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Brexit FAQ

Frequently asked questions about Britain leaving the EU

Brexit Overview

In a 23 June 2016 nationwide referendum, the U.K. voted to leave the European Union (EU). The referendum was structured as a simple choice between leaving or remaining. Therefore, there are no pre-defined exit routes. The details will need to be worked out in negotiations between the U.K. and the EU over the coming months and years.

On 29 March 2017, Prime Minister Theresa May, triggered Article 50 of the Lisbon Treaty of European Union by formally notifying the European Council of the U.K.'s intent to withdraw from the EU. Article 50 provides a very short timeframe of two years to negotiate and agree to the terms of separation, an agreement on the future trading relationship between the EU and the U.K., and, potentially, complex transitional arrangements.

The withdrawal will affect U.K.-based businesses, including subsidiaries of U.S. companies, in a number of areas. Trading arrangements, supply chain management, corporate location and labor mobility will all be potentially affected. Businesses should therefore keep up-to-date with the negotiation process. To help our clients understand and prepare for this transitional period we have compiled this Q&A.

This Q&A is a public resource of general information. It does not constitute legal advice, and is for informational purposes only. The reader should not rely or act upon any information in this site without seeking professional legal counsel.

Frequently Asked Questions

Corporate

What effect has the Brexit referendum had on current transactions involving the U.K.?

Reportedly, reactions to the outcome of the referendum have been mixed - some deals have collapsed, others have been put on hold and others continue forward. Certainly, the Brexit referendum outcome has had an effect on the value of the pound against other major currencies such as the dollar and yen, and as a consequence, transactions inbound to the U.K. have become cheaper, at least in the short term.

How will Brexit and, in particular, the fall in pound sterling, affect the real estate market in London?

In the short term, the real estate market as a whole may be negatively affected by political and economic instability; the fall in the pound could potentially be attractive to foreign investors leveraging stronger currencies in order to buy property in London at an advantageous exchange rate. The currency advantage may be affected by uncertainty about the U.K. economy as a whole, and might tempt other real estate investors to go elsewhere, including the United States.

What should buyers be thinking about to mitigate risks with acquiring real estate in the U.K.?

Potential decrease in real estate prices and decrease in interest rates has led many to re-consider their options and how to best mitigate risk. If a buyer has already exchanged contracts, then there is nothing they can do without incurring substantial penalties (although some buyers of real estate and businesses did negotiate ‘Brexit Clauses' into their contracts before the referendum which made contracts conditional upon a remain win).

However, if contracts have not been exchanged, it may be worth while waiting to see if, as expected, real estate prices decrease as well as interest rates over the short term. Couple that with the fall in the pound and there could be some very attractive opportunities for foreign investors leveraging stronger currencies.

So what about if you have already exchanged contracts and are due to complete soon – will you be getting value for money? Whilst it is agreed that we are likely to see some falls in the short term, most commentators believe that we will not be moving into negative year-on-year territory. The underlying strength of the U.K. economy is still intact, and returns on real estate investments are better for those who pursue long-term strategies.

Financial Services

How is Brexit going to affect Alternative Investment Fund Managers Directive 2011/61/DU (AIFMD) issues for U.S. managers selling private funds into the U.K.?

The current position is that a U.S. fund manager marketing private funds to U.K. investors is subject to a sub-set of the AIFMD regulations which apply to European fund managers. The simplest approach is to comply with the U.K. private placement regime; however, there are other approaches that may be viable depending on the U.S. manager's specific marketing activities and strategic relationships within the EU. It is possible, post-Brexit, that pressure from the U.K. banking industry might move the U.K. back towards the less onerous pre-AIFMD regime, but it seems unlikely that the U.K. will carry out a mass repeal of its EU-derived financial services legislation. In other words, in both the short and longer term, little may change in this area.

What will be the impact on the banking sector following Brexit?

Currently, financial institutions authorised in one European Economic Area (EEA) Member State can provide the services for which they have been authorised across the EEA without the need of a separate authorisation (the so-called “passport”). The position following Brexit will depend on the outcome of the negotiations with the EU, and in particular whether the passport rights will continue to operate. Should the U.K. follow the Norwegian model, it will join the EEA, and therefore it will maintain all the existing passport rights. This would be the best scenario for financial institutions.

