Most sectors will not require new authorisation for cross border services
- Although the EU has attempted to liberalise and develop the single market in services home state regulation is the norm in most cases where regulation exists. . For reasons of culture and language, it is difficult for many types of service providers who are established in one state to provide services into and in another state.
- To a large extent, Ireland and the United Kingdom have had had a single labour market in many sectors. Where there is regulation, the systems of regulation are often broadly similar. This has greatly enhanced the ability of businesses established in one jurisdiction to provide services in the other. In these cases, the formal obstacles if any that may arise after Brexit will be minimal. In practice the UK is recognised as being one of the most open service economies in the world.
Why in some cases new host state authorisation may be required
- There are a number of sectors where there are common EU wide authorisations and licenses for business. In these cases, a single authorisation or licence permits the business to provide services throughout the European Union. They are regulated under common EU rules in the home state. They have to follow the consumer protection rules in the host state. In many cases, the EU has also harmonised the consumer protection rules.
- It is likely that after Brexit, the UK (including Northern Ireland) established businesses will no longer be able to use these EU based authorisations and licences to provide services into or in the European Union.
- Equally, in these cases, Republic of Ireland established businesses will longer be able to rely on the authorisations or licences concerned to provide services into and in the United Kingdom.
- In these limited number of sectors, it may be necessary for a business established in the home state to establish a subsidiary or other presence arrangement in the other jurisdiction. That entity would then require the relevant authorisation or licence to provide services in the other jurisdiction.
- The position may vary from EU member state to member state. For example, it may be possible to provide a particular service in the UK or the Republic of Ireland without a licence or authorisation, while for historical reasons the same business by the same service requires authorisation a licence in another state.
EU and UK Representatives Sometimes Required
- There are instances throughout EU legislation such as in relation to medicines, food cosmetics and other areas in which an EU-based representative is required by non EU-based providers. Similar issues arise in relation to communication networks providers and larger scale digital service providers. A digital service provider in this context includes such as cloud computing services providers online marketplaces and search engine providers.
- A GDPR representative is required under current EU and proposed new UK law in certain cases, where goods and services are offered into the other jurisdiction to individuals or their behaviour is monitored. There are exceptions.
- If the EU rules require a representative in the EU after exit, the equivalent new UK rule may require an equivalent representative in the United Kingdom,.
- Persons who provide services in the sectors concerned should consider whether they or their customers or clients will require an EU or UK established responsible person or representative.
- If this is required, they should assess and how this might impact their business.
Are new authorisations required to do business in 2021?
- NI and other UK businesses which provide services into or in Ireland or another EU state in reliance on a home state authorisation should consider whether additional regulatory or compliance requirement may arise in the host state concerned in 2021.
- The EU Treaty rights have been interpreted by the courts in some cases to override rules in continental EU states which require the establishment of a local branch or subsidiary. Sometimes. a minimum capital is required than the nominal minimum that is sufficient in Ireland and the UK.
- In some cases where the activity is not regulated in the UK but is regulated in the host state, the EU treaty rights to provide services may have facilitated the provision of services cross-border into the other EU state, without the need for establishing a branch or subsidiary or being regulated or licensed in that host state. After 2020. this may no longer be the case in the particular jurisdiction concerned.
- NI business should be able to research the position in the Continental EU state from industry sources, regulators, accountants, lawyers or the embassy of the host state concerned.
- In these cases, it may be necessary to consider whether after 2020 it may be necessary to register in a Continental EU state or local business register and / or establish a subsidiary or branch in that other states because the general EU treaty rights will no longer be available.
- Very careful consideration should be given to the legal and tax consequences of forming a subsidiary, group company or becoming or registering as a branch in the host state. On ongoing additional tax and regulatory costs are likely to arise. The business decision to establish and trade through the subsidiary branch should be made having considered the strict necessity for it in the particular circumstances, the possibility of alternatives and the additional costs that alternatives involve. Tax obligations in the home state and the host state should be considered.
