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What is Brexit and why is it relevant for small businesses?

What is Brexit and why is it relevant for small businesses?

Brexit: Impact on small businesses and considerations regarding company headquarters

What is Brexit?

Brexit is the withdrawal of the United Kingdom (UK) from the European Union (EU). This process began with a referendum in 2016 and was completed on January 31, 2020.

Why is Brexit relevant for small businesses?

Brexit is relevant for small businesses as it has implications for trade, tax policy, the legal situation and the workforce. Leaving the EU has led to changes in these areas that may affect small businesses' operations in and with the UK.

Trade

  • Customs duties, import taxes and additional bureaucratic requirements in trade with the UK
  • Uncertainty with regard to customs regulations and trade agreements
  • Problems with the procurement of materials, components or services

Tax policy

  • Possible changes to the taxation of small businesses
  • Effects on profits, losses and incentives

Legal situation

  • Effects on labor law, data protection and contract law
  • Changes in compliance requirements

Labor force

  • Possible restrictions on access to qualified employees from EU countries
  • Difficult recruitment and workforce development

Where would it make sense to relocate the company headquarters: to the USA or to Ireland?

The decision depends on various factors, such as the sector, the target markets and the tax situation. The USA offer a large market and a diverse tax system. Ireland has a low corporation tax of 12.5 % and is still part of the EU. Both countries have their advantages, but the right decision depends on the specific case. While there is effectively no corporation tax in some US states, for many UK companies the above benefits of EU membership outweigh the potential tax savings in the US.

Why is it important for British companies to stay in the EU?

There are several reasons why British companies want to stay in the EU despite the low corporation tax in Ireland:

Access to the EU internal market

  • Enables the duty-free sale of products and services in other EU countries

Free cash flow

  • Companies can move money, goods, services and labor freely within the EU

Standards and regulations

  • Uniform standards and regulations can simplify trade

Proximity to important markets

  • The EU is an important trading partner for the UK
  • Reduced costs for transportation and storage

Labor mobility

  • Right to free movement within the EU enables the recruitment of workers from other EU countries

Political stability

  • The EU offers political stability and legal certainty for long-term planning and investments

Typical sectors that are better off in the EU

There are some sectors that have a greater advantage if they remain in the EU.
Here are some examples:
  • Financial services: The EU has a large and integrated financial market, which is very attractive for companies in the financial sector. In addition, financial companies have to comply with strict EU regulations and licensing requirements, which is easier in the EU if they are based in the EU.
  • Pharmacy and Healthcare: The EU has a standardized approval procedure for medicinal products, which makes it easier for pharmaceutical companies to sell their products on the European market.
  • Car industry: The car industry in Europe is highly interconnected and many car manufacturers have their production facilities in various EU countries. EU membership facilitates the production and trade of cars and parts within the EU.
  • Retail trade and Logistics: EU membership enables retail and logistics companies to optimize their supply chains and distribution channels across the EU, which can lead to cost savings and efficiency gains.
  • Travel and tourism industry: The EU has a large number of tourists who can travel within the EU without border controls or visa requirements. This makes the EU an attractive market for companies in the travel and tourism industry.
  • Agriculture and Food industry: The EU has a common agricultural policy and uniform food safety standards, which can be beneficial for companies in agriculture and the food industry.
  • Manufacturer from Chemicals and pharmaceutical products: The EU has uniform chemicals regulation, which makes it easier for chemical companies to sell their products on the EU market. These are just a few examples of industries that have an advantage if they remain in the EU.

Conclusion

There are various reasons why British companies want to stay in the EU despite the tax advantages in the US. Ultimately, it is a trade-off between the benefits of EU membership and the benefits of locating in the US. Companies need to consider which factors are most important to them and where they can best develop.
If the industry allows it and is not dependent on the EU, the tax-free option the clear choice in the USA.

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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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