Should a business with existing EU trade now consider establishing a limited liability company within the EU, and if so where?

Question

Should a business with existing EU trade now consider establishing a limited liability company within the EU, and if so where?

This questions was asked as part of our webinar on ‘What exporters need to know about Brexit in 2017’. You can find a recording of the webinar here:

http://opentoexport.com/webinars/what-exporters-need-to-know-about-brexit-in-2017/

Answer

My advice would be to wait longer to find out more about the deal that will replace the UK’s membership of the EU. The UK will have access to the EU Single Market and Customs Union until at least March 2019, and possibly longer if there is a transitional deal. There is no need to act now as in most EU countries it will take only 2-3 months to establish an entity.

However there are wider impacts that UK businesses should start to consider now. Setting up an overseas entity is only one aspect of the changes your business may need to make. In addition, setting up a “shell” company without any substantial business presence overseas can lead to other compliance problems.

So I would recommend taking the time now to start planning. Ask yourself the following questions:

– Which overseas location would be best for your company? There is no right or wrong answer. It could depend on which European markets are key for you, where your staff could relocate to or even where your suppliers are based.
– Although the EU operates a Single Market, many key factors vary from country to country. Labor laws, corporate income taxes, employer taxes and corporate law all vary depending on the country you choose. The Netherlands is a good country to consider for incorporating a legal entity due to speed and low costs.
– Could you locate part of your business overseas? It is not as difficult or expensive as you may think to employ staff in other countries. Which functions could even benefit from being closer to your customers, eg sales?
– Would your supply chain be severely impacted if the UK leaves the Customs Union? If so, consider how you could reconfigure your suppliers and production to mitigate the impact?

Overall, try to make any overseas expansion a positive move for your business. Please ask me if you have any questions on how to get started.

Answer

I would tend to agree with the answer above. There is no immediate necessity to act from the compliance point of view, as the Brexit negotiation process will almost certainly continue until 2019. Of course, you may wish to push on with this project earlier for commercial or other reasons.

As to which country you choose to establish a presence in; the choice will depend on the reasons why you are doing it; if you are doing it to minimise impacts of customs & VAT changes, a country with a strong logistics infrastructure, such as Netherlands or Germany, might be a good choice; you might wish to choose a country located close to the majority of your EU clients, for speed, cost & convenience of distribution. Altenatively if you are operatubg in a sector which has a defined "hub" or cluster in a particular country, that might be a factor.

If your decision is based on logistics / customs issues, you should bear in mind the VAT implications of supplying from an EU base, and get input from a VAT advsior on which countries have the most straight forward / user-friendly national VAT administration regimes, and where there is a good supply of VAT management / administration service providers, unless you intend to take on this responsibility directly.

Answer

My advice would be to wait longer to find out more about the deal that will replace the UK’s membership of the EU. The UK will have access to the EU Single Market and Customs Union until at least March 2019, and possibly longer if there is a transitional deal. There is no need to act now as in most EU countries it will take only 2-3 months to establish an entity.

However there are wider impacts that UK businesses should start to consider now. Setting up an overseas entity is only one aspect of the changes your business may need to make. In addition, setting up a “shell” company without any substantial business presence overseas can lead to other compliance problems.

So I would recommend taking the time now to start planning. Ask yourself the following questions:

– Which overseas location would be best for your company? There is no right or wrong answer. It could depend on which European markets are key for you, where your staff could relocate to or even where your suppliers are based.
– Although the EU operates a Single Market, many key factors vary from country to country. Labor laws, corporate income taxes, employer taxes and corporate law all vary depending on the country you choose. The Netherlands is a good country to consider for incorporating a legal entity due to speed and low costs.
– Could you locate part of your business overseas? It is not as difficult or expensive as you may think to employ staff in other countries. Which functions could even benefit from being closer to your customers, eg sales?
– Would your supply chain be severely impacted if the UK leaves the Customs Union? If so, consider how you could reconfigure your suppliers and production to mitigate the impact?

Overall, try to make any overseas expansion a positive move for your business. Please ask me if you have any questions on how to get started.

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