Some EU Regulated Sectors
- The most prominent sectors in which businesses may rely on EU wide licenses and authorisations are as follows
- Financial services including banking insurance and investment
- transport including road sea and air transport
- communication audio-visual and broadcasting
- Digital service providers
- See the Sections on qualifications in relations to occupations and roles where qualifications may be recognised on the basis of EU rules
- In the above cases, the authorisations for the business themselves and licences held by certain persons working in the business are EU wide in nature. For example, transport operators are subject that are EU wide authorisations and drivers are subject to EU wide personal licence requirements
- A priority in the EU UK trade agreement negotiations is the recognition of equivalence in relation to certain categories of financial service providers. If equivalence is recognised, this will facilitate some degree of continued recognition of regulatory standards position in some specific areas of financial services, to some extent. This will depend on the particular subsector concerned and the extent to which each of the United Kingdom and European Union recognise each other’s rules as equivalent.
Establishing a subsidiary company branch or other presence in the host state
- In some (but only some few ) cases, it may be necessary for a business to establish a subsidiary or branch in the other jurisdiction in order to continue to provide services.This may be required as a condition of obtaining a critical licence or authorisation. It may be required to obtain a sponsorship licence in the UK. It may be done for marketing and commercial reasons.
- That subsidiary or branch may itself require to be authorised in the host state and may provide the business services there. It may or may not be possible for the home state company to provide back office services for it. This will depend on the particular regulatory rules that apply.
- In most cases, a company established in the European Union will have the rights of a European citizen. Therefore, the company may itself be able to provide services from the EU state in which it is established, into another EU state or may establish further subsidiaries of branches in other EU states. There are some (few) sectors, where for strategic and other policy reasons the controllers and shareholders of the company must themselves be EU residents
- The decision to form a branch or subsidiary or other presence should not be taken lightly as it will have significant taxation, compliance, immigration licensing and other consequences. The subsidiary or branch would usually have legal, accounting, regulatory compliance and tax obligations in the host state.
- Careful consideration should be given to whether or not such a step is the only option. If it is undertaken. the consequences of trading through such a subsidiary or branch should be fully assessed in advance. Careful tax, regulatory and legal advice should be taken. The business’ accountant will often be well placed to advise.
What is involved in trading through a company or branch in the other territory?
- The decision by a service provider to establish and trade through a subsidiary or to establish a branch in the other jurisdiction should be carefully considered. The particular necessity in the circumstances for so doing should be carefully researched, as it raises complex compliance regulatory and tax obligations.
- If there is a legal or regulatory necessity to trade through a subsidiary of branch, consideration should be given to whether a branch as opposed to a subsidiary is sufficient.
- If each is a possibility, then the strategic compliance and tax issues arise in relation to the choice of the carefully researched.
- Where a company establishes a branch i.e. a sufficient degree presence to enable undertake business in the other jurisdiction or a subsidiary in it is will usually be obliged to register and file accounts, branch accounts and other company documents in the host state’s companies office. In the case of a subsidiary, separate annual accounts must be filed in the companies office in the host state. Subject to conditions most smaller-scale companies enjoy exemption from audit requirements.
- Where business is conducted through the subsidiary or branch in the host state then generally VAT must be charged connected and remitted to the host state revenue. Apart from this in some cases, VAT may be required to be charged by home state service providers who carry on a business in the host state.
- Generally, the profits of a company incorporated in the host state or a branch of the home state company within the host state are subject to corporation tax in the host state. Branch profits will usually be taxable in the home state as well, but a double tax credit may be available. In some cases
- Companies or businesses which propose to trade through a subsidiary or branch in another state should consult their accountants and r other tax advisers in relation to tax obligations that may arise in both jurisdictions. They may require legal and tax assistance in the host jurisdiction, unless their accountants and tax advisers can assist or procure advice in that regard..
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