Brexit Is Just One More Problem European Entrepreneurs Have to Deal With
According to a survey, 58 percent of Europeans prefer to work as an employee rather than hustle as an entrepreneur. This is quite contrary to the American entrepreneurial ecosystem where the majority prefer to work their way up rather than working for someone.
Why is there a deficit in the emergence of European entrepreneurs? The global recession is a major concern, along with challenges in the attitude, fear of failure and risks, access to investment, mentorship programs and retainment of resources. All these challenges have led to the decline of entrepreneurship in Europe.
Here comes another headache -- Brexit. As of March 29, 2019, the U.K. (including England, Wales, Northern Ireland and Wales) will no longer be part of the European Union. The U.K. will be considered as a non-EU country, however it is expected that the U.K. will have agreements regarding trade rules with the EU before March 29, 2019 to prepare for the post-Brexit scenario.
These are the worst Bresxit challenges that add up to the other headaches faced by European entrepreneurs:
1. Weaker Europe
According to CNN, Brexit has caused a dip in the U.K.'s economy of up to 1.3 percent, although the U.K. has managed to dodge recession for now. Uncertainty in trade relations can cause tensions and less appeal to investors.
A weaker pound results in the strengthening of the U.S. dollar, which increases gold prices while making U.S. shares expensive. U.S. companies have invested around $588 billion in the U.K. with the advantage of using the country as a gateway to the single market that includes the rest of the EU nations. Many fear that Brexit will weaken the European appeal that was dominated by Britain's influence, further undermining its reputation as an investment haven and affecting other European nations which banked on its appeal.
Since the U.K. won't be part of the European Union, European companies with branches in U.K. territories must be ready to pay a great deal in administrative and legal expenses. Fluctuations in foreign exchange rates have a direct impact on product prices and might result in inflation.
Currently, there are 1,300 German subsidiaries in the U.K. and 25,000 British companies with a branch in the EU -- accountign for 2.6 million jobs that will hang in the balance with any post-Brexit trade agreement.
3. No more low-value consignment relief (LVCR)
When goods enter the EU from any non-EU country, they are subjected to VAT (value added tax), excise tax and customs duties. Low-value consignment relief is an optional VAT relief introduced by the European Union to its members in order to speed up the transmission of low-valued goods while reducing tax collected and avoid delays due to customs.
If the U.K. leaves the EU without a deal, VAT will be applied on parcels entering the U.K. Business will no longer benefit from LVCR. In other words, goods entering the U.K. from the EU will be liable for VAT without any relief.
If the parcel value is up to £135, VAT will be collected from the overseas business selling goods in the U.K. at the point of purchase while registering at HM Revenue & Customs (HMRC). On goods valued greater than £135 pounds, VAT will be continued to be collected from U.K. recipients similar to the procedures involving parcels from non-EU countries. You can check here to know more.
4. Change in mini one-stop shop (MOSS) status
In order to simplify the process of businesses dealing with electronic services, telecommunications and broadcasting, VAT mini one-stop shop (MOSS) was introduced to reduce the cost and administrative burden. MOSS is an online service that allows EU businesses to report and pay tax on their digital goods targeted toward other EU states. Non-EU businesses, too, can register under the MOSS Non-Union scheme.In the case of no new agreement, businesses in the U.K. will no longer get to register under the MOSS EU scheme to report and pay VAT on sales of their digital services in the U.K. This leaves confusion for many businesses whether they should register for the Non-Union MOSS scheme or register separately in each of the member states where their VAT is accounted which causes further headaches and complications.
Registration is required in the MOSS Non-Union schemeif the business wants to continue using the MOSS system. Accordingly, this can be done only after U.K. leaves the EU and you will need to register by April 10, 2019 if your sales are intended from March 29-31, 2019 and by May 10 if you have any sales in April 2019. You can check for more information here.
5. FATCA (the Foreign Account Tax Compliance Act) and banking problems
It's a known fact that the purpose of FATCA implementation was to keep track of the earnings of U.S. citizens in Europe in order to prohibit money laundering. Due to this, many European banks rejected the banking business of U.S. companies. The U.K. banks were less stringent with this approach and it was viable to enter the European market via the U.K. With Brexit, U.S. entrepreneurs no longer have this advantage and will be required to open a banking account under the strict rules of European Union countries (other than the U.K.) to operate their business subsidiaries in Europe.
6. Uncertainty in long-term contracts
The consequences of Brexit largely depend upon the arrangements agreed between the U.K. and the European Union. If your European business provides services in the U.K., it might be safe to avoid long-term contracts. On the other hand, if you are willing to go for long-term contracts, include Brexit clauses that cover you with the change in trade scenario on the off chance no deal is made with the British government.