Brexit FAQs - Legal & Tax
Ever since the UK voted to leave the European Union there has been an element of uncertainty over the effect of Brexit on companies in the UK. As the specifics of how the UK will exit the EU will be the subject of the negotiations, the exact implications are still difficult to predict at the moment. However, in order to offer some practical support we have asked our in-house experts from the Tax department to answer frequently asked questions from companies based in the UK.
FAQ - Legal
I am a British business currently considering establishing a German subsidiary in the form of GmbH. Could Brexit prevent me from following through with my plan in future?
After the UK’s exit of the European Union British businesses/nationals will still be able to establish a German GmbH. Brexit will have no immediate negative impact on the process of setting up the company itself.
Currently, foreign nationals can generally establish a GmbH from abroad but will always be required to provide a German postal address.
The impact British owners of a GmbH based in Germany might feel in future will more likely be linked to the principle of the freedom of movement for people, i.e. with regard to sending their British employees on assignments to the German subsidiary.
However, the impact on the freedom of movement will in the end be dependent on the final post-Brexit deal.
Thoughts on Contractual Drafting for Brexit
Brexit Clauses Based on English Law
Companies entering into a long term cross-border contract which is likely to continue to be in force after the UK’s exit of the European Union are well advised to consider expressly drafting for Brexit scenarios. If parties are unprepared they might risk an obligation to fulfil a contractual responsibility even though it is no longer cost effective or even impossible to fulfil. Whether Brexit clauses are in fact desirable will usually depend on the individual circumstances of each contractual arrangement.
Clauses already included in commercial contracts
Many commercial contracts will already contain certain clauses such as force majeure or hardship clauses. Whether these clauses can generally be triggered by Brexit related events is questionable. Parties should not automatically rely on such clauses and review their long term cross-border contracts with Brexit in mind.
Clauses with a specific consequence
Companies could include specific clauses such as Currency Exchange Rate Clauses into their commercial contracts. For example, if the exchange rate appreciates or depreciates to a predetermined level the price of the product will automatically be adjusted. A Currency Exchange Rate Clause does not necessarily need to be linked to Brexit and does not require proof of causation.
Clauses with the possibility of renegotiation and/or termination
In addition to specific contractual drafting, companies could also consider more general clauses to try and minimise their risks when a certain scenario occurs. If, by way of example, tariffs will be introduced as a consequence of the Brexit negotiations, parties might wish to have the right to renegotiate their commercial agreement and if a new agreement cannot be reached, they might want to have the right to terminate the contract. There will be a number of questions surrounding the contractual drafting for possible Brexit scenarios. For instance, companies should consider whether Brexit clauses are meant to be invoked prior to the UK’s exit of the European Union or not. Another important consideration is the issue of causation and if the party invoking a particular clause will need to prove that Brexit has caused the specific change or impact on the contractual agreement.
FAQ - Tax
I sell goods on Amazon to private customers in Germany and other EU countries. I am based in the UK. Does Brexit affect my trading in terms of VAT?
So far the UK referendum has brought no changes to VAT rules, neither in Germany nor the UK and this applies to all sectors. However, you should be aware that Germany, like all EU countries, has a so called distance selling threshold in place. When your UK sales to private customers in Germany exceed a value of €100,000, you must register for German VAT and tax your sales with the correct German VAT rate. If you do not exceed this threshold, you should charge UK VAT. Post Brexit – and provided no interim arrangements between the EU and the UK are agreed to keep the status quo – the distance selling threshold may no longer be applicable. This would mean that you have to register for and charge German VAT on all your sales to private customers in Germany.
Which other tax implications could Brexit have on UK businesses?
The number of possible tax implications of Brexit is just as numerous as the number of possible outcomes of the negotiations. The correct taxation of your business transactions could change post-Brexit, depending on the structure of your company or group, bearing in mind that the UK will no longer be bound to specific Directives such as the EU Parent-Subsidiary Directive or the Interest and Royalties Directive. However, the double taxation agreement between Germany and the UK will stay in place post-Brexit as it is a separate bilateral agreement.
Due to the nature of our products we deliver “just in time” to our customers. We are VAT registered both in Germany and in the UK. How will Brexit affect us?
Q: We are a UK-based trader and deal with pharmaceutical products worldwide. We sell mainly in Europe and usually source our goods from overseas. The goods are shipped into our German warehouse and we generally supply the EU market from the German warehouse. Occasionally, UK producers stock our German warehouse from the UK. Due to the nature of our products we deliver “just in time” to our customers. We are VAT registered both in Germany and in the UK. How will Brexit affect us?
The extent to which you might be affected will depend on the outcome of the negotiations. Should customs borders be re-introduced between the UK and the EU, your supplies from the UK to your German warehouse would then be treated as imports into Germany on your German VAT return (and no longer as EC acquisitions). For this scenario it is likely that import VAT (and possibly customs duties) will be due in Germany. This is an important consideration for your cost and cash flow management. Deliveries from the German warehouse to the UK would correspondingly be treated as exports from Germany and as imports in the UK. You should also be prepared for additional administrative tasks such as customs declarations and controls in ports which may affect delivery times. Therefore, your accounts department – in co-operation with your logistics and supply chain management – should consider various scenarios and prepare accordingly. We recommend to closely follow the Brexit negotiations and involving both your company’s tax advisor (who might have optimised your current supply chain in terms of VAT) and logistics supplier to identify the necessary steps.