While the chances of a no-deal Brexit scenario are rising, businesses in the UK and Europe need to prepare for the worst outcome to avoid major disruptions to their supply chains.
Alex Altmann, partner and head of the German desk as well as co-chairman of British Chamber of Commerce in Germany ("BCCG") said: 'If the UK leaves the EU on the 29 March without an agreement, the UK will most likely leave the EU Customs Union at the same time, meaning that goods can no longer move freely and tariffs might be imposed on goods that move between the UK and the EU.'
He said: 'In the absence of a trade agreement between the EU and the UK, WTO customs duty rates might be applied for the time being, meaning that significant additional costs could be incurred for businesses moving goods between the UK and the EU. Businesses should also expect significant delays at borders since customs checks might be introduced.'
He added: 'The CBI estimates that the average time it takes a lorry from a non-EU country to clear customs at Dover is 20 minutes. 16,000 lorries from France alone arrive at Dover every day. That potentially means more than 5,000 additional hours every day that Customs officers will need to spent clearing goods if we crash out of the EU without a deal. Businesses should escalate their warehouse arrangements and increase their stock to be prepared for shortages.'
Alex said: 'In a no-deal Brexit scenario there could also be a number of tax simplifications being removed, including common VAT simplifications like triangulation arrangements. Currently, a UK business can buy goods from a supplier in one EU country and sell the goods to a customer in another EU country without a need to register for VAT in either of the countries concerned. These simplifications are based on EU law and could not be applicable anymore for UK businesses.'
'The VAT rules in the EU are complex and many smaller businesses make use of simplifications. If these simplifications are not available anymore from 29 March next year then a lot of smaller businesses are going to struggle complying with VAT rules in other EU countries. This could mean compulsory multiple VAT registrations throughout the EU regardless of the value of sales.'
Altmann said: 'Employers are currently able to second people to other EU countries on a formal assignment to work on projects, a construction site or acting as sales representatives. It is questionable under what terms employers will still be able to second staff to EU member states in a Brexit no-deal scenario.'
'Depending on how long staff are seconded for, usually the employer has an obligation to register with local authorities and report any local tax and social security figures that are due.'
He added: 'There is a risk that UK employers might be economically discriminated by other EU member states during the process of seconding their staff, meaning for example that the EU social security directive might no longer apply. One solution could be to establish a company in one EU member state that acts at the employer for staff working in the EU.'
'If companies are looking to establish a formal presence in the EU to ensure that markets remain available to them, it is important to fully assess all the factors associated with this decision, including tax, social security, employment law, staff availability and registration requirements.'
For further information, please contact Alex Altmann.