How does Brexit affect companies?

The departure of the United Kingdom from the European Union (EU) becomes effective on January 31 and a transitional period begins until December 31 of this year, during which EU law will continue to apply in relations with the United Kingdom, pending a future agreement that specifies the conditions that will govern bilateral relations thereafter. While this is happening, it is essential that companies prepare a contingency plan that allows them to anticipate and begin preparing those procedures that require more time and that are necessary to continue trading with the United Kingdom from 2021.

Next, we clarify some of the doubts in this regard and explain how companies should prepare for Brexit, in a new scenario in which anticipation will be the key to success.

What are the main concerns of Spanish companies in view of the panorama that arises with the departure from the United Kingdom?

Although this is at the expense of the future trade agreement that is reached, one of the main novelties will be that, from the effective exit of the EU, commercial transactions between the Member States and the United Kingdom will have to pass customs procedures as It does with any third country. This fact will be a matter of concern especially for those small and medium enterprises that are not accustomed to carrying out foreign trade operations and, consequently, are not familiar with the procedures and customs management. Additionally, there is also concern about the delay that may occur in transactions – having to undergo customs procedures that do not exist to date in intra-community traffic – and, especially, in relation to products with a short useful life, in that compliance with deadlines is essential.

The transitional period begins now, what will happen during this time?

The transitional period basically implies the maintenance of the current situation until it ends (in principle, on December 31, 2020, although both parties can decide – before July 1, 2020 – extend it for one or two more years) . During the transitional period, the United Kingdom will already be a third country, but EU law will continue to apply. Therefore, the rights of EU citizens and workers residing in the United Kingdom (3 million people) and vice versa (1 million Britons live in the Member States) are maintained, except for restrictions on the right to active suffrage and passive. Also Spanish companies that have interests in the United Kingdom (or vice versa) will continue to be subject to the same rules as now (single market, customs union, application of directives and regulations, etc.), at least until the end of the transitional period.

In particular, in the transitional period the treatment for indirect taxation purposes of operations with the United Kingdom will be similar to the one currently in existence, which implies that:

• In the traffic of goods, operations will continue to be considered as intra-community operations without border controls.
• In service traffic, VAT taxation will be the same as now.

With regard to direct taxation (Personal Income Tax, Income Tax and Non-Resident Income Tax), the existence of the transitional period means that the effects of the United Kingdom being considered as a third country (for the purposes, for example, of the application of the exemptions, deductions and special rules associated with residence in the EU or with the application of European directives) are deferred to January 1, 2021, at which time such specific rules regarding investments made in (or coming from the EU) ) will no longer apply to the United Kingdom.

The end of the transitional period, what direct effects will it have on trade relations between Spain and the United Kingdom?

The end of the transitional period will mean the end of the application of EU law in the United Kingdom, so there will have to be a future agreement establishing the relationship between the United Kingdom and the EU (for all purposes, including customs ).

In tax matters (direct taxation), both the United Kingdom and Spain will continue to be bound by the bilateral treaty to avoid double taxation, as well as by international agreements reached within the OECD to promote transparency and avoid fiscal competition between States. .

As regards indirect taxation, the traffic of goods will no longer be considered intra-community movements, becoming an export and import traffic, as with any other country that does not belong to the European Union. This treatment will entail the presentation of customs declarations and the submission of transactions to customs controls, as well as, until agreements are reached in this regard, the payment of tariffs and other charges and the obtaining of licenses and certifications to import or export. In relation to services, taxation will be similar, although it will be necessary to pay special attention to possible implications in terms of its place of performance, depending on its use or consumption.

What procedures should Spanish residents in the United Kingdom carry out?

Spaniards who already own or acquire residence in the United Kingdom before the end of the transitional period may request the extension of said residence (indefinitely or until completing the five years necessary to access it) through a procedure established by the British Government that is already operational (known as EU Settlement Scheme). The deadline to request such residence ends on June 30, 2021 and only requires the accreditation of identity, of prior residence in the United Kingdom and of not having a registered criminal record. Once this procedure has been completed, Spanish citizens will retain the same rights (work, studies, Social Security, etc.) as now. Similarly, British citizens and workers who already reside in Spain will retain their current rights as provided in the withdrawal agreement. However, those who have not acquired residence in the United Kingdom (or in an EU country, in the case of the British) before the end of the transitional period must follow the ordinary and usual immigration procedures for any citizen of a third country that is not a member of the EU. On the other hand, after the transitional period (December 31, 2020), in order for their professional qualification to be recognized, workers must request such recognition before December 31, 2020.

What is the main recommendation for companies?

From BtS Professsional Services, which has experts in all branches of Law, it is recommended that you anticipate and study the investment and commercial flows with the United Kingdom and the situation of your workers (permit applications, renewal of professional qualifications , etc.) before, in any case, at the end of the transitional period.

Enrique Torrentbo Bertral

Partner Founder.