Irrespective of the shape of the Brexit, there will be a border between the EU and the UK (in case of no deal as of 31 January 2020, in case of a deal or an extension as of a later date). As a result, businesses could face serious limitations to free movement of goods, people, capital and services though the potential transition period (in case of a deal) might offer some relief until 31 December 2020.
While the terms of Brexit are uncertain, UK and European businesses need to be at the forefront in understanding and planning for the potential implications of Brexit to ensure EU-UK trade flows will not be disrupted.
In multidisciplinary and multi-jurisdictional teams, we assess the impact of possible Brexit scenarios for your business and define actions to mitigate the impact. Minimizing business disruption and keeping the goods moving is our prime objective, while keeping the cost aspect in mind as well.
Navigate challenges, mitigate impact
Irrespective of the shape of the future relationship between the EU and the UK, a customs border will be created. Whether the outcome of the negotiations leads to a free trade agreement, a customs union, or whether no deal will be reached, in all scenarios a customs border will exist where this was previously not the case.
Without taking appropriate measures, businesses trading with the UK will be confronted with significant delays at the UK and EU customs borders. In the Netherlands alone, approximately 77,000 companies are trading goods with the UK and over 35,000 of these companies never dealt with customs before, and hence have no customs management in place. Appropriate measures should be taken now to prevent goods being stopped at the border post-Brexit. Because one thing seems to be sure: Brexit will force businesses trading with the UK to deal with customs formalities.
Businesses and customs authorities involved in EU-UK trade will face a significant additional administrative burden as a result of the customs formalities which have to be observed for import and export transactions involving the UK. Serious delays at the EU and UK borders are expected due to increased pressure on businesses, customs authorities and the infrastructure. Moreover, depending on the details of the future relationship, businesses may face additional customs duties payable in both the EU and UK.
As part of their preparations, businesses should perform a Brexit impact and gap analysis, focussed on ensuring minimum business disruption. Such a gap analysis could lead to businesses rethinking their supply chain routes, warehouse locations and sourcing countries. Businesses may need to apply for customs licenses in order to mitigate the duty impact. Are businesses ready to meet customs compliance obligations? Are all goods classified correctly for customs purposes? One of the mitigating measures is to apply for an AEO license. Having such a license means that customs considers your company to be a trustworthy party, resulting in reduced delays at the borders. However, it should be noted that obtaining an AEO license takes quite some time, so the application process should be started as soon as possible.
The VAT treatment of a transaction depends on, amongst other things, the nature of the services, the status of the customer and the place from where goods or services are supplied. The VAT treatment of certain transactions can be different depending on whether the recipient is established inside or outside the EU. With the UK leaving the EU, the VAT treatment of transactions involving the UK might change as well.
Importing goods from the UK is treated differently than the current intra-Community acquisition of goods. As a main rule, import VAT becomes payable when the goods are presented to Dutch customs and this VAT is deducted in the Dutch VAT return. Also, different rules apply for demonstrating that the 0% VAT rate on cross-border deliveries applies and there is no ‘simplified triangulation’ for transactions with businesses outside the EU. Furthermore, the distance sales rules no longer apply to deliveries to customers in the UK.
Brexit can affect VAT deduction. For example, interest received from customers inside the EU restricts deductibility of VAT on costs related to these activities. This is not the case for interest from customers outside the EU.
In the Netherlands, paying import VAT upon import followed by a later deduction can be avoided by applying for a so-called ‘import VAT deferment license’. Non-resident companies, however, would need to appoint a Dutch VAT fiscal representative when applying for this license. EY can help you obtain this license and act as your VAT fiscal representative in the Netherlands. Businesses should review the impact of their transactions with partners established in the UK and make sure that their ERP systems are ready for any changes. We are happy to assist you in the review of your transactions and in getting your ERP systems ready for Brexit.
Brexit impacts regulatory aspects of trade in goods and services. Examples are: export controls, sanctions, REACH, sanitary & phytosanitary provisions, and rules governing medicinal products. Even though the precise impact of Brexit is still unclear, relevant institutions and authorities (e.g. ECHA, EMA, the European Commission) have already published guidance on the expected changes.
