Brexit from an Irish Perspective: Opportunities and Issues

Transcription

1 Brexit from an Irish Perspective: Opportunities and Issues STEP Malta Conference 12 & 13 April 2018 Hilton Hotel, Valetta, Malta John Gill, Partner, Matheson Number One Ranked Irish Funds Law Practice acting for 29% of Irish Domiciled Investment Funds by AUM Monterey Insight Ireland Fund Survey 2017 Ireland M&A Legal Adviser of the Year Mergermarket European M&A Awards 2017 Ranked Ireland s Most Innovative Law Firm Financial Times Innovative Lawyers Report 2017 International Firm in the Americas International Tax Review 2017

2 Agenda 1. Overview of Brexit 2. Relocation for Corporates 3. Relocation for Individuals 4. Highlighting immigration

3 1. Overview of Brexit

4 Reactions to Brexit

5 Hard v Soft Brexit Hard Brexit Favoured by ardent Brexiteers, a hard Brexit arrangement would see the UK give up full access to the single market and full access of the customs union along with the EU. The arrangement would prioritise giving UK full control over its borders, making new trade deals and applying laws within its own territory. Initially, this would mean the UK would likely fall back on World Trade Organisation (WTO) rules for trade with its former EU partners. The International Trade Secretary, Liam Fox, has said a hard approach would benefit the UK by making it a global trading nation. He said that "the UK is a full and founding member of the WTO", during a speech in Geneva last on 27 September 2016 A hard Brexit, however, could see British goods and services subject to tariffs, adding 10 per cent, for example, to the cost of exported cars. While sectors such as agriculture could lose protections against cheap imports from abroad. Leaving the customs union would mean a significant increase in bureaucratic checks on goods passing through ports and airports. And nations such as the US and Australia have said that reaching a new trade agreements with the EU would take priority.

6 Soft Brexit This approach would leave the UK's relationship with the EU as close as possible to the existing arrangements, and is preferred by many Remainers. The UK would no longer be a member of the EU and would not have a seat on the European Council. It would lose its MEPs and its European Commissioner. But, it would keep unfettered access to the European single market. Goods and services would be traded with the remaining EU states on a tariff-free basis and financial firms would keep their "passporting" rights to sell services and operate branches in the EU. UK would remain within the EU's customs union, meaning that exports would not be subject to border checks. Pro-EU MPs argue that maintaining proper connections with the EU s trading arrangements is a matter of national interest. However London s position as a financial hub could be dealt a severe blow if the UK left the single market.

7 Timeline 23 June 2016 The UK votes to leave the EU 27 March 2017 The UK invokes Article June 2017 Negotiations between the UK and EU begin 8 December 2017 Joint Report issued - EU and UK make sufficient progress on Phase One issues 28 February 2018 Initial publication of Draft EU Withdrawal Agreement 19 March 2018 Refined EU Draft Withdrawal Agreement 29 March 2019 Brexit Day - Deadline for UK withdrawal 31 December 2020 End of transition period

8 Draft Text of EU s Withdrawal Agreement February articles, 118 page long treaty to embody key principles from the Joint Report of 8 December 2017 of the Commission and the UK on the first three elements of the Brexit negotiations i.e. People, Ireland and Money Uncontroversial aspect Citizens rights follows on from Joint Report Gaurantee of EU citizens in UK and UK citizens in EU & effectively will also apply to migrating citizens during the transition period During the transitional period, the UK will continue to benefit from the Single Market Customs Union Nothing is agreed until everything is agreed Donald Tusk, President EU Council David Davis, the UK s Brexit secretary, said he could live with a 21-month transition period as UK leaves the EU. Davis told BBC s Newsnight programme: I m not bothered too much about the question of whether it is Christmas 2020 or Easter He said that getting a deal at the next week s council was more important to me than a few months either way.- 15 March 2018 However, if no agreement is reached, there will be no transition period and the UK will withdraw from the Single Market and Customs Union The Norway Option in 1994 Norway opted to remain in a single European market in goods, capital and labour but outside from common fisheries and agricultural policies. Also stayed outside EU customs union to secure its own trade deals elsewhere.

9 Theresa May comments to first draft of 28 February 2018 The draft legal text that the Commission has published would, if implemented, undermine the UK common market and threaten the constitutional integrity of the UK by creating a customs and regulatory border down the Irish Sea and no UK prime minister could ever agree to it. May acknowledged that life outside the EU will be different for the UK, and access to European markets will be reduced as it will leave the customs union and single market. Every free trade agreement has varying market access depending on the respective interests of the country involved. If this is cherry-picking, then every trade agreement is cherry-picking, May said, hitting back at EU officials who tell the UK government that it cannot have the level of access it has now while not taking on the obligations stemming from the EU market. May also pledged that the UK would not try to undercut the EU in areas such as regulation and state aid, an important promise for many EU countries who feared the UK would turn into a low-tax, low regulation haven. Language on 19 March more conciliatory Theresa May hailed a new dynamic while Michel Barnier said the EU was crossing a decisive point in this difficult and extraordinary negotiation.

