The United Kingdom’s exit from the European Union and Customs Union is becoming a reality with the transition period ending on 31 December 2020.
While the ‘deal or no deal’ debate is ongoing and there is not yet clarity on many aspects of what an exit will entail, we do have some certainty about the consequences for businesses.
What do we know?
When the UK leaves the EU, it will be treated as a ‘third country’ and as a result different customs rules will apply. Previously a UK business may have used freight agents or official distributors in the EU to enable it to import or export. Under the new rules, an agent would be jointly and severally liable in the event of any customs debt to local authorities, this may result in an agent charging hefty fees in order to take on that risk, or not take on the risk at all. Effectively, this means that UK businesses will need a physical presence in Europe.
Given that we know that a place of establishment will be a requirement post 31 December 2020, we are advising businesses to consider establishing a registered office in the EU (and vice-versa for EU businesses exporting to the UK). However, clear guidance from HMRC to determine exactly what a ‘Place of Establishment’ entails is yet to be provided. We know a registered office address will not be sufficient and a business will need staff on the ground to deal with the customs paperwork. There are two options:
- Establish an office – will need to be staffed (although again consideration will need to be taken as to the freedom of movement of those staff if they are not local (define local) or
- Appoint a corporate services provider in the country which can provide the services required directly or engage a third party to assist.
If a business actively imports and exports to and from the UK the potential customs implications need to be understood., as without the relevant personnel, customs paperwork will not be accepted. Businesses will also need to be VAT registered in any jurisdiction where they import to or export as well as ensure they have applied and received an Economic Operators Registration and Identification (EORI) number.
The above issues will arise regardless of whether or not the UK and EU strike a free-trade agreement so the time to plan is now.