Impact of Brexit on Licensed Trade in the Netherlands
Category: Investment laws
It is important for British companies conducting licensed trade in the Netherlands to assess the impact of Brexit on their business.
On 31 January 2020 the UK exited the European Union (EU). In terms of the Withdrawal Agreement, a transition period now applies until 31 December 2020. During this period, the UK is formally no longer a member of the EU, but will still be subject to EU regulations in broadly the same manner before it left the EU.
The intention behind the transition period is to allow the EU and the UK time to negotiate a trade deal and put in place the necessary measures to implement the new arrangements. During this time, the UK is still a part of the EU single market and customs union, which means that all the rules and regulations (and budget payments) remain the same until 31 December 2020.
If the negotiations on a trade deal are not finalized before 31 December 2020, trade with the EU will automatically fall back on basic World Trade Organization (WTO) rules. This means that tariffs will be placed on exports to the EU from the UK, and customs checks will be performed at the borders. Although not yet confirmed, there is a very real possibility this will be the case, especially considering the UK’s decision not to extend the transition period and the strain which Covid-19 places on government institutions.
Doing business in the Netherlands after Brexit
This has several implications for businesses that import or export goods between the UK and the Netherlands. The exact rules which will apply to businesses are not yet known, however, to account for this uncertainty, businesses in both the UK and the Netherlands have been planning reorganizations.
The Dutch institute of International Relations, Clingendael, has indicated the different ways in which Brexit-impacted companies have reorganized their business, namely:
- relocating activities to the EU market by incorporating a legal entity in the Netherlands. This can also include moving a particular production line;
- expanding existing activities in the Netherlands and downscaling those in the UK;
- setting up a Dutch headquarters that covers all European (including UK) activities; and
- opening a Dutch office, allowing it to service the EU market.
British companies moving to the Netherlands
According to the Netherlands Foreign Investment Agency (NFIA), up to 145 Brexit-impacted companies have already chosen to incorporate subsidiaries or relocate their headquarters to the Netherlands since the Brexit referendum. This includes British companies, but also American and Asian entities who have been forced to reconsider their corporate structure in Europe. Through various agencies such as the FIA, the Netherlands has been extremely active in facilitating the continuance of cross-border business between the EU and the UK. Also interesting to read: advice on relocation to the Netherlands.
With respect to providing financial services in the Netherlands, one ordinarily needs to apply for a license with the Dutch Authority for Financial Markets (AFM). However, the AFM has imposed an exemption (amongst others for investment firms) until 1 January 2021 if a no-deal Brexit occurs. This exemption is not general and besides an exemption from licensing, a financial services company will also be exempted from some ongoing requirements, such as capital requirements and certain organizational requirements. Many business conduct requirements however continue to apply (for example, cost transparency).
In terms of the operation of British financial institutions in the Netherlands, the Dutch National Bank (DNB) has signed a Memorandum of Understanding (MoU) with the British financial authorities. Concurrently, the DNB has submitted that:
“if the transition period should end without clear agreement on the future relationship between the EU and the UK, UK-based financial institutions would lose their rights to provide cross-border financial services in the Netherlands, except under potential equivalent decisions in areas where these can be made under EU legislation. If UK institutions wish to continue to serve Dutch customers after the transition period it is therefore important they take timely preparatory measures, provided they have not done so already. This could, for example, include submitting an application for a license to operate in the Netherlands or another EU Member State.”
Brexit-related licences for British Companies
In this vein, the DNB has already issued several Brexit-related licenses, both independently and in cooperation with the AFM, to financial institutions such as banks, investment houses and insurance firms.
As a British citizen who is residing in the Netherlands and operating a business in the country, one will be allowed to stay in the Netherlands for 15 months after Brexit, even if there is no deal. During this period, one may apply for a permanent residence permit. A UK citizen who is thinking about moving to the Netherlands to start a business will be able to do so under the EU ‘freedom of movement for workers policy chapter’ until 31 December 2020. After that date, one will most likely need a residence permit.
For this purpose, the Dutch Government has opened a special Brexit website (Brexitloket.nl) that offers a selection of events organized to help entrepreneurs get to grips with the impending changes. The Netherlands British Chamber of Commerce (NBCC) also organizes several events to help entrepreneurs prepare for Brexit.
If you require assistance with the application or understanding of these imminent changes mentioned above, please do not hesitate to contact us.