Updated: Aug 25
Is it still worthwhile to continue trading with Europe?
Many UK business owners arrived at the biggest crossroads of their career: ‘Is it still worthwhile to continue trading with Europe?’ A frighteningly binary quest. But behold of hasty decisions – there might be some news that will change your perspective.
Overshadowed by the pandemic and swept under the carpet, because even the term Brexit has become too toxic to mention, the effects of it have started taking its toll. Many UK companies trading with the EU have suspended their goods trade, small businesses without sufficient funds fold. ‘Teething problems’ reveal itself as tooth decay.
Businesses with consignments stuck at EU customs facilities realise that registering for various EU VAT and EORI numbers might only be sufficient to get goods across to Europe. Then, as the fog above the channel clears, ‘taking back control’ turns into losing control. And business. Even old and seemingly loyal trade partners in Europe will only jump through the hoops created by Brexit for so long before they decide to seek new suppliers in the EU, never to be seen again.
Yes, this is not merely about how to lift your goods over the new trade hurdles – this is about rescuing your EU business. The good news is that there are solutions, which enable you to make it easier for yourself as well as sending out that crucial signal to your European trade partners: ‘Look, we do everything possible to facilitate smooth business for a long and prosper future relationship’.
How to overcome trade hurdles now and in the future
Basically, there are two strategies to choose from: setting up an EU company (i.e., a legal entity) or using Importer of Record (IoR) services. The latter is, simply put, a generic term for several services available that will allow you to act as an EU company without the need to incorporate one.
An absolute necessity, the foundation of IoR services, is the Fiscal Representation. This is available in several EU countries. Unless there is a specific reason, e.g., you only trade with a single country, the Dutch variants offer the greatest benefits.
Why? Your goods must enter (i.e., be declared) the EU via the country in which your Representation is based. Thanks to its geographical position and the port of Rotterdam the Netherlands are already beneficial for many businesses.
Secondly, and most importantly, you do not need to pay any VAT; neither on imports, nor on B2B sales (for B2C sales VAT is paid by consumers anyway), so this will be a huge advantage in terms of cash-flow/liquidity.
Thirdly, it works efficiently; with their infrastructure, their legislation, their Anglophile business culture, the highest proportion of English speakers in mainland Europe and the sheer number of logistics providers the Netherlands have quite rightly proven to be the number one choice as a hub for cross-border trade with the EU – and beyond.
Importer of Record services
For compliance reasons you would also need an EU Economic Operator (also called Representative for the new Market Surveillance and Compliance Regulation or EU Responsible Person service – for EU Regulation 2019/1020).
However, these new legislations (mainly affecting online sellers) will only come into force as of 1st July respectively 16th July 2021, so we will deal with these in due course.
Why bother incorporating in the EU?
So, if the IoR services offer everything you would need for goods trade, why bother incorporating in the EU at all? Mainly for two reasons:
Firstly, compliance. If you sell goods that require labelling (e.g., packaged food and drinks) or a CE mark (e.g., toys, electronics or medical equipment) and do not want to make yourself dependent on a distributor or agent (i.e., a person or organisation that brings the products into the market) you would have to establish an EU company.
Along with it you would need a place of business (in most cases a virtual office will be sufficient) and the services of chartered accountants in the EU. All of this can be managed from the UK.
However, apart from the legal aspects the greatest value in setting up in the EU is to be in the EU. For many EU businesses this move will be the game-changer and the premise to a successful future trade with them.
Set up shop in Europe
This leads us to the quest for the best country to set up shop. Again, the Netherlands flag up as being a top contender for your EU company as you will enjoy the same benefits as above. In addition, a Dutch Limited (called B.V.) works quite like a UK Ltd and can be founded without share capital.
However, your Dutch company needs ‘substance’, i.e., unfold real business activities, to be sustainable. And there are two good reasons for it. Since the Dutch provide us with such an excellent business environment it is only fair to pay corporation tax in their jurisdiction – which proves to be yet another advantage: Their corporation tax rate is 15% (as of 1. April 2023 we will be paying 25% in the UK), so this works out as a nice tax saving exercise. And: Once your Dutch taxes are paid you can – thanks to a bilateral UK-NL taxation agreement – transfer all funds to the UK tax free.
You see, there is no reason to get mad, if there are plenty of opportunities to get savvy. And who knows, by proactively using these tools you might even beat your competition to it and come out as the winner.
All it takes is that first step: Find the right partners in the EU to work with.
Trade with Europe Ltd provides one-stop solutions for UK businesses to export and grow European markets. Circumvent trade barriers and manage your EU trade from the UK with only minimal disruption to your everyday business.