As the Brexit date of 29 March 2019 creeps ever closer, European Union (EU) and UK leaders have finally come up with a Withdrawal Agreement. So what does this mean for either UK or international companies that are considering whether to set up EU offices in a post-Brexit world?
What has happened so far with Brexit?
The UK and EU have now agreed two Brexit documents. The first is a Withdrawal Agreement, which governs how the UK will leave the European trade bloc. It will be legally binding but has yet to be passed by the UK Parliament – the vote is due to take place on Tuesday 11 December.
The second is a Political Declaration, which sets out objectives for the post-Brexit relationship. This document is not legally binding but gives businesses their best idea yet of the future plans of both jurisdictions.
Will these agreements definitely come into force?
Any business that is currently making contingency plans should be aware that neither of these agreements have yet been approved. They need to be ratified by lawmakers in both the EU and UK. At the time of writing, it is particularly uncertain whether the UK Parliament will do so.
If neither party pass the agreements, there are several other possible options. The UK could crash out of the EU without any deal, which would be very damaging for both sides. It could also try to delay its departure from the EU, or even have another referendum vote on whether to go ahead with Brexit or not. Whatever the outcome, it would be wise for businesses to explore the risks posed by each when conducting their planning.
When will Brexit take place?
Although Brexit formally occurs in March 2019, in practical terms businesses will not feel the effects until 2021, or possibly even 2023. This is because a so-called Transition Agreement will effectively mean the UK remains part of the Single Market and Customs Union until 31 December 2020. This transition period could be extended by a further two years until 31 December 2022, if both parties agree.
After the transition period has expired, things get more complicated. By default, the UK will be in a Customs Union with the EU that has no end date unless and until they negotiate a trade deal. So employers could be waiting for many years to truly understand and experience the full impact of Brexit.
What do we know about the trade situation so far?
It is now almost certain that, in the long-term, the UK will not achieve frictionless trade with the EU as this ambition is notably absent from the agreements. So the only way for UK companies to avoid any supply chain disruption will be to set up operations within the EU to service customers and suppliers from there.
How much ‘friction’ is there likely to be in trade between the UK and EU?
This is a key question for businesses considering setting up operations in the EU. But it is impossible to answer at present because there is such a wide range of possible outcomes for the Brexit agreements.
Broadly-speaking, most political commentators think it will depend on how closely the UK wishes to align itself with the EU. The closer the alignment between the two in terms of trade regulations, the smoother trading arrangements will be. But if the UK wishes to negotiate trade deals with non-EU countries based on regulations that diverge with those of the EU, trade will be subject to more friction.
Ultimately though, the decision will be a political one and will potentially take many years to determine. This means there will be substantial uncertainty for international business for some time to come.
Will it be beneficial for both UK and international businesses to set up offices in the EU after Brexit?
There will be many potential benefits for companies setting up operations in the EU after Brexit. One of the biggest will involve eliminating any uncertainty about how to work with customers and suppliers in the EU.
At only 26 pages long, the Political Declaration is a very short document. It does not provide the details about the future required by companies to plan ahead. This means that it is currently unclear exactly how close the trading relationship between the EU and UK will be.
Will it be more difficult to set up offices in the EU after Brexit?
No. Brexit will not change the rules for setting up offices or companies in the EU. These rules are determined by the national legislation of each EU country and so are unaffected by the move.
How easy will UK companies find it to employ EU nationals?
It is highly likely that, post-Brexit, it will be much more difficult to employ EU nationals in the UK. The UK will be able to determine its own immigration policy and the Government has already published proposals to prioritise immigration among higher-skilled and paid workers from all jurisdictions including the EU.
This means UK employers that currently recruit medium- and lower-paid EU nationals to work in the country will probably no longer be able to do so post-Brexit - which is another reason to consider setting up offices in the EU.
John Galvin is founder and CEO of award-winning international expansion company Galvin International, which has offices in the US and UK. His firm helps clients expand globally by providing one-stop commercial and compliance services in more than 100 countries. John is a former multinational CFO with over 20 years of international commercial and finance experience, and was named Global Consultant of the Year 2016/17 at the inaugural Global Payroll Awards.
OTHER ARTICLES THAT MAY INTEREST YOU
Contingency planning for Brexit
What might Brexit mean for UK employment law?
