EU Referendum: What will #BREXIT mean for global economics and tax?
You maybe growing weary of the term #BREXIT, referring to Britain’s exit from the European Union, but there is still a lot to understand about what the situation means and what parts of business and personal life in Europe will be affected.
Trowbridge offers this report to give some brief comments on only a few of the many concerns that will be raised as Britain prepares to leave the EU. Many outcomes won’t be really known for some time to come, years even, so it would be wise to settle in, pour a drink or cup of tea and get ready for the long version of this story. The very popular, if over used, meme “Keep calm and…” seems appropriate now when being used for “Keep calm and BREXIT”. Calmer and cooler heads must prevail as we all wade through this new EU reality.
As all of the world watched the results of Britain’s European Union Referendum vote, it was clear the decision could have monumental social, political and economic effects. Regardless of whether or not you thought Britain should remain in the EU or leave, the final vote was to exit and now we must globally examine the consequences of #Brexit.
First of all, as is often the case with situations of sudden and significant changes, the chaos and fear helped drop the GBP down to a dramatically and historical low point but it has been experiencing some recovery with “keep calm” attitudes and unchanged rates from the Bank of England. However, it is expected to remain low for 2016 and the better part of 2017. The pound will also keep dealing with pressure from other currencies, so it’s not clear where it will land. Another leading indicator on economy health is real estate, as the old adage goes “housing leads the economy’, and recent data shows that residential sales have slumped 45%.
- EU Taxes
Customs, VAT and Corporate taxes: Britain’s Chancellor of the Exchequer, George Osborn, has suggested a goal of lowering the UK corporate tax rate by 5% immediately, in order to encourage international investments in UK businesses while the country attempts to rearrange its political dealings. While this may be a sound strategy to safeguard business investments, some critics of the plan say that it would turn the UK into an unregulated tax haven. The proposed tax cuts also would not help businesses currently operating with expat employees or employees who are not British citizens, who may have many immigration concerns ahead.
- Export and Trade
It is still unclear what the new trade agreement model between the UK and the EU-27, or even between the UK and non-EU countries, will ultimately look like. It could take two years or more for such trade rules to be ironed out, but if Britain is able to make agreements that allow for similar market access and immigration as was experienced pre-Brexit, international faith in the GBP could be restored.
Sending people on work assignments to the UK or employing people with a UK passport within the EU might become more difficult and more expensive in the absence of/waiting for rules regarding the free movement of persons and clearly defined social security regulations for cross-border workers. It’s expected that the UK will select a point in time as a free EU immigration cutoff. Anyone who is already residing in the UK as an EU citizen can stay, however anyone coming in after the new cutoff date will not qualify to stay under the current immigration rules of free movement. This action is in anticipation that many people within the EU will want to take advantage of being able to move to UK and stay, before the EU door closes.
This situation won’t become the new reality for two years from the date of notification to the European Council. This could mean not before July 2018, or simply two years from the date that Britain makes it official (speculation is that they will officially notify EU in September, making it effective September 2018), and possibly much longer. There is no timetable that the UK is held to right now, and no good reason to rush into discussions too soon.
The EU and UK need each other, even if the relationship moves forward without the security of the ‘Union’ part. What the relationship will look like will depend, largely, on whether the EU is able to keep the remaining countries onboard. If they stay relatively united without Britain, most of the challenges and risks will fall on the UK. If other countries start to leave the Union as well, even bigger changes will be on the way for the political and economic dynamics of Europe.
Due to the volatile and ever-changing nature of this situation, each individual and business will likely have unique questions about how Brexit will affect them.
For this reason, we encourage any of our clients who have concerns over Brexit and tax related issues to contact our team and set up an appointment with one of our global professionals. As always, we hope to make your international tax simplified.