignment exemption available for low e-commerce world hopes so.
value shipments. Similar situations for the opposite flow,
but UK shipments to the European soil will be able to enjoy
a customs duty relief (on shipments with a value up to Eur
150) and a VAT exemption (up to Eur 10/22 per shipment,
depending on the EU country of customs clearance).

The UK is aware that local businesses will suffer from the
UK exiting the European customs union.

If the UK leaves the EU without a withdrawal agreement,
the British government will introduce a system of postponed
accounting for import VAT on goods brought into the UK.
This means that UK businesses importing goods to the UK
will be able to account for import VAT on their VAT return,

Alan Rhode is a co-founder at Taxmen, the one-stop-shop for legal and tax services to the e-Commerce industry.

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