As the Brexit date of 29 March 2019 creeps ever closer, European Union (EU) and UK leaders have finally come up with a Withdrawal Agreement. So what does this mean for either UK or international companies that are considering whether to set up EU offices in a post-Brexit world?
What has happened so far with Brexit?
The UK and EU have now agreed two Brexit documents. The first is a Withdrawal Agreement, which governs how the UK will leave the European trade bloc. It will be legally binding but has yet to be passed by the UK Parliament – the vote is due to take place on Tuesday 11 December.
The second is a Political Declaration, which sets out objectives for the post-Brexit relationship. This document is not legally binding but gives businesses their best idea yet of the future plans of both jurisdictions.
Will these agreements definitely come into force?
Any business that is currently making contingency plans should be aware that neither of these agreements have yet been approved. They need to be ratified by lawmakers in both the EU and UK. At the time of writing, it is particularly uncertain whether the UK Parliament will do so.
If neither party pass the agreements, there are several other possible options. The UK could crash out of the EU without any deal, which would be very damaging for both sides. It could also try to delay its departure from the EU, or even have another referendum vote on whether to go ahead with Brexit or not. Whatever the outcome, it would be wise for businesses to explore the risks posed by each when conducting their planning.
When will Brexit take place?
Although Brexit formally occurs in March 2019, in practical terms businesses will not feel the effects until 2021, or possibly even 2023. This is because a so-called Transition Agreement will effectively mean the UK remains part of the Single Market and Customs Union until 31 December 2020. This transition period could be extended by a further two years until 31 December 2022, if both parties agree.
After the transition period has expired, things get more complicated. By default, the UK will be in a Customs Union with the EU that has no end date unless and until they negotiate a trade deal. So employers could be waiting for many years to truly understand and experience the full impact of Brexit.
What do we know about the trade situation so far?
It is now almost certain that, in the long-term, the UK will not achieve frictionless trade with the EU as this ambition is notably absent from the agreements. So the only way for UK companies to avoid any supply chain disruption will be to set up operations within the EU to service customers and suppliers from there.
How much ‘friction’ is there likely to be in trade between the UK and EU?
This is a key question for businesses considering setting up operations in the EU. But it is impossible to answer at present because there is such a wide range of possible outcomes for the Brexit agreements.
Broadly-speaking, most political commentators think it will depend on how closely the UK wishes to align itself with the EU. The closer the alignment between the two in terms of trade regulations, the smoother trading arrangements will be. But if the UK wishes to negotiate trade deals with non-EU countries based on regulations that diverge with those of the EU, trade will be subject to more friction.
Ultimately though, the decision will be a political one and will potentially take many years to determine. This means there will be substantial uncertainty for international business for some time to come.
Will it be beneficial for both UK and international businesses to set up offices in the EU after Brexit?
There will be many potential benefits for companies setting up operations in the EU after Brexit. One of the biggest will involve eliminating any uncertainty about how to work with customers and suppliers in the EU.
At only 26 pages long, the Political Declaration is a very short document. It does not provide the details about the future required by companies to plan ahead. This means that it is currently unclear exactly how close the trading relationship between the EU and UK will be.
Will it be more difficult to set up offices in the EU after Brexit?
No. Brexit will not change the rules for setting up offices or companies in the EU. These rules are determined by the national legislation of each EU country and so are unaffected by the move.
How easy will UK companies find it to employ EU nationals?
It is highly likely that, post-Brexit, it will be much more difficult to employ EU nationals in the UK. The UK will be able to determine its own immigration policy and the Government has already published proposals to prioritise immigration among higher-skilled and paid workers from all jurisdictions including the EU.
This means UK employers that currently recruit medium- and lower-paid EU nationals to work in the country will probably no longer be able to do so post-Brexit - which is another reason to consider setting up offices in the EU.
John Galvin is founder and CEO of award-winning international expansion company Galvin International, which has offices in the US and UK. His firm helps clients expand globally by providing one-stop commercial and compliance services in more than 100 countries. John is a former multinational CFO with over 20 years of international commercial and finance experience, and was named Global Consultant of the Year 2016/17 at the inaugural Global Payroll Awards.
OTHER ARTICLES THAT MAY INTEREST YOU
Contingency planning for Brexit
What might Brexit mean for UK employment law?
