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A no deal Brexit is becoming a reality as talks between the EU and the UK continue to fail and even the UK’s Prime Minister has advised the country to prepare for a no deal scenario.
Uncertain Future
A no deal Brexit is becoming a reality as talks between the EU and the UK continue to fail and even the UK’s Prime Minister has advised the country to prepare for a no deal scenario. If the EU and the UK do not make a Brexit deal by the 1st of January 2021 the two parties will be forced to begin trading based on the World Trade Organisation Terms. The impact of a no deal Brexit will arguably fall heavily on the financial services industry and other UK companies.
As a past member state the UK until 01/01/2020 has the ability to trade across the European Economic Area (EEA)under a common regulatory framework with other member states. This is a so-called level playing field accessible between EU member States which permit the free movement of people, goods, services and capital. This privilege of the UK will expire with the commencement of the new year. By not being able to trade freely both EU firms and UK firms will face uncertainty and difficulties.
First of all, “passporting” which allows firms registered in the EEA to do business in other EEA states without the need of further authorization from each member state will be inaccessible to UK firms. This means that UK companies will no longer be able to use passporting rights they had acquired prior to 01/01/2021 in order to provide cross-border services or open an establishment elsewhere in the EEA. Passporting is a valuable asset that eliminates red tape, as there is no need to gain authorization from each country individually, which is a process that is both costly and lengthy. For financial companies especially this is will be a hard barrier as it will lose its ability to open branches and provide cross-border services, they will lose the financial services “passport”. In order for financial services company to continue and trade freely in the EEA, due to the loss of their passporting rights, will need to create a base/subsidiary within the EU.
On the other hand, EU firms will have a softer transition as the UK has legislated a regime to allow certain EU firms continue passporting their services and continue operating for a limited period (3 years) while they seek proper authorisation by UK relevant authorities.
We can see financial institutions such as the Lloyds Banking Group already contacting thousands of customers in other EU member states warning them to proceed with new arrangements as the bank might not be able provided some UK based services. Other UK banks are notifying customers across the EEA that their accounts might need to be closed.
Unfortunately, passporting for financial companies is not the only problem UK corporations will face. Without a new deal UK companies, as aforementioned, will have to face a closed EEA trading under standard WTO rules which means that British goods will become more expensive and harder to trade within the EU. This will affect anyone exporting services, goods, capital or workers from the UK to the EU.
The situation is dire and since all indicators are pointing to a no deal Brexit and companies will need to act now and act fast. As mentioned before a solution to retain passporting rights is creating a base in the EEA. Cyprus is arguably the best choice for any UK firm to create its base in EEA.
Cyprus is a member state of the European Union and enjoys the benefits of being member to the EEA. It has legal framework based on English common law which will be very familiar to UK institutions accompanies by a highly educated workforce with low business costs compared to other member states. Additionally, as Chief Executive of Invest Cyprus George Campanellas argued; “All the ingredients that have made Cyprus a top destination for shipping management exist also for hosting tech companies coming to the island. For the tech sector, the attractive intellectual property regime in our country allows for up to 80% of qualifying profits and intangible assets to be tax deductible expenses, so the effective tax rates for taking advantage of IP can be as low as 2.5%. We believe in the next period we will see more companies choosing the island to host their European operations.” Along with an attractive IP regime Cyprus has many other tools important for any financial services firm, multinational or any other foreign investor.
Another solution for a UK corporation is relocation/re-domiciliation to countries such as Cyprus that offer much more than access to EEA. Cyprus is Europe’s eastern outpost at the cross roads of three continents- Europe, Africa and Asia-providing a gateway to and from each one them. The country’s strategic geographical position has allowed it to be a global trade center for thousands of years.
Today Cyprus still enjoys the privilege of being one of the most attractive business hubs in the world as well as a full member of the European Union and the Eurozone. From its accession to the European Union in 2004 Cyprus has aligned fully with the EU Acquis Communautaire and with the code of Conduct for Business Taxation, whilst having some of the lowest tax rates available in any EU member country. Additionally, there are many additional tax incentives such as no capitals gains tax and more than 60 double tax treaties Cyprus owes its success as a global financial center to its low operational costs, advantageous legal and regulatory framework, highly educated and multilingual workforce as well as having an advanced network of banking, accounting and consulting services able to compete with the top percentile of the world.
The island’s excellence in the financial world and in connection with its admirable ability to comply with international regulations has granted Cyprus the achievement of being featured as one of the Organization for Economic Co-operation and Development’s (OECD) White listed countries. Cyprus in line with its traditional high standard of transparency will be an early adopter of the Common Reporting Standard (CRS) which will be adopted by more than one hundred jurisdictions in the upcoming years.
Cyprus is constantly reforming its legal framework to augment its attractiveness as a business center and through its latest restructurings has become one of the best jurisdictions in the world for an individual or a corporate entity to establish substance and physical presence.
Flexi Group has the right expertise and experience to assist any company that will seek to establish its business in Cyprus and acquire licensing in any of the following industries:
Alternative Investment Fund (AIF)
Payment Institution (PI)
Electronic Money Institution (EMI)
Provision of Betting Services
Cyprus Investment Fund (CIF)
Additionally, Flexi Group has also the experience and expertise to assist any company that will seek to re-domicile to Cyprus and enjoy the attractive regimes in the following industries:
Shipping
Intellectual Property
Energy
Others
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