Fiscal effects of Brexit: the new trading relationships

The United Kingdom’s exit from the European Union is now effective; this means new developments at both an economic and legal level. In today’s article, we would like to review the main tax effects of Brexit, but not before reminding you that knowing the specific impact of this event on our companies would require a detailed analysis carried out by a specialist in company law. OBN& can provide this advice to companies that require it.

New developments in Personal Income Tax and IRNR

Personal Income Tax and Non-Resident Income Tax are two sides of the same coin. They apply to profits made by individuals, whether they are professionals or entrepreneurs or not. Their only difference lies in the residence criterion.

Resident income: Personal income tax and Brexit

The changes in personal income tax (and other taxes) derive mainly from the fact that the UK is no longer a member state of the EU, which means that European regulations no longer apply.

This has effects, for example, in the case of changes of residence, which would require the integration of all income pending imputation in the last tax return, without the option of resorting to supplementary self-assessments.

Non-resident income: the effects of Brexit on the IRNR

Non-resident income has been subject to the IRNR rules and will continue to be so. However, some new developments will apply:

  • Some previously exempt income is no longer exempt. For example, income derived from real estate and subsidiaries.
  • Other income, such as income from employment or rent, will be taxed on gross income, as the associated expenses cannot be deducted.

It should not be forgotten that the bilateral agreement between Spain and the UK takes precedence over domestic double taxation rules, which limit the tax impact of the UK’s exit from the EU.

IS: the tax impact of Brexit for companies

As in the case of personal income tax, the analogous tax for companies entails the loss of certain deductions and privileges applicable to our EU neighbours:

  • Some deductions have been eliminated, such as those corresponding to R&D&I, cultural products or pension funds.
  • Special regimes will also cease to apply to companies based in the United Kingdom, such as those corresponding to mergers and spin-offs or European Economic Interest Groupings.

Again, it is important to pay attention to the bilateral agreement. For example, some of the income derived from dividends and intangible assets is no longer exempt under our domestic rules, but this has no practical effect, as it is included in the treaty.

Mention of commercial relations

It should be noted that the UK’s non-integration into the EU also has trade implications. Thus, trade is considered as export or import to or from a third country.

Although the bilateral agreement accepted the elimination of tariffs, this implies new obligations in customs matters, mainly in declaratory matters (although a transitional system has been established). Brexit also has an effect on the application of excise duties, which will require their own regulatory developments.

VAT developments after Brexit

The main novelty in terms of VAT is that commercial transactions will no longer be considered intra-Community acquisitions or intra-Community deliveries of goods, but rather imports and exports. This implies customs effects, as we have already described, but also tax effects. For example, in the case of distance sales, VAT will no longer have to be charged to private individuals. In turn, this tax must be settled and paid to customs.

If you want to know the specific effects of Brexit on your company, your career or your life plan, we recommend that you contact lawyers specialised in international law and taxation. We can provide you with more information if you contact us.