European Commission has reached a Trade and Cooperation Agreement with the United Kingdom on 24th of December 2020. Even with the new EU- UK Trade and Cooperation Agreement in place, UK was dropped out of the EU Single Market and Customs Union on 1st of January 2021. EU policies and International agreements also will not be applied by UK.
The EU Single Market means that countries share the same rules on product standards and access to services, whereas the customs union is an agreement between EU countries not to charge taxes (tariffs) on each other’s goods.
UK will be a separate market from EU and two distinct regulatory and legal spaces will be formed. This will create barriers to trade in goods and services and to cross border mobility and exchanges in both directions.
It is important to be noted that there might be a negative effect on trade in services between UK and EU. There will no longer be automatic recognition of professional qualifications and licenses. Inevitably, Brexit will affect the UK Businesses and especially those who have trading relations with EU. Each business has different commercial needs and objectives. Therefore, it is essential to examine if there is any option for the UK businesses to avoid the negative effects of Brexit.
What is the procedure for relocation of UK business to EU?
According to UK companies law the company which was incorporated in UK cannot be re-domiciled to any other jurisdiction. In other words, the UK companies cannot be re-registered in other countries.
However, there is an alternative procedure for achieving re-domiciliation of UK companies to different EU jurisdictions.
It is possible for a UK company to be re-located to any EU Member State by transferring all assets and liabilities of the existing UK company (Oldco) to a new incorporated company in any EU Member State (Newco). This procedure can be called as an Asset Deal.
Oldco can transfer movable and immovable property, intellectual property and all personnel contractual relationships to Newco. Such a transfer can be done as a contribution in kind by the Newco to Oldco , and the Oldco shall subscribe shares to the Newco, in return.
A business transfer through the process of an Asset Deal is typically prepared by conducting a due diligence in which the items to be transferred and legal requirements for an effective transfer are identified. It must be noted that the continued existence of the Oldco is not be affected by an Asset Deal. Even if all assets and liabilities of Oldco have been transferred to Newco, the Oldco will continue to exist.
In case that the existence of the Oldco is no longer desired then the Oldco may transfer the shares hold in the NewCo to its shareholders directly and then can be dissolved by strike off or by voluntary liquidation. It must be noted that the voluntary liquidation of an Oldco can be lengthy process with some degree of residual legal risk for the involved managing directors.
It is worth to be noted that the Asset Deal is the most straightforward procedure to a business relocation and comes with the lowest level of legal requirements. As far as the EU cross border mergers is not possible anymore for UK businesses, the Asset Deal option is constituted as one of the most viable solution for a UK business relocation.
Cyprus is one of the best alternative jurisdictions for re location of the UK business as it has narrow ties with UK on trading, historical, political, business and in many other sectors. Also, the Cypriot legal system is based on English common law system and the English language predominantly used by people in Cyprus’ business sector. Some other factors constitute Cyprus as one of the best alternative jurisdictions for relocation of UK businesses are the following:
· EU Member States within the eurozone;
· Member of British Commonwealth;
· Low corporate tax rates (12,5%);
· No dividends tax to non-domiciled shareholders;
· Legal systems based on English common law;
· Double tax treaties;
· Similar time zones to the UK;
· High Quality of services in business sector;
· Low cost for running business;
· Low cost for receiving professional and regulatory services;
· Residency and Citizenship available to non- EU citizens;
· Good Geostrategic and geographical location;
· Stable political, economic and social;
· Excellent flight connections to London and major European cities.
The content of this article is intended to provide a general guide to the subject matter. For further information or advice, please contact Theo Antoniou, partner at CTA law firm, [email protected] or +44(0) 7758171585.