No-Deal Brexit inevitable? – UK companies need to take action
- 15 juni 2020
by Peter J. Fresacher
On 19 October, 2019 BBC News published a summery on their website (https://www.bbc.com/news/uk-politics-48511379 ), regarding the no-deal Brexit, which – inter alia – contained the following:
“What is a no-deal Brexit?
In a no-deal scenario, the UK would immediately leave the European Union (EU) with no agreement about the “divorce” process.
Overnight, the UK would leave the single market and customs union – arrangements designed to help trade between EU members by eliminating checks and tariffs (taxes on imports).
What would it mean for trade?
Under a no-deal Brexit, there would be no time to bring in a UK-EU trade deal.
Trade would initially have to be on terms set by the World Trade Organization (WTO), an agency with 162 member countries.
If this happens, a type of tax known as a tariff will apply to most goods UK businesses send to the EU. Many companies worry that could make their goods less competitive.
Trading on WTO terms would also mean border checks for goods, which could cause traffic bottlenecks at ports, such as Dover.
No deal would also mean the UK service industry would lose its guaranteed access to the EU single market.
That would affect everyone from bankers and lawyers to musicians and chefs.
Most economists and business groups believe no deal would lead to economic harm.
For example, the Office for Budget Responsibility – which provides independent analysis of the UK’s public finances – believes a no-deal Brexit would cause a UK recession.
To cushion some of the impact, the government is looking at what might happen in a worst-case no-deal scenario.
- border delays
- increased immigration checks
- less food available
- possible price increases for utilities, food and fuel”
The situation by the end of 2020
The UK Prime Minister has made clear that he will not ask for an extension of the negotiation period to reach a UK-EU trade deal (which would have to be agreed by 1st July, 2020, latest). The UK government still insists, that a UK-EU trade deal will be reached by the end of 2020.
Is that a reasonable expectation?
Doubtful, given the tremendous size of the project, the time lost due to COVID-19, the work which still has to be done, as well as negotiations which so far have not yielded any result at all, as well as the fact that an extension of negotiations is not acceptable for the UK Government.
Thus, unfortunately, at present the most likely scenario by the end of 2020 is a no-deal Brexit.
Prepare for the worst
Not having an EU-UK trade agreement by the end of the year will lead to UK-EU trade having to be treated by both as non-internal trade, but rather as trade with any foreign country.
Import from the UK into the EU and vice versa will have to be dealt with by customs. This would apply for every product and for every shipment. The consequence which may reasonably be expected is that transport traffic will be slowed down or probably even will have to wait for such periods of time, that products, e.g. fruit and vegetables, fish and meat will perish during queuing, or at least timely delivery will be impossible.
As a consequence, another risk has to be taken into account. This period of waiting or even the refusal to import non-conforming goods not only increase the costs of transport and therefore the price of the product, but may also in end jeopardise the often long standing relationship between companies in the UK and abroad.
It goes without saying that the result will be severe damage to both the UK and the EU economy.
If politicians fail, businesses will have to act
Especially for UK enterprises, it is essential to have a presence in the EU.
Such presence can best be achieved by incorporating a subsidiary in an EU country.
Dutch corporate law as well as the Dutch legal system offer solutions which come close to the English and Scottish legal systems.
The Dutch best equivalent to a UK limited liability company is the “besloten vennootschap met beperkte aansprakelijkheid” (B.V.).
Dutch corporate law, which has recently been revised, provides for various options to adopt the articles of association in a way that resembles the provisions or the concept of the Companies Act 2006. An example is the choice enabled to either apply the traditional Dutch system of a two tier board or to substitute that by a one tier board.
Dutch society and the Dutch economy and civil service are well equipped to offer a climate and conditions that are attractive for UK businesses.
Apart from the fact that almost everybody in the Netherlands has at least a fair command of English, the work force provides well educated employees, and communication with the authorities, for example the tax authority can mostly been done in English.
Annual accounts and filings can also generally be submitted in English.
The exceptional harbour, storage, distribution and transport facilities, which serve not only the entire EU but reach much further, are well known and we do not need to elaborate on them.
Do not delay action
It is advisable to engage without delay in seeking expert advice.
Time will be of the essence if a place of business, facilities, service providers etc. have to be selected. While this is all being put in place, the process of incorporation should be started and preparations for opening a bank account should also be initiated.
There are only just over six months until the end of 2020 – this is not a lot of time
Please feel free to contact Peter J. Fresacher for further information.