Have you ‘future-proofed’ your corporate structures for Brexit?
With barely two weeks remaining before the 31 December deadline and with UK and EU negotiators unable so far to reach an agreement to govern their trading relationship when the UK’s post-Brexit transition period expires at the end of this year, businesses have only a very limited time to review and future-proof their corporate structures.
If there’s no deal, from 1 January 2021 there will be changes to the cross-border regimes for UK companies operating in the EU, and EU companies with branches in the UK, because the UK will no longer be an EU member state. These companies will become ‘third country’ businesses.
UK citizens may face restrictions on their ability to own, manage or direct a company registered in the EU, depending on the sector and EU member state in which the company is operating. This could involve meeting additional requirements on the nationality or residency of individuals allowed to act as senior managers or directors and/or limits on the amount of equity that can be held by non-nationals.
UK businesses that own or run business operations in EU member states will face changes to the law under which they operate, depending on the sector and EU member state, such as different real estate requirements or approvals to operate. Restrictions may be more burdensome for branches or representative offices, as opposed to subsidiaries which have their own legal identity and are incorporated in the EU member state concerned.
UK companies and limited liability partnerships that have their central administration or principal place of business in certain EU member states may no longer have their limited liability recognised. This is the case in certain jurisdictions that operate the ‘real seat’ principle of incorporation.
If your group structure includes branches, places of business or central administration in an EU member state, there could be other compelling commercial reasons for setting up a local incorporated company in that state – protecting EU domain name and trade mark registrations, preserving EU market access, avoiding restrictions on cross-border operations or preventing loss of access to EU-funded programmes.
Subsidiary companies incorporated in an EU member state will continue to be covered by all relevant EU law. The same may apply if you have an EU company with a registered establishment or branch in the UK. you will need to comply with the specific accounting and reporting requirements for such businesses in the EU-27 country in which they operate.
UK investors in EU businesses – whether individuals, businesses or investment funds – may face restrictions on the amount of equity they can hold in certain sectors in some EU member states. They should make themselves aware of any restrictions that might be placed on them within any EU member state in which they are operating.
EU member states will also no longer be required to give effect to cross-border mergers so any UK companies that are undertaking a cross-border merger should ensure that they can complete the merger before exit.
Before exit, European Economic Interest Groupings registered in the UK should consider transferring their official address to another EU member state. They can have an establishment in the UK but will need to ensure that they comply with the registration requirements within the regulations.
Societas Europaea have the option of converting to a UK public limited company (plc) provided they have been registered as a Societas Europaea for at least two years or have had two sets of annual accounts approved. They should consider whether they should move their seat of incorporation to another EU member state.
It will not be possible to form a Societas Europaea in the UK after 31 December 2020. After exit, Societas Europaea registered in EU member states will need to register their existing and any future UK establishments or branches with Companies House. Likewise, a Societas Europaea that is registered in the EU and has a branch or establishment in the UK, will need to register this at Companies House by 31 March 2021.
The government’s Brexit advice urges businesses trading with the EU to review their contracts for the supply of goods – especially those based on ‘Incoterms’ – to ensure that they remain appropriate in the event of ‘no deal’. Incoterms are standard provisions drawn up by the International Chamber of Commerce (ICC) for use in contracts relating to international trade in goods, which govern the following issues:
- Which party has the obligation to arrange transport (‘carriage’) and insurance of the goods;
- Which party is responsible for the costs of transport, insurance and customs duties; and
- At what point delivery is deemed to take place and the risk transfers to the customer.
Currently a UK business that imports goods from the EU does not pay customs duties because the UK is part of the EU Customs Union. Under a ‘no deal’ Brexit, tariffs are likely to be payable and unless the customer contracts to have goods supplied DDP (Delivery Duty Paid), it is likely to be responsible for paying any tariffs imposed by the UK authorities. Suppliers however may prefer to contract on EXW (Ex Works) terms, where the customer takes delivery at the supplier’s premises and is responsible for transport, insurance and customs issues including tariffs.
Many businesses are considering setting up a legal entity in the EU as a part of their Brexit planning. Having an EU legal entity will allow you to hire staff in the EU, or even retain any current EU staff who may wish to relocate or are unable to work in the UK post-Brexit. An EU entity will make it easier for you to avoid tariffs, change your supply chain, operate bank accounts, pay suppliers and set up operations in the EU.
The key thing is to ensure your business operations can continue unhindered after 31 December 2020. Although the future is uncertain, careful planning and consideration of how any changes might affect you will give you the best chance of future-proofing your business, whatever lies ahead.