Now that the vote on whether Britain should exit the European Union has been finalised, businesses face a period of uncertainty as everyone tries to digest what this means in the long-term.
The wide-ranging implications of Brexit on businesses range from tax, employment, financial regulation, intellectual property and company law, but at this stage the full impact of Brexit will be impossible to determine without knowing the precise terms of the exit negotiated between the UK and the EU.
While a number of potential exit models exist, throughout the referendum campaign were discussions around the adoption of the Norway or Switzerland model.
However the main alternatives are:
The Norwegian Model
The Norwegian model is based on an agreement with the European Economic Area (EEA) and involves full participation in the single market on the same basis as Norway, Iceland and Liechtenstein.
It accepts the freedom of movement of EU citizens, pays contributions to the EU and applies the rules and regulations of the single market, but without the countries having any significant political control. Norway’s current relationship with the EU is often referred to as “membership by fax” as the country has to wait for new laws to be faxed over from the EU.
Under this model the UK would essentially be half in and half out of the EU. However one potential scenario is that this would be used as an interim stage to facilitate a “soft” exit, rather than a final solution.
The Swiss model
Switzerland has negotiated partial access to the EU’s single market through a number of bilateral trade agreements (around 120). While it accepts free movement, pays some fees and must accept the free movement of employed people, its courts are largely free from EU regulations.
It’s proven to be a complicated process taking years to complete, and given the complexity it isn’t clear at this stage if other EU member states would be inclined to replicate this structure with the UK.
The Canadian model
The Canadian model is based on a Free Trade Agreements with the EU - due to take effect this year - and will eliminate nearly all tariffs on goods (it does not give tariff-free access to all goods and excludes some key service sectors).
It’s the most comprehensive and ambitious free trade deal to date and Boris Johnson has claimed Britain could follow the Canadian model in a vision of a “brighter future outside the EU” - claims that were immediately dismissed by David Cameron as “too good to be true”.
The Turkish model
Turkey is part of the EU Customs Union and has bilateral treaties with the EU, which means it can access the single market for goods, but not services.
Turkey doesn’t have to apply tariffs to export most goods throughout the EU and accepts the EU's external tariffs when trading with non-EU countries. It however does not have any control or influence in setting these tariffs.
Regardless of the possible models for any future relationship between the UK and the EU, it’s likely that companies who do business with the United Kingdom will need to plan and assess what the various risks and opportunities are in order to cover all aspects of their operations.
Some of the key considerations over the coming months and years could include:
IP & Trademarks
Intellectual property owners are understandable concerned as to the implications that Brexit result will have on their IP & Trademark rights. While IP-related laws (namely, those involving trademarks, copyrights, and patents) will remain largely unchanged in the short-term, once the UK has left the EU they will no longer be part of the EU Trade Mark system (which is only available to EU Member States).
UK based businesses that own EU trademarks may have to re-register those rights with the relevant national registry offices across Europe.
Customs duty
At present no customs are levied on goods travelling within the customs union, and members impose a common external tariff on all goods entering the EU. Following Brexit the UK would no longer be part of the EU’s Customs Union.
As a result these EU customs duties would apply to any imports from the UK. Goods are likely to undergo customs clearance when they are exported and also as they enter the UK, adding to the transport costs of all EU shipments. Ultimately this could make it less attractive for businesses throughout the EU to source goods from UK companies.
Parent Subsidiary Directive
Some EU directives are aimed at removing tax obstacles for companies operating throughout the European Union. The Parent-Subsidiary Directive essentially eliminates withholding tax on dividends when profits from subsidiaries are repatriated to the UK.
If those directives were no longer imposed, double taxation of dividends could apply and individuals could see their overseas tax bill increase.
For businesses with a UK parent company and EU subsidiaries, or a EU parent company with UK subsidiaries, you may need to assess your exposure and depending on the result of the Brexit negotiations, reconsider your company structure and/or location.
VAT
The standard-rate of VAT (15%) that’s set by the European Commission will cease to be relevant post exit. However it’s generally considered that VAT is likely to remain the same in the short term, as the existing UK VAT rate of 20% is currently competitive within Europe.
However it’s likely that the UK would lose access to the MOSS VAT “one-stop shop” that was introduced to remove the accounting and administrative burden of the relatively new VAT regulations.
An alternative solution could be the non-EU one-stop-shop that’s currently used by countries outside the European Union.
Distance Selling
Distance selling was designed to reduce the administrative requirements for small online retailers to sell to consumers in other EU member states. A business only has to register for VAT as a non-resident trader when B2C sales exceeded €35,000 or €100,000 (countries are free to select either threshold).
These regulations will no longer apply to the UK meaning that the sales of B2C goods to EU non-business customers could become VAT-free exports.
Relocation of businesses
With the UK losing access to the common market and its "passporting" services (important to the success of London's financial industry) companies could find it beneficial to relocate their activities to other countries in order to remain part of the single market. Essentially countries located outside of the UK could fight for a larger piece of the UK’s financial pie.
This is going to be a complicated process and businesses will need to analyse and understand what the potential impact of Brexit means for them. But with the right advice and doing the necessary due diligence sooner rather than later, you will be in the best possible position to prepare for negative outcomes and to take advantage of any exciting opportunities in alternative markets.
For help in relocating your business to another country, Euro Start Entreprises can assist you in opening a company in over 30 countries worldwide as well help with VAT, tax and business bank accounts. You can download our free guides below and either call us on 0033 (0) 1 53 57 49 10 or email us and we'll be happy to talk over your options.