Companies will face an increase in required licenses, registrations, and border controls in relation to the cross-border movement of goods between the EU and the UK. For example, the export of dual-use items from the EU to the UK and vice versa will be subject to license requirements, whereas now such intra-EU trade is often not subject to licenses or authorizations. Also, even though the UK has indicated that most EU legislation will be copied one-on-one (at least during the first stage after Brexit), the UK will no longer be able to use the EU’s facilities, such as IT systems, institutions, databases, etc. As a result, companies may be confronted with additional administrative tasks in order to comply with both the UK’s and the EU’s sets of legislation.
Companies are advised to start assessing the impact of Brexit on their business operations from a regulatory perspective as soon as possible to ensure their employees, internal processes and IT systems are prepared for substantial additional administrative tasks as a result of Brexit. It may be necessary to appoint representatives in either of the territories, and potentially adjust IT systems to be able to collect documentation and relevant data for submitting license and registration requests. These preparations can start already. Should your business require assistance in determining the regulatory impact of Brexit, we are happy to assist.
Although the British government and the European Union are currently negotiating what the post-Brexit legal system will look like, we already know that there will be numerous legal risks caused by Brexit that should be dealt with in a timely manner. Brexit will change how trade in goods takes place. Movements between the UK and the EU will effectively become imports and exports subject to customs formalities and potential tariffs.
Companies will have to make sure that their supply chain is not disrupted after Brexit. As operating models change, this will have potentially far-reaching consequences for commercial contracts with customers, subcontractors and third parties. Brexit will result in a breach of some contracts and make others economically sub-optimal. This is why contracts that have any connection with the UK and the EU will have to be reviewed and possibly amended to circumvent potential legal risks.
EY Law, with its global reach, can review all contracts that have a UK component. Combining our specialized staff with innovative technology, we help review and amend large volumes of contracts in limited time, and recommend and implement the changes necessary to avoid disruption. We offer a managed service mechanism that uses software to analyze documents on relevance, allowing for a strategic approach for complex (intragroup) contracts.
Our involvement will ensure a minimal impact on your daily operations and will make your contractual framework post-Brexit-proof.
Brexit can have significant impact on the mobility of the workforce from an immigration, social security, talent and performance and rewards perspective. Although it is expected that European citizens will be able to work in the UK until it exits the EU (and vice versa), the future profile of the workforce is set to change.
Brexit can significantly change the social security landscape for UK residents working in the EU. The EU regulations will cease to apply directly as of the moment of Brexit and other agreements will come in to force or will need to be negotiated.
Brexit will most likely bring a new immigration debate and policy settings which will directly impact who will and will not be allowed to work, or continue to work, in the UK from the EU and the other way around.
Changes regarding social security may affect the periods for which home-country social security can be continued to be held during assignments as well as the ability to access benefits and health care.
Employers should develop a strategic approach to manage the potential changes with a clear view to the characteristics of their expatriate employees, including EU nationals working in the UK and business travelers in the EU and the UK. Employers should prepare and plan for the impact on costs and the international social security and immigration implications. Broader topics such as workforce planning and location strategy should be taken into consideration while deciding on new projects and assignments.
The impact of Brexit on (global) trade by Caspar Jansen (Dutch only)
How to manage Brexit supply chain risks? Rutger Lambriex gives more information (Dutch only)
Employment-related consequences of Brexit, Arnoud Driessen gives an update (Dutch only)
Wat zijn de laatste ontwikkelingen en wat kunnen bedrijven doen om zich voor te bereiden? Luister naar deze podcastserie ‘EY BrexitWatch’ [in Dutch].
EY BrexitWatch aflevering 3
EY BrexitWatch aflevering 2
EY BrexitWatch aflevering 1
“How should I prepare for Brexit now that the outcome of negotiations is not yet clear? What is the difference between a Free Trade Agreement (FTA) and the EU customs union? Does Brexit have an effect on commercial agreements that relate to business or trade with the UK? What happens to the VAT on purchases of goods from the UK?”