Customs, VAT and income tax are all dealt with relatively painlessly within the EU but for UK-based companies doing business in Europe, they could become a real headache. The challenge lies not only in a heavier tax burden, but also in the complication of day-to-day business. This is part one of our Brexit series.
At this stage, the final terms of Brexit are only known to those with a crystal ball. But one thing seems clear: The European Union wants Britain to feel the impact of leaving the club – and the UK itself has set course for a hard Brexit. Our analysis of possible tax implications will therefore be based on the worst-case scenario: the UK assuming a third-country status without direct links to the EU.
These are the additional burdens that UK-based international companies will need to cope with:
Until now, the principle of the free movement of goods has applied between the UK and the rest of the EU. When the UK leaves the union, customs duties may be levied on goods. "Additional costs from customs duties for buyers and sellers are not the only issue this will cause," explains Tobias Kiehl, a tax advisor at Clostermann & Jasper Partnerschaft mbB in Bremen, an internationally oriented audit and tax consultancy firm. "A lot of additional effort will be required. Companies will need to deal with customs clearance and will need to train their staff and adjust their computer systems. In addition, timelines for processing and shipping will need to be recalculated from scratch." Some companies might be forced to set up customs warehouses in other countries to ensure that they can deliver goods to their customers on schedule. The temporary storage and associated administration will put a notable dent in the companies' profits.
Within the EU, a joint VAT directive is applied. This directive sets out the rules for the imposition of value added tax among EU member states. In practical terms, this means that whenever VAT is applicable in cross-border transactions between EU countries, the tax treatment is uniform across the EU and results in a neutral tax liability. When it leaves the EU, the UK will be able to completely overhaul its VAT legislation, as the country will no longer be bound by the rules of the European VAT directive. But even if the current UK VAT rules remain in place, there will be negative consequences. VAT and the deduction of input tax are systematically coordinated and aligned for all EU-internal matters – but not for scenarios involving third countries. This poses significant risks to companies, because liquid funds could get tied up for prolonged periods of time. In addition, all affected parties face substantial legal uncertainty while the legal framework of the new UK–EU relationship remains unclear, which could greatly hinder day-to-day business.
The EU has also established successful mechanisms to prevent multiple taxation with regard to income tax, such as the Parent-Subsidiary Directive. This establishes, for instance, that a subsidiary can generally distribute profits to its parent company without any tax being withheld at source. This rule may no longer apply in future. Until new rules are in place, the applicable legal basis would be the existing double taxation treaty between Germany and the UK, which stipulates a 5 per cent rate of withholding tax.
As a rule, companies within the EU can reorganise their corporate structure as they wish, without concerns about possible negative tax implications. One of the key frameworks in this context is the EU Merger Directive. However, this might change after Brexit. Once this directive no longer applies, restructuring measures such as a relocation of a company's registered office, a change of parent company or subsidiaries or a change of legal form would lead to immediate negative tax consequences without any corresponding inflow of liquidity. This is because in these types of cross-border transaction with non-EU countries, companies are forced to utilise their hidden reserves (gains on capital invested, for example, in properties or long-term equity investments), because the governments involved would immediately charge tax on the hidden reserves that fall into their respective jurisdiction.
Tariffs, VAT and income tax, modification of corporate structures – these factors inflict a financial burden on companies, but not only in the form of new taxes and levies, but also through new and labour-intensive processes. "Companies will have to adjust their computer systems and will constantly need to consider two legal systems – German law and UK law," explains tax advisor Tobias Kiehl. "This means they will be slower, less flexible and subject to greater constraints." On top of this, there will be a lengthy period of uncertainty until all agreements have been negotiated. This could take many years.
Instead of waiting and hoping for the best, you should act now. Here are some practical tips:
What market do I want to sell in? Who do I want to target? Where are my customers based? Once you know your current and future target group, you can make a well-founded decision about where your company should be based in future. If you require access to the European market, setting up on the continent will be your safest option.
Will the current company structure still be suitable if customs duties and VAT are levied or handled in a different way? Might it be necessary to relocate production?
Where are your employees from? Will they remain available to you in future or are they affected by the loss of free movement and tied to continental Europe? Companies need to review the applicable labour law and analyse the labour market.
Will I still be able to repatriate profits without problems? New tax withholding rules could cut your profits significantly. Companies should prepare for this at an early stage.