10 Commentary on Revised Draft EU Withdrawal Agreement 19 March 2018 As part of withdrawal text a backstop solution for the border between Northern Ireland and Republic of Ireland, in line with paragraph 49 of the Joint Report, was agreed. Under this option Northern Ireland will remain in full alignment with the EU s single market and customs union. A commitment to no hard border. Alignment between North and South for customs, VAT, energy, regulations for the production of the environment and governing agriculture and fisheries. UK s Brexit negotiator David Davis It remains our interest to achieve a partnership that is so close as that it requires no specific measures for Northern Ireland.

11 The Irish problem Joint Report para 49 3 options for avoiding a hard border 2 of 3 options can only be discussed in the context of the future relationship. A protocol has been included in the draft withdrawal agreement setting out how the third option may be operationalised. A common regulatory area comprising the Union and the UK in respect of Northern Ireland Draft Text Withdrawal Agreement - Quite permissive in some respects e.g. allowing Ireland and the UK to maintain the Common Travel Area and separate arrangements of their own. Ireland s prime minister has warned that Brexit threatens the Good Friday agreement and could drive a wedge between UK and Ireland. Leo Varadkar also sought to reassure Unionists, who fear that his government is using the moment to push for a united Ireland, that he does not have a hidden agenda. Although its suggested they can make strides on a trade agreement, they need to make progress on a contentious backstop arrangement. Leo Varadkar (23 March) said it s our objective to have the Irish Protocol agreed in June. Scepticism that May can negotiate a Brexit deal for trade that is as frictionless as possible and that this can only be guaranteed with some form of customs union

12 Brexit How will it affect Business

13 Brexit & Ireland Ireland uniquely exposed to Brexit due to high trade intensity with the UK Trade costs will increase in all scenarios However, Brexit has potential to make financial services sector more attractive: sector is predicted to expand by 2% (EEA scenario) and 3-4% (non-eea scenario) insurance sector expected to expand between 1% (EEA) and 3% (non-eea) Copenhagen Economics Relocation of activity from the UK to Ireland to maintain EU market access will increase

14 The UK as a competitor for FDI post-brexit? Ireland Long standing commitment to 12.5% rate Continued access to Single Market and Customs Union Continue to avail of benefits under EU tax Directives (eg PSD, IRD, Mergers Directive) Continue to qualify as equivalent beneficiary under US tax treaties with EU countries Continue to be subject to EU State aid rules Continue to be subject to EU tax developments UK (Post-Brexit) Rate is to reduce to 17% - possibility of further reductions? Trade arrangements with EU to be agreed EU Directives will no longer apply but some equivalent benefits may be available bilaterally Cease to qualify as equivalent beneficiary under US tax treaties with EU countries EU intend to include State aid provisions in any Free Trade Agreement Likely to have more autonomy on tax matters

15 Brexit: The future Flux is good for opportunities for those who have the relevant expertise! Future Brexit means Brexit The New Norm! Significant opportunity - One in seven businesses from EU countries with a presence in the UK have moved parts of their business out of the country because of concerns about disruption after Brexit, according to a survey by the UK s Chartered Institute of Procurement and Supply (CIPS) (20 March 2018) Furthermore, 11% of EU companies had moved some of their workforce out of the UK since the Brexit vote in 2016, the survey of supply chain managers showed.

16 2. Relocation for Corporates Brexit Contingency Planning Access to the Single Market chief requirement for financial services companies to relocate as they need to have an entity located in an EU member state to avail of passporting Pending classification of form of Brexit, business decisions cannot be made Regulated industries have been the early adapters / movers Amongst these are financial services companies, asset management companies and insurance companies, seeking a passport facility

17 Brexit driven legal activity Timelines for getting authorised within EU results in timing pressure with respect to decision making This activity creates an opportunity for Ireland and other jurisdictions such as Malta 17

18 Source: Irish Times October

19 Relocating Possible relocation jurisdictions Ireland (Dublin) Germany (Frankfurt) France (Paris) Netherlands (Amsterdam) Luxembourg Malta? Key factors in decision making for a Financial Institution Where are its strategically important markets? How does the regulatory environment compare? What is the quality of the infrastructure in possible relocation jurisdictions? Does it have an existing business in the jurisdiction? 19

20 Ireland What Can We Offer?

21 Ireland Quick Facts EU Member State Common law jurisdiction English Language Regulatory framework Education - Skilled workforce 52% of age bracket with third level education Demographics Youngest population in Europe 1/3 under 25 years old EU and OECD approved competitive corporation tax rate of 12.5% for trading activities

