Dozens of UK companies are moving their headquarters to a European Union (EU) country or setting up subsidiary companies in the EU in preparation for when the UK officially cuts all ties with the EU at the end of the Brexit transition period. These include huge multinational companies, such as Panasonic and Sony, which are both moving their European headquarters from the UK to The Netherlands; famous British names, such as insurance market Lloyds of London, which is opening a subsidiary in Brussels; and lesser known UK SMEs, such as London-based giftware designer and retailer Rex London, which has established bases in Germany, The Netherlands and Belgium to minimise Brexit red tape.
Here we consider why so many companies are creating EU entities in preparation for Brexit. We weigh up the advantages and disadvantages of doing business in the EU directly from the EU, and consider whether other UK SMEs should look to follow suit.
Why are UK companies setting up EU bases in preparation for Brexit?
If the UK should leave the EU without a deal, or even if a deal is reached before the end of the transition period, it is widely accepted that goods, services and data will not move as freely between the UK and the EU as they do currently. It is reasonably likely that there will be new regulations to adhere to on everything from organic certification to data transfer; customs declarations may have to be made; and new tariffs may have to be paid.
Read more about the tariff changes, and custom declarations in our guide, How Will Brexit Affect Imports And Exports.
When UK companies set up a sister business in the EU or move their headquarters to the EU, they are able to declare that they are an EU company. So while the goods and services that they transfer between the UK and the EU will be subject to the changes associated with Brexit, all the goods and services that they transfer within the EU can move around frictionlessly, exactly as they do now.
When it comes to doing business in the EU, having a base in the EU post-Brexit will probably significantly reduce the amount of Brexit-related paperwork and time spent on it and minimise tariffs. Plus, it makes it easier to hire staff in the EU and you can relocate any existing staff who may be unable to work in the UK after the transition period, to your new EU base.
Setting up a business in the EU, finding a property to work from and staffing it and running it will also be costly though, so businesses need to weigh up whether the investment is worth the hassle and costs that it will save. The only way to do this is to get costings for every element required to set up and run a business in the EU and measure this against the cost of running everything solely from your existing UK base.
How do you set up a company in the EU?
If you plan on trading in more than one European country, you may find it best to set up a European company or SE as it is known, which stands for Societas Europea in Latin. An SE company is a public limited liability company that enables you to run your business under a single European brand name in multiple EU countries, while following one set of rules.
To set up an SE company, you must locate your registered office and head office in the same EU country, have a subscribed capital of at least €120,000 and you must have a presence in at least two EU countries. Some EU countries have extra requirements, so you will need to check the specifics for the country you are planning to be based in. This EU website has more detail on how companies affected by Brexit can set up an SE company.
You don’t have to set up a Europewide SE company. You can also set up a company in individual EU countries; you can set up a GMBH company in Germany, for example. Your accountant and legal team can help you explore these different EU business avenues and should be able to explain the pros and cons of each.
There are business consultancies who will assist you with the paperwork involved in setting up a company in the EU, plus the ongoing admin required for doing business in the EU directly from the EU, such as book-keeping, accounts and tax obligations. Before signing up for such a service, check their legitimacy.
Where should you base your new EU entity?
Several EU countries are calling for UK businesses to set up bases within them. Many have government-backed websites that explain why you should seek to create a company on their shores to ease your post-Brexit woes. Here are some examples:
- IDA Ireland offers support for foreign companies looking for a European base in Ireland
- Invest in Holland helps foreign businesses create a base in The Netherlands
- Germany Trade and Invest supports foreign firms looking to operate in Germany
You need to explore a number of different EU business avenues, before deciding where to locate your EU business. Where you base your new EU entity should be dictated by your business’s needs. If most of your business is in France, for example, it makes sense to be based in France. If you send and receive goods from across Europe, perhaps you want to be somewhere more central, such as The Netherlands. If being in an English-speaking country is key, the Republic of Ireland will be your natural choice.
You may find the World Bank Doing Business Ranking useful, it ranks different countries around the world according to how easy they are to conduct business in. The factors it takes into account for this include: the local regulations, how easy it is to start a business, availability of electricity and how easy it is to register a property.
Can I set up an EU business without having a physical presence in the EU?
A number of EU business consultancies will set up a company for you in the EU registered to their own business address. They will take care of the documentation, arrange bank accounts and they will provide office space for you as and when you need it. You normally have to visit them in their country at least once to complete the paperwork. Before using any of these services, make sure that the company you use is reputable first.
If you don’t want to have to visit the EU at all, the Republic of Estonia’s e-Residency programme is worth considering. This scheme allows foreigners to set up and manage an EU company online from anywhere in the world, subject to checks. You fill out an online application form, pay a fee of €100 and wait for your application to be approved. Once you’ve set up your EU company through Estonia’s e-Residency scheme, you can operate it entirely remotely.
How Harper James Solicitors can help you create an EU base
Our corporate, commercial, intellectual property, data protection, and business immigration specialists are on hand to assist you with all the steps involved in setting up and running a company in the EU. They will be happy to advise you on the different avenues your particular business should explore.