If any of the above issues seem relevant to your company, it may be time to start seriously considering a change of location. You will probably have questions around taxation, setting up business and corporate structures, and there are many options to consider and choices to be made. We can support you on this journey and can put you in touch with competent professionals from different fields to discuss all of your questions.
As a location, Bremen offers everything you could wish for: a central position in Europe, with close links to the sea and other waterways, nearby airports that provide connections to all major European transport hubs and strong local infrastructure that makes it easy to get around. And on top of all this, highly-trained staff and internationally-oriented partners are ready to tackle your challenges with you.
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In April 2018, Team Beverage AG moved its headquarters from Wildeshausen in Lower Saxony to Bremen. The company provides services to the drinks industry in wholesale, retail and the catering and convenience sectors. Now, its success story is set to continue at Bremen Airport-Stadt with the relocation of its head office and 90 or so employees.
Huong Thi Hoang is the new voice of Bremen’s economic development agency in Vietnam. The country has one of the world’s fastest growing economies and is extremely popular with international investors. Now, Hoang visited Bremen for the first time – and had a big surprise right on her first day.
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Bremen Airport-Stadt is an international transport hub and a centre of excellence for the aerospace industry and for research and learning. It occupies a leading position among Germany’s airport locations. Here are ten benefits that Bremen Airport-Stadt offers.
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Chinese honey has come a long way – and in January 2018, ten containers full arrived in Bremerhaven from China. But is it actually organic? It certainly is – Lin Zhao, managing director of Dewin, works closely with laboratories in Bremen to confirm the quality of his honey. The proximity to these laboratories was a deciding factor in his choice of location for his business.
Wind energy, geophysics, translation, design and communication – we portray five diverse women, who have successful careers and shared their fascinating stories with us. What is their industry and working life like? What motivates them? Why Bremen?
The production line hardly ever stops at the second-largest Mercedes Benz plant in the world. Thousands of components have to be delivered to the right place at the right time – there is no room for errors or delays. LOREL Logistik GmbH undertakes a huge logistics operation every day to ensure that everything runs like clockwork.
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When it comes to Brexit it’s not about a hard-fought international contest to attract relocating businesses; it’s about coming together to manage the change, says Andreas Gerber of Bremeninvest in our interview.
Bremeninvest has announced the opening of a representative office in Ho Chi Minh City in the hope of pushing up trade cooperation in Vietnam. The agency operates as a link between the German state of Bremen and Vietnam in two-way trade and business activities.
Fatih Özdemir has furniture made in Turkey and sells it to customers mainly in Africa and the Middle East. In theory, he could run his business from anywhere in the world, but there are good reasons why he chose to relocate to Bremen and found Brefeo Hanse GmbH.
Savannah’s economic developers have done their homework: in their search for German partner cities for trade and cooperation, they have put Bremen at the top of their list. During a visit to Bremen, the city’s representatives explained why the relationship with Bremen and Bremerhaven is so important to them.
Investors are increasingly looking to Bremen. For three years in a row, the city has registered record-breaking levels of domestic and foreign investment. Bremeninvest's 2017 real estate report shows what makes Bremen such an attractive location for investors.
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Dr Zareer Dadachanji was not going to wait around for Brexit to happen, and has held a German passport since the beginning of the year. He firmly believes that Brexit has no plus points. He and his wife have chosen to locate their new business – Model Quant Solutions – in Bremen, despite the fact that the company’s customers are mainly based in the UK.
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Quinoa is already very popular, but hardly anyone in Europe is familiar with purple corn powder. Peruvian Alejandro Leon has founded a company in Bremen, Albrecht und R GmbH, through which he imports and export fruits and vegetables from South America, and he is a firm believer in the health benefits of eating purple corn.
Space technologies have advanced greatly in recent years, leading to increasing demands from the business and research sectors. To meet these requirements, Bremen University now offers unique master’s degrees in Space Engineering and Space Sciences and Technologies.
Buoyant mood thanks to record take-up rate, encouraging market trends and strong occupancy levels. The 2017 Bremen property market report shows once again that the city is an attractive location for investors and developers.
Formula Student is a world-wide competition for self-built racing cars, with the season’s final race held at Hockenheim. A Bremen-based team has been taking part in the competition with an electric racing car since 2013, and their ambitious goal is to break into the top ten.