22 Ireland Quick Facts (cont.) Investment Company Regime (discussed further below) Comprehensive DTA s 73 in effect Established FDI platform location Attractive investment incentives to foreign investors Industrial Development Authority / Enterprise Ireland / Science Foundation Ireland provide grant funding including training grants and employment grants, subject to state aid rules

23 Established sources of FDI Key areas in our FDI landscape: Information and Communications Technologies ( ICT ) Life Sciences Medical Technologies International Financial Services Entertainment and Media

24 Corporate Tax Competitive Corporate Tax Regime: 12.5% rate of corporate income tax for trading activities Amortization regime for intangibles IP Box (knowledge development box) for qualifying IP income 6.25% effective rate R & D tax credit for qualifying R & D carried on in Ireland Holding company regime

25 Irish Holding Company Regime Option 1 Irish Holding Companies Foreign dividends taxed at either 12.5% or 25% with benefit of foreign tax credit. This may fully offset any Irish tax Treatment of the shareholder: Wide exemptions from Irish dividend withholding tax for a non-irish resident shareholder. No Irish capital gains tax on disposals of shares in an Irish company by a non-irish resident, except where the Irish company derives the greater part of its value from Irish land or Irish mineral rights. Treatment of the Company: Capital gains realised by an Irish resident company on disposals of shareholdings in qualifying subsidiaries are exempt from Irish tax subject to certain conditions.

26 Who is here / coming here? Opportunity Insurance and Financial Services In the absence of a soft Brexit, it is difficult to see how UK based multinational companies will maintain profitability and efficiency if isolated from the single market. Relocation to other EU countries to maintain access has and will serve as a practical solution for many. Twice as many people in UK applying for Irish passports since Brexit 162,000 last year Financial institutions expanding their presence in Ireland post Brexit - JP Morgan, Citigroup, Credit Suisse, Northern Trust, Citadel, Bank of China

27 Who is here / coming here? Opportunity (Cont.) Ireland as HQ for EMEA operations post Brexit Bank of America Merrill Lynch, TD Securities, Kroll Bond Rating Agency Insurance Beazley Re, Chaucer European agencies European Banking Authority Paris, European Medicines Agency - Amsterdam

28 3. Relocation for Individuals Executives & Lifestyle relocators With migrating corporates comes migrating executives Remittance basis of taxation for personal investment income outside of Ireland Importance of pre-entry planning Capital Acquisitions Tax issue to consider Issues for executives Remittance basis Foreign employment income taxable to extent such income is referable to days worked in Ireland High personal income tax rates (Income Tax, PRSI & USC) personal investment income position can be managed

29 Special Assignee Relief Programme (SARP) Overview SARP was introduced to make Ireland more attractive for highly skilled employees who are assigned to work in Ireland The relief exempts a percentage of the individual s employment earnings from income tax above a minimum threshold of 75,000 and is capped at 500,000. Other benefits include flights to a person s home jurisdiction and a specified amount of school fees are provided tax free.

30 SARP - Basic Conditions The employee must have been for the whole of 12 months immediately before arrival in Ireland, a full time employee of the relevant employer company and exercising the employment duties for that relevant employer outside Ireland. The employee must work for a minimum of one year and a maximum of 5 years and cannot have been a resident in Ireland 5 years prior to their arrival

31 SARP - Tax Benefits The employee must have taxable income in excess of 75,000. The formula to calculate basic relief is (A B) X 30% where A is the total remuneration of the employee and is capped at 500,000 and B is 75,000. The maximum tax relief amounts to 127,500 and therefore saves 51,000. There is no requirement for the money to be spent on a specific project and remittance is allowed.

32 Other Benefits Flights SARP exempts the reasonable costs associated with flights to their home jurisdiction. One return trip per annum for the employee, spouse and children can be paid for by the employer tax free. School Fees An exemption of up to 5,000 in respect of school fees can be provided for each child of the employee. These fees are exempt from all taxes including social security. Any primary school, post primary school and all international schools established in Ireland qualify for the programme.

33 Dual Contracts of Employment Where an individual will be working both in Ireland and outside of Ireland and is not domiciled in Ireland, it may be possible to engage the individual under dual contracts with one contract covering the employment duties to be carried out in Ireland for the Irish established business and the other contract with the non-irish business covering duties to be carried out outside Ireland. This may prove efficient in certain cases.

