Brexit and trade: a wealth of opportunities?
Article 50 has been triggered; Brexit is finally happening. While the eventual Brexit deal will take a couple of years to be agreed and initiated, this period also allows the UK to begin initial discussions on possible bilateral trade deals with the emerging economies. This won’t be an easy task, particularly with pressure from the EU not to sign any trade deals until it has negotiated its own with the UK. Agreeing the terms of a Free Trade Agreement (FTA) takes a long time, and it would be wrong to assume that the developing economies will bend over backwards to sign on the dotted line. The eventual bilateral FTAs with countries like India, China, etc. gives rise to plenty of opportunities, both on the trade and investment sides. The trade relationships which the UK establishes with other territories around the world will be keenly followed as the post-Brexit UK develops.
Entrepreneurs and owner-managed businesses in the UK will need time to assess the implications of Brexit and what it means for them. However, we know that British SMEs are resilient and the successful ones seize opportunities in the face of change. As changes to legislation and regulation start to flood in, adaptability and stability will be key for businesses operating in the UK to sustain and grow.
A possible concern about leaving the EU is that the UK will lose the benefits of various EU directives which eliminate withholding taxes within the EU. Combined with the UK’s favourable domestic tax regime, this has made the UK a very attractive place to locate a holding company for European subsidiaries. But all is not lost – the UK has an extensive tax treaty network which covers most of Europe. Tax treaties also reduce withholding taxes which means that most UK parent companies can continue to receive dividends, interest and royalties without being burdened by withholding taxes.
One benefit of leaving the EU is that UK companies will no longer have to comply with the EU State Aid restrictions. These rules have meant the UK has either had to restrict the benefits it can offer under some tax relief schemes, or else make them very complex – neither of which is beneficial to business. The UK will undoubtedly wish to remain at the forefront of innovative research projects and will have the option to encourage companies working on innovative projects to remain in the UK by boosting the existing Research & Development reliefs, without having to limit them under EU State Aid rules. The UK previously tried to initiate a Patent Box regime which reduced the Corporation Tax paid by companies exploiting patents in the UK to just 10%. This was severely hampered by EU regulation, so the government may seize the opportunity to reintroduce it in original form to encourage companies to carry out R&D and hold intellectual property in the UK.
The contentious issue of immigration and work visas hovers in the background but, if the UK positions itself as a truly global, forward-looking nation, there are plenty of opportunities to be had and strong trade relationships to be built across the globe, in the post-Brexit world.