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Is this what sales assistants of the future will look like? Bremen start-up company Blackout Technologies develops software based on artificial intelligence, unlike any other software in Europe. Before long, we’ll be greeted by their robot Pepper in shops, at trade fairs or even in care homes. We visited Bremen’s robot lab to find out more.
Stathis Stasinopoulos was unable to find the perfect folding bicycle for his commute to work across Athens. So he developed his own. The bike, called ‘Folding Project’, is lightweight and comfortable and folds up in five seconds. This has given Stasinopoulos an unexpected new direction in life.
The research alliance ROBEX is sending robots up active volcanoes and down into the deepest and darkest seas. Working across disciplines, the 120 scientists of the 16 institutes involved are breaking new ground on this project. They have been eagerly waiting to find out what has happened to the TRAMPER diving robot, which has been exploring the deep seas around Spitsbergen for a year. Now they are ready to bring it back.
A growing number of companies are becoming more aware of their social and environmental footprint, and are looking for ways to act with greater environmental and social responsibility. Germany’s north-west is set to become the national centre for social entrepreneurship in logistics. A new platform is under development and the first round of events is being planned to achieve this goal.
This new master’s degree at Bremerhaven University of Applied Sciences prepares students for the future and offers them excellent job prospects.
As both Airbus and Mercedes already know, when it comes to infrastructure and commercial property, businesses should look to Germany’s north-west. To Bremen, to be more precise. The Hanseatic city boasts the following five locational factors.
BLG Logistics Group is a major player in logistics with 18,000 employees. It established the Digilab in Bremen as a core element of its digitalisation. The company’s premises are reminiscent of start-ups in Silicon Valley, and there are good reasons for that.
Irina Lucke has been at the helm of WAB since December 2016. We talked about her role in the german-wide trade association and the challenges that an ever-changing business and regulatory environment poses for the international wind energy industry.
In June 2016, the UK voted in favour of Brexit, and the exit negotiations are currently in progress. Which industry sectors in Bremen will be particularly hit, and what effect will Brexit have on the Hanseatic city?
FabLab Bremen invites visitors to learn about new manufacturing technologies and try their hand at everything from laser cutters to printing and programming. Digital technology enthusiasts of all ages and programmers of all abilities are welcome here. And it is not long before they can put what they have learnt to good use.
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The founders of Mac Panther Materials, two brothers from Bremen, produce an open-cell metal foam for use in a number of different applications. Its secret lies in the production process that is based on a brilliant and yet simple idea.
An engine under the bonnet drives the wheels – this is the configuration that has been powering cars for over a hundred years. However, wheel hub motors – i.e. motors in the hub of the wheel, not under the bonnet – promise many advantages. Electric drive systems make this possible.
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In the space of just a few years, the maritime city of Bremerhaven has developed into a service centre for the seafaring and shipbuilding industry. At the centre of it all is the company German Dry Docks, whose managing director, Guido Försterling, has already heralded the era of ‘seafaring 4.0’.
Bionics is the application of forms and functions found in nature to technology. Marine biologist Dr Christian Hamm and his team of researchers in Bremerhaven are leading figures in this field thanks to ELiSE. They are particularly interested in the tiny, yet incredibly complex, diatoms – nature’s experts in lightweight construction.
How will Brexit affect the trading of goods between the UK and the EU? Our guest contributor Anja Markmann, who is responsible for customs and international trade law at Bremen Chamber of Commerce, explains what is likely to change from April 2019 onwards.
A new process has been attracting attention in the food industry. Developed by the Bremerhaven Institute for Food Technology and Bioprocess Engineering, the new method enables deep frozen fish to be defrosted in record time. And the fish tastes as fresh as the day it was caught.
For over 15 years, Jacobs University in Bremen has attracted young, talented individuals from all over the world. Students from 106 countries make up a community that contributes to academic achievement and produces graduates that are highly sought after by companies.
Fiona Moore is originally from Burton-on-Trent, near Birmingham, and now works as a freelance translator in Bremen. She fell in love with Bremen in her early twenties. That was back in 2000, but 17 years later she is still as enchanted by the city as she was on the first day. She tells us about settling in Bremen, about her family and about being fortunate to have found a home in here.
Photography studios, workshops and professional kitchens are rarely fully occupied round the clock. So why not let others share them? The german start-up Craftspace brings together providers of production spaces with entrepreneurs, small business owners and artists on a single online platform. It’s an arrangement that benefits everyone.
