Brexit – practical business guidance for longer-term contracts
Now that the dust is beginning to settle following the seismic events on 23 June and the resulting aftershock, we’ve been spending a lot of time with our commercial clients to assess their views of current market conditions and how they feel that business is going to progress in the medium term.
For now, it’s very much “business as usual” with both property and corporate deals proceeding normally with only a few clients anticipating adverse trading conditions over the next few months. Our hope is that the financial and currency markets will also begin to revert to something approaching sensible levels and rates as things get back to “normal” - whatever that is likely to be!
In the meantime, many of our clients are very keen to receive guidance beyond the “keep calm and carry on” or “let’s wait and see” so this series of articles is designed to provide very practical but low cost/risk guidance on specific issues to help you in the coming months.
Medium and longer-term contracts
One of the first issues which came out at a group discussion we conducted recently was the difficulty UK manufacturers and suppliers may have in persuading their European customers to enter into medium and long term contracts (e.g. with 1-3 year terms) with UK companies, bearing in mind the uncertainties around tariffs, import regulations and exchange rates during Brexit.
One of the solutions which began to emerge was that UK companies could be setting up trading subsidiaries as distributors in EU countries relevant to them so that customers in those countries would be trading “locally”, although the ultimate supply would still come via the UK. Any tariffs or new regulations introduced would still apply but would be contained internally within the UK controlled group while EU customers would have the confidence to place orders in a way which should minimise their concerns.
There will be transfer pricing and other accounting and tax issues to be addressed, but these, we’re told, are manageable if the right processes are in place. As a result of this, we’ve contacted our Eurolegal friends to obtain estimates of the likely costs and regulations involved in setting up a trading subsidiary company in various jurisdictions in the EU, so we can give our clients a clear idea of what would be involved. An overview of their answers to our key questions were as follows:
What would be the cost of setting up a trading subsidiary in a EU country?
On average between 1,000 and 1,500 Euros, with annual fees of around 500 to 750 Euros as continuing admin/registered office fee.
Would it be necessary to set up a separate office or trading address for the company in addition to a registered office?
A registered office is usually all that’s needed rather than a trading address, but office facilities can be organised economically through serviced office providers.
Would the company have to employ staff in the jurisdiction?
Would it be complicated to set up a new bank account for the company, possibly with a branch of existing UK bankers?
No, most UK banks have offices in all EU countries.
Would the company need directors resident in the jurisdiction?
Usually directors can register with residences abroad. In the one or two cases where a resident director is needed, that service can be obtained for an annual fee.
Could the company have corporate directors?
Usually no. Unlike the UK, EU countries usually need individuals as directors.
At what point (time and turnover) would the company need to have its accounts audited?
On average, accounts need to be filed within 6 months of the financial year end, with a formal audit needed if assets exceed 2.5m Euros, or turnover exceeds 5m Euros, or there are more than 50 employees.
If you would like further information or specific guidance on a particular EU jurisdiction, contact Russell Bell, Senior Consultant.
Published: 27 Jul 2016