UK: What you need to know about setting up a subsidiary business in the EU09 February 2021
Brexit has changed the way that British companies do business with the EU and around the world. UK businesses looking to export into the bloc are getting to grips with reels of new red-tape, taxes and legislation.
In a bid to minimise some of the disruption, some have said they are considering setting up distribution or new office sites on the continent; some like Simon Spurrell, founder of the Cheshire Cheese Company, even say they were advised by government advisers to do so, reports the BBC.
What do business leaders looking to set up in the EU need to consider, when it comes to tax, people and products? What are the common mistakes that they should avoid? Management Today asked Steen Rosenfalck, senior partner at European business lawyers ebl miller rosenfalck for some advice.
Is there a specific law that has changed post-Brexit about setting up a company within the EU?
There are no general rules applicable to setting up a branch or subsidiary within the EU; it is very much dependent on individual countries so you should always get local advice.
The main change is that the EU’s rules on free movement have stopped. So if you’re British you would now need a visa to work in the EU.
What employment laws would staff be subject to?
Employees who mainly carry out their duties in an EU country will be subject to local employment law. This would be in most cases, but would also apply even if you have agreed that English law should govern the employee-employer relationship.
If you are thinking about hiring Brits locally you should also check whether they are entitled to work. Applying for a work permit can be a cumbersome process.
What common mistakes should companies avoid?
Many underestimate the time it takes to get operational. We also see that some overseas businesses do not comply with local rules in terms of procedure for termination of the employment, payroll and related employment taxes, which can be costly.
What about tax, how does that work?
Taxes are individual to each country. Typically, your subsidiary will be taxed on the profits generated in this company. If you are looking to distribute dividends to the parent company, this may be subject to local withholding taxes.
Naturally, you should also examine what the local corporation tax and taxes relating to employees are.
What would be your advice, as a commercial lawyer and export advocate?
Shortlist a few countries and examine in more depth how you do business there. The first port of call would probably be the Department for International Trade and their local trade representatives in your chosen country. You should also contact the inward investment agency/commercial section of your potential destination.
Start in good time and plan ahead. The main consideration should be to identify where your main trading partners or the majority of your customers are so that you get closer to them. This also signals that you are serious about your intentions in the local marketplace.
Likewise, I would look at logistics such as warehousing, fulfilment centres and local transport links and consider the availability of qualified staff to include language capabilities.
A last point is banking. In my experience it is getting increasingly difficult to open a bank account without any local connections. So do speak to your UK bank and ask whether it has a corresponding bank locally.
For further information, contact:
Steen Rosenfalck, Managing Partner
ebl miller rosenfalck, London
t: +44 20 7553 9931