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A great deal of manual labour goes into aircraft construction. Despite this – or perhaps even because of it – Airbus is changing its approach to make increased use of digital technologies. It’s also researching the applications of new manufacturing technologies such as 3D printing. And not a moment too soon, as Airbus’ site manager in Bremen, Dr André Walter, explains in our interview.
GeoSea, a subsidiary of the Belgian DEME group, is helping to construct of some of the largest offshore wind farms in the German North Sea – and in Bremen, the company has found the ideal location to carry out its work.
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Environmentally friendly manufacturing and ethical standards are the principles on which the fair trade clothing sector is based. Leela Cotton, a successful German-Turkish textile company, produces clothes for children and adults that are not only stylish, but also make a positive contribution to the environment in the way they are manufactured.
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Three continents, four countries, and Bremen at the centre of it all – a start-up could hardly be more international. The young entrepreneurs Ahmed Cheema and Stefan Kuzmanovski want to make sustainable manufacturing and the use of ethically sourced materials standard practice.
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Bremen has been twinned with the city of Dalian in north-eastern China since 1985. Find out more about the similarities and connections that the two port cities share.
Up to now, cricket has been very much a niche sport in Germany. But that is changing. In Bremen, a woman is calling the shots in this male-dominated sport – with great success. Her men’s team are the 2016 German cricket champions.
Wearables and smart glasses provide hands-free digital information. A visit at the headquarter of the global market leader for Industrial Wearable Computing, Ubimax in Bremen.
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How will the UK’s impending exit from the EU affect the logistics sector? Günther Hörbst, Managing Director of the Via Bremen Foundation, on the economic links between the United Kingdom and the EU
The Chinese designer Haoyu Li combines his German design degree with Chinese business acumen. Now he is opening a design office in Bremen, with the aim of making it easier for Chinese products to enter the German market, and to bring German brands to China.
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From initial idea to successful move. Andreas Gerber, who heads up the international relocation team at Bremeninvest, knows what international companies need to do to set up a business in Bremen. Here he tells us about the most important steps on the ...
BLG LOGISTICS GROUP AG & Co. KG’s AutoTerminal in Bremerhaven is a record-breaking automotive hub. Every year, the terminal handles some 2.3 million vehicles. But that’s not all.
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Geographical distance and cultural differences make it hard to relocate or start up a company in another country. Luckily, help is at hand from the team at the World Trade Center (WTC) in Bremen. They'll do all they can to make your international business a success.
In December 2016 ministers from the European Space Agency (ESA) member states met to determine the roadmap for the European space sector for the years ahead. Baden-Württemberg, Bavaria and Bremen submitted joint recommendations. In the following interview Dr Peter Vits, Bremen's State Coordinator for the Space Sector, talks about Bremen's strengths and opportunities.
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The Bremen region has long been a pioneer in electric mobility and is now set to enjoy further success after Mercedes-Benz and Borgward announced that they will be making electric vehicles in the city.
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Sometimes you have to learn from other people's mistakes and trust your instincts. That is what Muhammad-Farhan Aslam believed when he took over his father's business. Not only did he change the business model, but he also shelved his own plans to move to England. Instead he stayed in Bremen. And it turned out to be one of many good decisions that he made.
For 30 years, the Cargo Distribution Centre in Bremen has delivered excellence – as an investment location and a logistics hub. Today more than 150 companies employing approximately 8,000 people are based at the site. It offers direct links to the ports, the autobahn and has a close proximity to Bremen City Airport.
Language barriers, unfamiliar legal and fiscal systems, qualifications that need to be recognised. There are many additional hurdles that entrepreneurs have to overcome when setting up a new branch or a new company in a different country. Bremeninvest is committed to offering you advice and support from the outset.
You might expect a Bremen-based company specialising in innovative instruments and implants for spinal surgery to be located at the Technology Park. But you'd be wrong. NuVasive Germany GmbH has its head office at the heart of the city centre next to Wallanlagen Park. Now employing a team of 44 people, the company generates annual revenue of more than €10 million – a figure that looks set to rise.
David Zhou came to Bremen three years ago with the aim of conquering the market – and a new continent – with LEDs. He started his business selling LED lighting and electronics at the World Trade Centre at Bremen Airport and has gradually built it up over the past few years.
What makes an aircraft fly? You don't have to be an aerospace expert to be fascinated by what goes on behind the scenes at one of the largest aircraft construction companies in the world. The Airbus Group in Bremen turns the dream of flying into ...