However, it is unlikely that the full EEA membership will be granted to the U.K. should the U.K. insist to limit, as it currently seems the case, the free movement of people, which comes as part of joining the EEA. Should the U.K. financial institutions lose the “passport” right, a different type of agreement should be negotiated with the EU, and in the worst case scenario, with each individual EEA Member State in respect of the type of cross-border services that can be allowed. The negotiations might be, however, lengthy and complicated.

What are the possible outcomes of the U.K.-EU negotiations relating to financial services, given the mutual interest in ongoing cooperation under the Markets in Financial Instruments Directive (MiFID)?

Until the U.K. formally withdraws from the European Union, EU law including the existing MiFID I will continue to apply, and the financial services industry should carry on acting on the basis that MiFID II will enter into force. As the date by which MiFID II should enter into force is 3 January 2018, unless the terms of the withdrawal of the U.K. from the EU are agreed before then, MiFID II will apply from 3 January 2018.

As one of the U.K.’s top priorities is to guarantee movement of financial services after Brexit, it is possible that much of the MiFID II legislation would remain into force after Brexit so as to make it easier for the U.K. to access the EU market. In addition, since some of the provisions of MiFID II are already in place, a possible outcome is that the MiFID II provisions will remain in place irrespective of Brexit.

Intellectual Property

What should a company do about its existing trademark registrations, pending trademark applications and new applications?

Since affected trademark offices have not outlined next steps, no action is required at this time for owners of U.K. national trademark registrations, European Union Trademark (EUTM) – formerly Community Trademark (CTM) – registrations or Madrid (International) registrations designating the U.K. or the EUTM. Existing EUTM trademark registrations may be able to be transitioned to national applications in the U.K. Some type of change will be required, because the EUTM is based on the European Intellectual Property Office (EIPO), and could take place sooner than the Interim Period.

Because the U.K. is already a member of Madrid, if the subject Madrid application/registration is extended into the U.K., no required changes are anticipated unless it is extended via selection of the EUTM and not the U.K. specifically. In an abundance of caution, national applications may be filed now in the U.K., although that will later require issues regarding potential duplication of trademark protection if existing registrations are later converted to national applications.

If you would like to obtain new trademark protection in a country in the U.K., and do not plan to use the Madrid process, filing a national application in the U.K., rather than filing through the EUTM system, may be the safest route for now.

Immigration & Employment

How should a company plan long-term following the results of the referendum?

It will be critical for a company to “know its workforce.” Employers need to know the nationalities of employees who are working in the U.K. and the EU. This information will be vital to HR strategic planning and preparing for potential work permit applications for British citizens in EU member countries and for EU member countries’ citizens in the U.K. Employers should also know how long their British citizen employees have been residing and working in an EU member state or states, and how long their EU member state citizen employees have been residing and working in the U.K. Some of these employees may (or soon will) be eligible for permanent residence in their host country. Success in obtaining permanent resident status in the host country eliminates the need to apply for a future work permit in that country.

Employers outside the U.K. and EU should consider who they might wish to transfer (or send as a business visitor traveler) to the U.K. and the EU during the upcoming months. If the intention had been to rely on that individual holding certain nationalities (e.g. a dual U.S.-Italian citizen transferring from the U.S. to the U.K. by virtue of their Italian nationality; or a dual U.S.-British citizen transferring from the U.S. to Germany by virtue of their British nationality), it will be important to consider such planning carefully based on nationality, location, timing and duration of travel.

When is the immigration system in the U.K. going to change?

Any outward change will only occur when the U.K. actually leaves the EU, and that will be a negotiated process that will take some time, likely several years, to complete.

I am a British citizen living in an EU country; can I continue to live here?

That will depend on the arrangements made between the U.K. and the EU country in question as part of the Brexit. If you have currently been living in that country for a particular period of time (likely five years) and meet certain qualifying criteria (e.g., you do not claim benefits and have appropriate medical coverage), then you may have acquired rights under current EU law as a permanent resident of that country.

I am a citizen of an EU country living in the U.K.; can I continue to live here?

