The UK and the EU reached an agreement on 17 October 2019 on the conditions for the UK’s departure from the EU and a transition period. The UK left the EU at midnight on 31 January 2020. A transition period is now in place until 31 December 2020. During this period, all EU rules and laws for the UK will remain in force. Effectively this means that nothing changes for individuals and companies until 31 December 2020. In the meantime the UK and the EU are discussing new agreements about their future relationship after 31 December 2020. The transition period will give individuals and companies some time to prepare for the new situation.
If both the UK and the EU agree, this transition period may be extended once by another two years until 31 December 2022. Although British Prime Minister Johnson has said that he does not want an extension, the negotiations between the EU and the UK have not been easy and they have been delayed due to the Corona crisis. Both parties report, however, that they are fully committed to the negotiations and are looking for ways to keep the discussions ongoing.
How can employers prepare for Brexit?
To minimise the impact, companies are advised to make preparations in relation to immigration, social security and wage/income taxes for their cross-border employees in the coming months. Below we summarise the topics and actions that employers of cross-border working employees need to consider.
Immigration
Employers should:
- Understand that EEA nationals in the UK or British nationals in the EEA can no longer make use of the right of free movement after the transition period, meaning that a work and/or residence permit will be required after 31 December 2020;
- Carry out an audit of their cross-border employees to establish which employees are EEA nationals in the UK or British nationals in the EEA;
Communicate with their cross-border employees on the impact of Brexit and provide support to employees; - Provide assistance with immigration applications for EEA nationals in the UK or British nationals in the EEA and their dependents;
Consider the position of business travellers and international commuters; - Review policies and documents to identify those that may need to be amended as a result of Brexit;
- Prepare for strategic decisions on relocation to the UK or EU;
Understand the new UK’s immigration system and how this will impact the company after the transition period; - Check on the rules, requirements and possible exceptions under other EEA country’s immigration rules.
Social Security
Individuals will still receive social security benefits during the transition period. After 31 December 2020 the situation may change depending on the agreements made by the UK and the EU, and whether the individual falls under the withdrawal agreement.
- If an EU national took up residency in the UK or a British national took up residency in the EEA before 31 December 2020, the individual falls under the withdrawal agreement. This means that nothing will change after the transition period. The individual continues to receive social security benefits as long as the circumstances remain the same;
- If an individual comes to the UK from the EU or to the EU from the UK after the transition period, the individual will not fall under the withdrawal agreement. At this stage it is uncertain whether the individual can still receive social security benefits since this will depend on the agreements that the EU and the UK will make for the future. If no agreements will be made, certain social security benefits will no longer be (partially) paid out in the UK or in the EU to individuals from the other location.
Income Taxes
It is important to consider that:
- EU nationals working in the UK or British nationals working in the EU cannot be taxed twice on their income if they continue to be a resident taxpayer in their home country. Bilateral agreements between the UK and all EU member states for the elimination of double taxation will continue to apply as they do now. These agreements allocate taxing rights between countries and eliminate double taxation by ensuring that only one country can tax on employment income or – where both countries have taxing rights – that the country where the individual lives will provide relief of double taxation;
- The UK’s existing double taxation agreements that they have in place with all EU countries will not change unless separate negotiations are started and finalised between the UK and the respective country;
- After the transition period UK resident taxpayers will not be entitled to some tax deductions in EU member states. For instance, a UK resident can no longer be considered as a qualified foreign taxpayer in the Netherlands. In Belgium, a UK resident will not be entitled to any regional tax reductions (e.g. “woonbonus”) even if more than 75% of his or her income is from Belgian origin.
As briefly explained in this article, Brexit can have a substantial impact on immigration, social security and taxation. An important first step to successfully lead your employees to a post-Brexit situation is to assess all the potential risks for your employees and the actions to be taken to eliminate these risks. Responding to the immigration, social security and tax consequences of Brexit will contribute to the ‘Brexit readiness’ of you and your employees and will enable timely actions to be taken before the transition period of Brexit ends.
We, at Boxx, are more than pleased and ready to assist you to lead your employees successfully through the Brexit changes. Please contact us at [email protected] for further assistance.