34 Illustration of Dual Contract of Employment Assumption is the employee is Irish resident and non-domiciled Irish contract of employment governed by Irish law Overseas contract of employment governed by non-irish law. e.g.uk law Detailed records are kept regarding Irish and overseas work and this is used in the allocation of the total remuneration package Payment for Irish contract made in Ireland and overseas for overseas contract Employee

35 Remittance Basis of Taxation Ireland offers a remittance basis of taxation for foreign held wealth for resident non-domiciled persons. No remittance basis charge

36 Pre-Entry Planning for Non-Domiciliaries Segregate clean capital and establish clean capital, income and capital gains accounts prior to arrival to avoid mixed fund problem Consider remitting funds into Ireland before arrival Ensure all foreign investments are held via a non-irish platform / bank accounts Consider selling investments in regulated funds established in an EU / EEA or OECD / DTA jurisdiction prior to arrival Re-base assets where possible, including moving foreign currency from one foreign bank account to another prior to arrival Remittance basis friendly portfolio

37 Pre-Entry Planning for Non-Domiciliaries Possible restructuring of existing companies and trusts prior to arrival Gift assets to family members to overcome potential CAT charge

38 Capital Acquisitions Tax Gift & Inheritance Tax Residence - key connecting factor Capital Acquisitions Tax ( CAT ) borne by beneficiary rather than donor / estate Charge to CAT arises where: Donor of gift / inheritance resident / ordinarily resident at date of disposition; or Beneficiary of gift / inheritance resident / ordinarily resident at date of disposition; or Subject matter of gift / inheritance is Irish situate property Domicile relevant for trusts settled pre 1 December 1999 Special concession for resident non-domiciliaries, not treated as resident for CAT purposes unless they have been resident for 5 consecutive tax years immediately preceding year of assessment in which gift / inheritance arises

39 4. Highlighting Immigration All EU citizens within UK and UK citizens within EU present during up to and including the transition period will be protected Special arrangements between Ireland and UK under our Common Travel Area shall remain post Brexit - reciprocal rights to work and reside Non EEA nationals right to work - residence generally linked to employment permit

40 Practical Immigration Points on Relocation to Ireland Free movement for EU / EEA workers and family Non EEA immigrants may be granted initial permission to remain for up to 3 months Permission to remain for more than 3 months will depend on: Independent source of private wealth No intention to work in Ireland Stamp 0 endorsement low level form of immigration Residence period under Stamp 0 does not count as reckonable residence for citizenship by naturalisation Employment permit required for non EEA nationals seeking to work

41 Practical Immigration Points on Relocation Immigrant Investor Programme Willing to make investment of between 500,000 and 2,000,000 dependent on investment category Qualifying investments including Endowment, Enterprise Investment, Regulated Funds, REIT s Minimum investment of 1,000,000, required net worth of 2,000,000 Stamp 4 endorsement Provides long term right of residence Requirement to visit Ireland one day a year only during qualifying period Residence period counts as reckonable residence for citizenship by naturalisation

42 Benefits of the Immigrant Investor Programme The residence rights are granted to both the applicant and family members once the investment is granted and facilitates the applicant in travelling to Ireland to reside with their family straight away. The IIP is a more efficient way for high net worth individuals to secure residence rights in Ireland than an Employment Visa/Work Permit. The IIP is a relatively straightforward process that obtains long term residence rights in Ireland without necessarily having to work in Ireland. Does not confer citizenship

43 Practical Immigration Points on Relocation Citizenship Acquired by one of the following: Birth - where individual is born in Ireland Descent where parent / grandparent of individual is an Irish citizen Naturalisation Minister for Justice and Equality has discretion but otherwise following criteria must be met: 18 years of age and of good character Continuous reckonable residence of 1 year immediately preceding application Total of 4 years reckonable residence in 8 years preceding application Bona fide intention to reside in State post naturalisation Declaration of fidelity and loyalty to State

44 Take Aways and Relevance to Malta Pending clarification of the form Brexit will take, it will continue to present opportunities for those jurisdictions that offer an attractive alternative Brexit contingency planning as much driven by shareholder demand, not sufficient to adopt a wait and see approach Key early adopters in the Irish context have been financial services and insurance companies Ireland plays to its strengths has advantage of a well established FDI platform Must accentuate the positives from both a corporate and individual relocation perspective

45 Relevance to Malta Brexit is part of an overall discussion on FDI FDI is about creating the right environment for international businesses to operate in - legal / tax / regulatory / employees / business friendly Global financial services (asset management / insurance / e-gaming) are a strong potential growth area for Malta, example: asset management sector Asset management sector in Malta 109 billion, Ireland fund industry is broken down as non-domiciled but Irish administered funds trillion and trillion of Irish domiciled funds

46 Relevance to Malta Post Brexit Malta will be one of only two English speaking EU member countries Malta can look to Ireland s success to grow its own indigenous financial services sector Growth rates can be significant, year on year double digit growth in annual asset management growth (save 2008) Brexit represents an opportunity to benchmark against best international practice and strengthen offering

47 John Gill Matheson 70 Sir John Rogerson's Quay Dublin 2 T: F: E: john.gill@matheson.com W: