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Company form for Irish Ltds. in the EU after Brexit

Company form for Irish Ltds. in the EU after Brexit

Table of Contents

With the UK's withdrawal from the EU, many British companies are faced with the question of the future legal form of their branches in the EU. The Irish limited company (Ltd.) is a corporation with limited liability of the shareholders, comparable to the German Ltd.. In contrast to British Ltds., the situation for Irish Ltds. is different due to Ireland remaining in the EU.

In Germany

Even if Ireland remains in the EU, Irish Ltds. with administrative headquarters in Germany the so-called "seat theory" must be applied:

  • One Ltd. with only one shareholder would be treated as a sole proprietorship of that shareholder, with personal liability.
  • If there are several partners, the Ltd. would be a partnership (GbR or OHG), with personal and unlimited liability of the partners.

In order to Limitation of liability a conversion into a German GmbH would be advisable. The deadline for existing companies is 31.12.2025.

Case study: X Ltd. with its registered office in Dublin has a branch office in Munich. It would have to convert this into a GmbH by the end of 2025, otherwise the shareholders would lose their limited liability.

In Austria

Irish Ltds. with their registered office in Ireland should be able to retain their legal structure for the time being. For those with their registered office in Austria, similar provisions apply as in Germany:

  • For one shareholder: sole proprietorship with personal liability
  • With several partners: GesbR without legal capacity with personal liability of all participants

The conversion period into an Austrian GmbH ends on 30.06.2024. A possible pitfall: The conversion may result in hidden reserves being disclosed in the balance sheet and the profit supplement having to be taxed subsequently.

Other options and countries

In addition to the conversion, there are other structuring options such as the transfer of the administrative headquarters to Ireland or the establishment of a subsidiary corporation in the country of domicile. In most other EU countries, rules similar to the "domicile theory" are likely to apply, although transitional periods vary.

In France, the deadline for conversion ends on 31.12.2023, in the Netherlands on 30.06.2025. It is advisable to review the initial situation and options for action at an early stage.

The following steps are recommended for Irish Ltds:

  1. Analysis of the current legal form and economic activities in the EU countries
  2. Checking the country-specific requirements and deadlines
  3. Evaluation of conversion, relocation or new foundation options
  4. Detailed tax and legal impact assessment
  5. Implementation of the selected structure before the deadline

These additional details provide companies with a more sound basis for decision-making. It is advisable to engage experts at an early stage in order to deal with the complex tax and corporate law implications at national and cross-border level.

Explaining the consequences of liability in more detail

The consequences of personal liability for sole proprietorships/partnerships could be clarified. For example, that in the event of insolvency, the private assets of the partners can be used to pay off debts.

Labor law aspects

For branches with employees, the labor law situation in the event of a conversion must also be taken into account (transfer of employment relationships, possible adjustments to contracts, etc.).

Special tax cases

For example, the treatment of existing loss carryforwards after a conversion or the transfer of hidden reserves to the private assets of partners in partnerships.

Cross-border conversions More complex cases such as the cross-border conversion of an Irish Ltd. with a branch in Germany, for example, into a German GmbH while retaining the branch in Ireland.

Alternative routes in more detail

The advantages and disadvantages of relocating the registered office or founding a new company as an alternative to conversion could be discussed in more detail.

Consequences for holding structures

If a Ltd. Holding serves for other subsidiaries, additional structural and tax issues arise in the event of a conversion.

Checklist with milestones

A checklist with concrete steps and intermediate milestones for the transformation process, e.g:

  • Appointment of consultant/auditor
  • As-is analysis and scenario testing
  • Conversion resolution and plan
  • Creditor protection proceedings
  • Registration of conversion with the registry court
  • Transfer of assets/liabilities
  • Tax declarations
  • Contract amendments with third parties etc.

These additional details would significantly increase the depth of information and practical relevance. However, this also makes the article more extensive and complex. It is important to maintain a balance between a wealth of detail and comprehensibility.

Tax optimization strategies

Possible tax structuring options in the context of a restructuring could be addressed, such as

  • Use of restructuring clauses for tax-neutral transfer
  • Structuring share transfers to avoid inheritance tax
  • Options for offsetting hidden reserves with loss carryforwards
  • Cross-border profit transfers before the conversion
  • Business division models for transferred real estate assets

Integration of holding structures

If the Irish Ltd. is part of a group structure, more complex issues arise which could be examined in more detail:

  • Spin-off of EU activities into a new holding company?
  • Splitting into operating and asset-managing companies?
  • Transfer of subsidiaries Share deal vs. asset deal?
  • Tax optimization within the holding structure

Consider company acquisition processes

In the event that the Irish Ltd. is in the process of buying/selling a company in the EU, additional aspects are relevant:

  • Effects on the transaction structure (share/asset deal)
  • Takeover of GmbH or merger of Ltd. with GmbH
  • Tax consideration of purchase price adjustments
  • Clarifying employee aspects as part of the transfer of operations

Observe industry specifics

Special regulations may apply in certain industries and sectors, which must also be observed, for example:

  • Regulated sectors (banks, insurance companies, etc.)
  • Companies with regulated assets (licenses, permits, etc.)
  • Special regulatory requirements
  • Special cases in agriculture and forestry

These additional details deepen the analysis further into business practice and show how multi-layered the topic becomes in more complex initial situations. However, the focus should be on the most common standard cases in order to avoid overwhelming the reader.

Cross-border posting of workers

If an Irish Ltd. posts employees to other EU countries for the purpose of carrying out projects or contracts, additional labor and social security law issues arise.

Issues in the course of a conversion:

  • Adjustment of employment contracts to new company form
  • Clarification of the conditions of posting under social security law
  • Possible takeover by local company after deadline expires?

Data protection and IT

In the event of a change in legal form, data protection aspects such as

  • Adjustment of contracts with data processors/processors
  • Notification to data subjects about change of controller
  • Examination of the need to adapt internal guidelines/documentation
  • Review of IT security precautions and certifications

Real estate assets

If the Ltd. has real estate assets in the EU, the real estate transfer tax and land register consequences of a change of legal form must be clarified, for example:

  • Triggering of real estate transfer tax through share transfer?
  • Requirement of a clearance certificate from the land registry
  • Possible arrangements to avoid real estate transfer tax

Public contracts/tenders

If the Ltd. has public contracts or participates in tenders, the requirements for the new company form must be checked, such as

  • Suitability criteria with regard to legal form and liability situation
  • Effects on ongoing projects/award procedures
  • Examination of reference project requirements under the new legal framework

Joint ventures and consortia

If the Ltd. is involved in joint venture or consortium structures, the change in the legal situation may give rise to follow-up questions:

  • Adjustment of the consortium/JV agreements to the new company form
  • Consent requirements of the partners in the event of a change in the legal situation
  • Examination of possible rectification requests or exit option clauses

These additional supplements go into even more detail on industry-specific and case-specific aspects that may be relevant depending on the initial situation. They show the complexity of the topic, but also make the article more comprehensive and detailed.

Corporate Governance

Aspects

In the event of a change in legal form, questions of corporate constitution and corporate governance must also be clarified:

  • Adaptation of articles of association/articles of association to new legal form
  • Election of new bodies (management, supervisory bodies, etc.)
  • Adoption and adaptation of existing competence regulations
  • Delimitation of management and control powers
  • Involvement of employee representatives

Project management and budgeting

Professional project and budget planning is advisable in order to manage the conversion process efficiently:

  • Establishment of project structure with roles and responsibilities
  • Creation of project plan with work packages and milestones
  • Integrated error and change management
  • Continuous monitoring and reporting
  • Should/actual comparisons for costs and schedules

For larger group subsidiaries, sophisticated project management can control the process better.

Contract management and due diligence

As part of the conversion, all existing contracts of the Ltd. must be reviewed and adjusted if necessary, for example:

  • Clarification of existing structuring rights and approval requirements
  • Adaptation of contract forms to new company form
  • Carrying out due diligence on rights and obligations
  • Involvement of third parties such as licensing authorities when transferring licenses

Integrated communication strategy

In order to inform and involve all stakeholders at an early stage, an integrated communication strategy is expedient:

  • Establishment of a central contact point for information
  • Actively addressing all stakeholder groups in society
  • Support through press and public relations work
  • Internal information campaigns for employees
  • Continuous updating of communication measures

These additions go even deeper into the management and organizational level of the complex transformation process. However, this is likely to be more relevant for larger business units in particular.

Summary:

With the Brexit many Irish Ltds. are facing the challenge of converting their EU branches into a new legal form. In most countries, such as Germany and Austria, there is a risk of losing the limitation of liability if the company is not converted into a GmbH, for example. The transition periods vary depending on the country until the end of 2025.

In addition to the conversion option, there are also alternative options such as relocating the registered office or founding a new subsidiary. Each option has legal and tax implications that need to be examined in detail. Potential pitfalls include the loss of loss carryforwards, the disclosure of hidden reserves or real estate transfer tax consequences.

Cross-border structures and holding companies increase the complexity for group branches. There are opportunities for tax optimization here, but careful planning is essential. Labor, data protection and industry-specific aspects must also be taken into account.

Structured project management with integrated budget planning and continuous monitoring is recommended for professional implementation. Comprehensive due diligence on contracts and assets is advisable. A well thought-out communication strategy helps to involve all stakeholders at an early stage.

Overall, the conversion process for Irish Ltds. is complex and requires intensive legal and tax preparation. The early involvement of experts is essential in order to correctly assess the consequences and find the optimal structural solution for the company.

 

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Disclaimer: Please note that the above dates, tax rates and regulations may change over time. Do not make any independent decisions without first consulting an expert for your individual situation. It is in your interest to always receive individual information from an experienced expert who knows your situation.

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