Ways For UK Businesses And Foreign Investors To Mitigate Uncertainty Around Brexit

The UK's Brexit plans continue in 2020, but there are now some welcome elements of certainty for the UK and international business following the UK's decisive general election result.

It now seems very likely that both parties will implement the "Transition Deal" negotiated between Boris Johnson's government and the EU. As a result, the UK will leave the EU on 31 January 2020.

The first day of February 2020 will be the start of the "Transition Period", during which EU rules continue to apply, while the UK and the EU negotiate a future trade deal. The transition period ends on 31 December 2020. The UK government has indicated that there will be no extension of the transition period beyond 31 December 2020, although there remains the possibility of a one or two-year extension. Whether or not the UK extends the transition period will be known by 30 June 2020.

Expansion outside the UK

UK businesses that are likely to require "borderless" access to EU markets should already be thinking about incorporating at least one subsidiary company within the EU, to ensure full access to EU markets in the event of a hard Brexit. Provided that any such subsidiary is incorporated under the laws of a Member State and conducts a genuine economic activity in a Member State, it will be capable of engaging the fundamental freedoms of the European Treaty. Such a measure will not only provide immediate access to the economy of the incorporation state but a guarantee from the EU Treaty that the company can freely establish in any other member state, i.e. receive equal treatment with locally incorporated companies. In practice, UK companies will be likely to incorporate in the EU countries where they wish to trade. However, following the European Court's judgement in the Cadbury Schweppes case, a company located in the EU could incorporate a subsidiary in an EU member state chosen because it levies low tax rates (e.g. Ireland, Bulgaria, Cyprus, Hungary, Malta). Provided that such a low-taxed company conducts a genuine economic activity in the low-tax host state, Cadbury Schweppes is an authority that this is not an abuse of the EU Treaty.

Another important point relating to dividends, interest, or royalty payments received by UK companies from companies registered in an EU Member State is that such UK companies will continue to be protected from foreign withholding taxes via the UK's comprehensive double tax treaty network. In the case of foreign dividends, the UK's...