The overwhelming majority of international firms have yet to finalise their Brexit response plan, according to our latest report.
But the number one action that proactive employers can take to ensure they are ready for the UK’s divorce from the European Union (EU) is to set up an entity in other country, the aim being to safeguard their operations from any disruption to ‘business as usual’.
So with this in mind, which European jurisdiction does it make sense to opt for and why? Here are five key locations that are worth considering:
- Ireland
Long seen as an important gateway to the European market and its more than 500 million citizens, Ireland boasts a low corporate tax rate (12.5%) and a growing economy. It is already a favourite for global firms such as Apple, Google, Facebook and LinkedIn to use as a base for their European headquarters.
The country has the least complicated regime among the 84 countries ranked in our Compliance Complexity Index. The regulatory requirements for starting a business are straightforward and registering a firm only takes about a week. According to the World Bank, employers take an average of 82 hours a year to prepare, file and pay taxes, which is about half the time it takes in other high-income countries.
Key pros
- Strong, educated workforce - and the youngest under 35 population in Europe;
- Post-Brexit, it will be the only native English-speaking member of the Eurozone;
- Easiest place in the world to do business in corporate compliance terms;
- Corporate tax rate of 12.5%;
- Extensive double taxation agreements and research and development tax credits.
- The Netherlands
The Netherlands offers a competitive fiscal climate and friendly business environment for employers. The country has a highly advanced transport infrastructure that makes it easy to access the rest of Europe. This includes Amsterdam’s Schiphol airport and the Port of Rotterdam, which as Europe’s largest is set to play a key post-Brexit role.
The Dutch ‘BV’ is the most frequently-used legal entity for setting up a business in the Netherlands, but all foreign legal entities, except sole proprietorships, are recognised. Incorporation is swift, taking approximately one week.
Corporate tax rates are 20% for taxable amounts under €200,000 (US$227,439) and 25% for amounts above that threshold. Over the coming years, the corporate tax rate will gradually be reduced.
Some legal entities, such as tax investment institutions, do not pay corporation tax at all. Others may be exempt if collective investments are made from corporation tax. A reduced rate is available for business activities covered by the ‘innovation box.’
Key pros
- Advanced transport infrastructure for accessing the rest of Europe;
- Stable investment climate;
- Highly-qualified and multilingual workforce;
- Extensive tax treaty network;
- Incentives to promote innovation (innovation box regime);
- ‘Certainty in advance’ ruling on the implications of Dutch tax law.
- Luxembourg
Luxembourg is known for its excellent infrastructure, favourable tax environment and an economic policy that encourages international business to operate there. Its public administration is flexible and responsive.
The country’s corporate tax rate is changeable depending on taxable income levels, but broadly, the corporate income tax (CIT) rate is 18%, plus a 7% unemployment surcharge.
The most common company types are the Limited Liability Company (SARL) and the Public Limited Company (SA). The key difference between the two relates to minimum capital requirements, and SAs are obliged to appoint an auditor.
As for setting up an investment fund, it does not get much better than Luxembourg. The country is a major centre to domicile private equity and real estate types of funds, where the focus is on cross-border trades across Europe and beyond. The flexibility of available vehicles with their different legal forms is a key attraction.
Key pros
- Highly-educated, multilingual workforce;
- Political and economic stability;
- Extensive double tax treaty network;
- Corporate tax rate of 18%;
- Tax incentives for foreign companies.
- Malta
While Malta has traditionally been a hub for employers from European and North African countries, incorporated companies looking for a new EU base can set up there without needing to wind-up their existing businesses.
This small island nation in the central Mediterranean is attractive due to its favourable corporate tax regime, which is available to all companies that trade internationally. Double taxation relief also exists through the country’s use of the full corporate tax imputation system.
The corporate tax rate is 35%, which is chargeable on the net profit of Maltese companies. But a number of allowable tax benefits can bring total tax exposure down to 0% to 10%.
Key pros
- English-speaking workforce’
- The only EU jurisdiction to apply a full tax imputation;
- Double tax treaties with more than 70 countries;
- EU’s Parent Subsidiary Directive is in force;
- Non-residents do not need to pay tax on capital gains or Stamp Duty on Documents when transferring shares or seeing increases in share capital, if the company’s assets do not include immovable property situated in Malta;
- No withholding tax on the payment of dividends, interest or royalties;
- No controlled foreign company legislation or transfer of pricing rules;
- No thin capitalisation rules;
- No exit taxes, wealth taxes, payroll-based taxes or trade tax;
- Companies may opt to apply Notional Interest Deduction Rules, which are calculated on the Risk Capital portion;
- Maltese companies may be formed with a minimum share capital of €1,165 (US$1,324).
- Jersey
Jersey is a self-governing dependency of the British Crown, with its own government, legal and tax systems. The island has a special relationship with the EU through the UK, which is responsible for representing its interests in Brexit negotiations.
Jersey is making preparations for Brexit, but intends to continue trading with the EU. It will also continue to adhere to EU rules for legal and financial services.
A world-leading international finance centre that employs a quarter of the local workforce, Jersey is characterised by its independence, stability and tax neutrality. It has a robust legal system and high regulatory standards and, as such, is a key hub for trust and corporate services.
The standard rate of corporate tax in Jersey is 0%, although there are exceptions. Financial service firms are taxed at 10% and utility companies at 20%.
Key pros
- Mature financial industry;
- High regulatory standards;
- Highly-skilled workforce;
- Attractive location for doing business with both the EU and UK;
- Favourable tax regime, with a 0% CIT rate;
- No purchase, capital gains or capital transfer tax.
Kevin Butler is managing director of TMF UK and Ireland, leading a team of professionals who provide clients with a range of HR and payroll, company secretarial, and accounting and tax services. Kevin has more than 19 years of experience in finance, accounting and management roles and is a Fellow of The Institute of Chartered Accountants in Ireland. He also holds a Bachelor of Arts in Accounting and Finance from Dublin City University.
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The overwhelming majority of international firms have yet to finalise their Brexit response plan, according to our latest report.
But the number one action that proactive employers can take to ensure they are ready for the UK’s divorce from the European Union (EU) is to set up an entity in other country, the aim being to safeguard their operations from any disruption to ‘business as usual’.
So with this in mind, which European jurisdiction does it make sense to opt for and why? Here are five key locations that are worth considering:
- Ireland
Long seen as an important gateway to the European market and its more than 500 million citizens, Ireland boasts a low corporate tax rate (12.5%) and a growing economy. It is already a favourite for global firms such as Apple, Google, Facebook and LinkedIn to use as a base for their European headquarters.
The country has the least complicated regime among the 84 countries ranked in our Compliance Complexity Index. The regulatory requirements for starting a business are straightforward and registering a firm only takes about a week. According to the World Bank, employers take an average of 82 hours a year to prepare, file and pay taxes, which is about half the time it takes in other high-income countries.
Key pros
- Strong, educated workforce - and the youngest under 35 population in Europe;
- Post-Brexit, it will be the only native English-speaking member of the Eurozone;
- Easiest place in the world to do business in corporate compliance terms;
- Corporate tax rate of 12.5%;
- Extensive double taxation agreements and research and development tax credits.
- The Netherlands
The Netherlands offers a competitive fiscal climate and friendly business environment for employers. The country has a highly advanced transport infrastructure that makes it easy to access the rest of Europe. This includes Amsterdam’s Schiphol airport and the Port of Rotterdam, which as Europe’s largest is set to play a key post-Brexit role.
The Dutch ‘BV’ is the most frequently-used legal entity for setting up a business in the Netherlands, but all foreign legal entities, except sole proprietorships, are recognised. Incorporation is swift, taking approximately one week.
Corporate tax rates are 20% for taxable amounts under €200,000 (US$227,439) and 25% for amounts above that threshold. Over the coming years, the corporate tax rate will gradually be reduced.
Some legal entities, such as tax investment institutions, do not pay corporation tax at all. Others may be exempt if collective investments are made from corporation tax. A reduced rate is available for business activities covered by the ‘innovation box.’
Key pros
- Advanced transport infrastructure for accessing the rest of Europe;
- Stable investment climate;
- Highly-qualified and multilingual workforce;
- Extensive tax treaty network;
- Incentives to promote innovation (innovation box regime);
- ‘Certainty in advance’ ruling on the implications of Dutch tax law.
- Luxembourg
Luxembourg is known for its excellent infrastructure, favourable tax environment and an economic policy that encourages international business to operate there. Its public administration is flexible and responsive.
The country’s corporate tax rate is changeable depending on taxable income levels, but broadly, the corporate income tax (CIT) rate is 18%, plus a 7% unemployment surcharge.
The most common company types are the Limited Liability Company (SARL) and the Public Limited Company (SA). The key difference between the two relates to minimum capital requirements, and SAs are obliged to appoint an auditor.
As for setting up an investment fund, it does not get much better than Luxembourg. The country is a major centre to domicile private equity and real estate types of funds, where the focus is on cross-border trades across Europe and beyond. The flexibility of available vehicles with their different legal forms is a key attraction.
Key pros
- Highly-educated, multilingual workforce;
- Political and economic stability;
- Extensive double tax treaty network;
- Corporate tax rate of 18%;
- Tax incentives for foreign companies.
- Malta
While Malta has traditionally been a hub for employers from European and North African countries, incorporated companies looking for a new EU base can set up there without needing to wind-up their existing businesses.
This small island nation in the central Mediterranean is attractive due to its favourable corporate tax regime, which is available to all companies that trade internationally. Double taxation relief also exists through the country’s use of the full corporate tax imputation system.
The corporate tax rate is 35%, which is chargeable on the net profit of Maltese companies. But a number of allowable tax benefits can bring total tax exposure down to 0% to 10%.
Key pros
- English-speaking workforce’
- The only EU jurisdiction to apply a full tax imputation;
- Double tax treaties with more than 70 countries;
- EU’s Parent Subsidiary Directive is in force;
- Non-residents do not need to pay tax on capital gains or Stamp Duty on Documents when transferring shares or seeing increases in share capital, if the company’s assets do not include immovable property situated in Malta;
- No withholding tax on the payment of dividends, interest or royalties;
- No controlled foreign company legislation or transfer of pricing rules;
- No thin capitalisation rules;
- No exit taxes, wealth taxes, payroll-based taxes or trade tax;
- Companies may opt to apply Notional Interest Deduction Rules, which are calculated on the Risk Capital portion;
- Maltese companies may be formed with a minimum share capital of €1,165 (US$1,324).
- Jersey
Jersey is a self-governing dependency of the British Crown, with its own government, legal and tax systems. The island has a special relationship with the EU through the UK, which is responsible for representing its interests in Brexit negotiations.
Jersey is making preparations for Brexit, but intends to continue trading with the EU. It will also continue to adhere to EU rules for legal and financial services.
A world-leading international finance centre that employs a quarter of the local workforce, Jersey is characterised by its independence, stability and tax neutrality. It has a robust legal system and high regulatory standards and, as such, is a key hub for trust and corporate services.
The standard rate of corporate tax in Jersey is 0%, although there are exceptions. Financial service firms are taxed at 10% and utility companies at 20%.
Key pros
- Mature financial industry;
- High regulatory standards;
- Highly-skilled workforce;
- Attractive location for doing business with both the EU and UK;
- Favourable tax regime, with a 0% CIT rate;
- No purchase, capital gains or capital transfer tax.
Kevin Butler is managing director of TMF UK and Ireland, leading a team of professionals who provide clients with a range of HR and payroll, company secretarial, and accounting and tax services. Kevin has more than 19 years of experience in finance, accounting and management roles and is a Fellow of The Institute of Chartered Accountants in Ireland. He also holds a Bachelor of Arts in Accounting and Finance from Dublin City University.
OTHER STORIES THAT MAY INTEREST YOU
Contingency planning for Brexit
Brexit Britain increasingly looks towards China for investment