That will depend on the arrangements made between the UK and the EU/country in question as part of the Brexit. If you have currently been living in the U.K. for a particular period of time (likely five years), then you may have acquired rights under current EU law as a permanent resident.

I am a dual citizen of a non-EU country and an EU country, and my company wants to transfer me to the U.K. Do I need a visa?

At the present time, you may exercise your right to enter the U.K. to work as an EU citizen.

I am a British citizen but my parent or grandparent is a citizen of an EU country. Can I get a passport for that other country so that I will still have free movement in the EU after a Brexit?

There are some countries that will permit you to apply for citizenship based on your ancestry if the ancestor is suitably close to you (typically a parent and sometimes a grandparent, depending upon the laws of that country). There are various considerations that you need to take into account before applying for citizenship of another country. Among these are (1) whether the original country of citizenship permits dual citizenship or would you lose your original citizenship upon acquiring a new citizenship; and (2) are there additional obligations that come with acquiring that other citizenship such as tax liabilities or military service.

Can a company with an executive non-qualified retirement plan (subject to U.S. Internal Revenue Code Section 409A) that pays a lump sum give a retiring executive a choice as to the currency which the benefit is paid?

The plan will not violate Code Section 409A by providing participating executives a choice as to the currency in which the benefit is paid (because providing such a choice won’t change the timing of the payment or the calculation of the benefit amount). If the benefit is paid in a lump sum, providing such a choice won’t really provide an advantage to the executive beyond what the executive could get by having the benefit paid by direct deposit to his bank account and then immediately converted by the bank, at the executive’s direction, to the desired currency. Under the terms of the plan, the amount of his benefit will still be calculated in the currency in which the salary is paid. So if the plan were to provide the executive a choice as to the currency of payment, the benefit would then have to be converted to the chosen currency at the exchange rate in effect at date of payment (or at another date specified by the plan, such as the rate in effect as of the close of business on the last business day immediately preceding the payment date). Providing a choice of currency would shift the currency conversion risk to the company—a risk it would not have if it paid the benefit in the currency in which the benefit was calculated and putting the onus on the participant to convert to another currency after payment if desired.

Tax

What are the tax consequences of Brexit?

The answer depends upon whether the tax relates to transactions (such as product sales, services and licenses), value added tax (VAT) or employee assignments/rotations.

With respect to the income tax issues associated with transactions (sales of products or services, or licensing arrangements), there will very likely be little impact of Brexit. That is because transactions involve relationships and payments between parties in two countries, and those matters today, and post-Brexit, will be principally affected by whether an income tax treaty applies to the transaction in question. Tax treaties are bilateral, between two countries. The U.S. does not have a tax treaty with the EU itself, only member countries specifically. Thus, whether the U.K. is in or out of the EU, any transactions between the U.S. and the U.K. will be governed by the U.S./U.K. tax treaty (to the extent applicable), and this rule is not affected by Brexit.

With respect to VAT, and similar customs duties, reclaim mechanisms and related matters, there will be a difference after Brexit to the extent the transactions involve the U.K. and the EU, but not to the extent the transactions relate to the U.S. and the U.K. The reason, again, is that transactions in question are governed by country laws applicable to VAT (or sales tax), customs duties, etc. related to the origin (or destination) of the product being exported or imported. One of the major benefits of the EU generally is the principle of free movement of goods between member states. Upon departure from the EU, the U.K. will presumably no longer have access to those favorable, barrier-less movements from or to the U.K. into or out of the EU (depending upon the terms of exit agreed by the EU and the U.K.). However, since the U.S. is not part of the EU, any import/export transactions involving the U.S. and U.K. as country pairs will remain subject to the applicable VAT and Customs duties as they are today.

Finally, one area to be attentive to relates to the movement of employees (e.g., expats) between assignments in different countries. Today, employees may easily be rotated among the EU countries, and “expat assignment packages” tend not to include tax equalization or gross-up provisions given the EU’s flexible rules regarding employee taxation. However, when the U.K. severs its relationship with the EU, subsequent movements of employees between assignments in the U.K. and EU member countries may trigger unexpected host country employer taxation impacts as well as increased tax liabilities and reporting obligations to the employee. Hence, the need for, or cost of, tax equalization or gross-up provisions may become greater.

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