Worried about Brexit? Should you setup an entity in the EU now?

If you trade with Europe from the UK, you are probably wondering how Brexit will affect your business. You may be considering whether you need to setup an entity in the EU now, or how else you can start to prepare. This article will explain how Brexit may impact your business and what you can do now to protect your business.

What do we know now?

The UK will continue to be in the EU’s Single Market until March 2019 at least. This allows UK companies equal access to sell goods and services to the EU. The UK will also be in the EU Customs Union for the same period. This currently allows British goods to cross EU borders without customs controls.

What could change due to Brexit?

British Prime Minister Theresa May has indicated that the UK will formally leave the Single Market and the Customs Union when it exits the EU. However she also wants the best possible trade deal between the UK and Europe. There is no clear precedent for the type of deal the UK wants, so we cannot be sure what a future trade deal will look like. Also there is a substantial risk that the UK and EU will not will agree. If the UK does not reach a deal with the EU, it will trade with the EU under WTO (World Trade Organization) rules.

When will the changes happen?

According to PM May the UK will trigger Article 50 in March 2017, which starts a 2 year exit process. The UK will leave the EU in March 2019 and any changes to the Single Market and Customs Union will begin at that time. PM May has acknowledged that there may need to be temporary arrangements to help smooth the transition to new trading rules. However it is not certain this would happen and the UK Government would not want them to last long in any case.

How could trade changes affect your business?

The changes for any UK business trading with the EU could be hugely significant. UK businesses could face tariffs and new regulatory burdens when they sell into the EU. These would increase costs and make them less competitive relative to their European competitors. Also their goods could face delays and customs checks when they enter the EU, which would delay arrival at their customers and again increase costs.

Many UK businesses have integrated EU suppliers deep into their supply chains. These EU supplies could also be subject to tariffs and customs delays, which would disrupt operations, increase working capital and increase costs.

The impact will depend also on the sector in which your business operates. Tariffs and regulations vary from product to product, and some sectors face particular issues. For example Agriculture will likely be affected hugely, as any transition even to WTO rules will be difficult and complicated. Also Financial services firms in the UK benefit from so-called passporting rights, which allow them to sell into the EU. These rights may be lost due to Brexit.

****CLICK HERE FOR HELP TO IDENTIFY AND MANAGE YOUR BREXIT RISKS ****How else could Brexit affect your business?

Brexit could affect your business in many more ways than just trade. For example, if you employ EU nationals in the UK they could also be impacted. Their rights to reside and work in the UK will need to be renegotiated. If your business is regulated by a European body (eg pharmaceuticals), then the regulatory body could change. Also your customers could be affected, e.g. they may move more of their business into the EU. On currency markets sterling has fallen due to Brexit and it is likely to remain volatile until markets know the impact of Brexit.

Should my business setup an entity in the EU?

Many businesses are considering setting up a legal entity in the EU to prepare for Brexit. This is much easier and more cost-effective than they may realise. 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 accountspay suppliers and setup operations in the EU. You can also retain your UK entity at the same time as having an EU entity.

Should I setup an entity in the EU now?

Start planning now, but wait and see if you can before setting up a legal entity in the EU. There is still so much uncertainty around future trading agreements after Brexit that it is difficult to know the right course of action. Also for many businesses there is no need to setup an entity just yet. In most EU countries it takes around 2-3 months to setup an entity, plus you should allow up to 6 months after that to arrange other basic compliances and infrastructure. This does not apply to all sectors. Many firms in Financial Services are already starting to plan moves overseas. This is because among other items they need to get new regulatory licences for their business within the EU.

How should I start planning now?

If you are worried that your business could be affected by Brexit, you should take the following steps now.

Firstly, start with a risk assessment to identify how vulnerable your business is to Brexit related risks. Areas to consider include your customer base, profit margins, regulatory regime, staffing, supply chain etc. We can help you by developing a custom Brexit risk checklist for your business.

Next, select the top risks you have identified and think how you could mitigate these. Consider specifically whether moving part of your operation to the EU post-Brexit would help mitigate these risks. If so, it is possible that having a legal entity overseas would be a good idea for you. It is likely you will be unable to make many of the assessments you need at this stage, e.g. how a legal entity can help you. If you need more detail here we can help.

Also think about where in the EU would be a good operational and legal base for you. This is important because the costs of running a business vary widely across the EU. Key items such as corporate tax rates, VAT rates and the costs of running a business are all governed by country legislation. For example, employment law regulations vary widely from country to country which could make it more expensive for you to hire or terminate staff in the future.

Summary

Any business in the UK which trades with the EU should be carefully monitoring and planning ahead for Brexit. It may feel like two years is a long time away, but you should start planning now. If you need to setup an entity in the EU, you will need time to assess the right location for your business.

Our award-winning one-stop service is ideally placed to help you identify and manage your Brexit risks. Click here to find out more or contact us today.

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