Should we set up an EU based subsidiary post Brexit?

Question

The question, “Will having a EU based subsidiary ease business within the EU for UK companies after Brexit?” comes from a recent webinar we hosted on What exporters need to know about Brexit in 2018.

The answer below comes from Enterprise Europe Network who spoke alongside the Institute of Export & International Trade  to give an overview of the challenges and opportunities that UK exporters will face in 2018 as the negotiations continue and hopefully progress.

Answer

That will depend on the result that the current EU-UK negotiations bring. It will also depend on other aspects relevant to your business such as where your current and future workforce, customer base and investment priorities are.

How much of your business comes from the EU, where are most of your clients based? Those are the questions you have to ask yourself when weighing the idea of opening a subsidiary. It is much easier to conduct businesses through an independent legal entity and a subsidiary usually gives a business more credibility with third parties such as banks, service providers, and partners. The subsidiary is the more popular structure to incorporate in Europe, but choosing between opening a branch or a subsidiary will have tax and legal implications.

A branch office is considered an extension of the parent company and is not considered a separate legal entity. A local subsidiary is a separate legal entity from the foreign company even if the latter may be its only shareholder and will maintain control over its board of directors.

Some advantages for the subsidiary status:

  • You will have a better control of your business activities in the single market:
  • You could act as both an importer and distributor and a point of marketing communication for your EU customers 
  • You can provide a more personalised service of locally-based support to customers. Local customers may prefer to deal with a local company rather than the branch of an UK company.
  • Your investment will demonstrate strength of customer commitment 
  • Can lower your business-risk if part of a joint venture 
  • Can ease further market expansion if you already have an established presence 

Depending on whether the UK post Brexit becomes a 3rd country and tariffs start to apply to UK imports to the EU, these considerations may become a necessity or remain an option according to the business model you decide to go for or the sector you operate in:

For instance, in case of a no deal scenario, companies who provide the certificates for assessing the safety of products according to EU legislation (CE marking) may not have their work recognised after 29 March 2019. . If you are a provider of those services you might need to open a subsidiary in mainland Europe to continue to offer compliance test.

Another example if you are road transport operator:  According to Article 3(1)(a) of Regulation (EC) No 1071/2009, companies who are road transport operators in the European Union must have an “effective and stable establishment in an EU Member State”. So companies that have their establishment in the United Kingdom will no longer fulfill this requirement.  Therefore they will need to open an subsidiary in a EU member State in order to continue their operations.

 


You can watch the webinar on ‘What exporters need to know about Brexit in 2018’ here:

https://opentoexport.com/webinars/exporters-need-know-brexit-2018/

Following the 2017 version of the webinar, we also released a 12-point checklist for companies starting to plan for the different potential outcomes of Brexit. You can view this checklist here.

 

If you have any further questions about Brexit – or exporting in general – you can use the Institute’s ‘Exporter Helpline’ service.

The helpline is either free for Institute members or can be accessed for a small fee by non-members. More information and access to the helpline can be found at:

https://opentoexport.com/ask-the-experts/

 

About Enterprise Europe Network

enterprise-europe.co.uk  |  een.ec.europa.eu  |  @EENEast  |  @EEN_UK  |

Enterprise Europe Network helps ambitious businesses innovate and grow internationally.  Jointly funded by the European Commission and Innovate UK, our experts advise and connect those looking to commercialise ideas and succeed in new markets.  In the UK, Enterprise Europe Network is delivered by 24 organisations located across England, Northern Ireland, Wales and Scotland.

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