Brexit: How Will it Happen?

MEDIA ROOM

The United Kingdom has taken a united decision (pun intended) to leave the European Union. Whether this is to be considered as a good idea or otherwise will not be addressed in this article.

Technically, the referendum which was held on the 23rd of June is merely consultative and therefore the Government of the United Kingdom (I love the repeated use of the word ‘United’) is under no obligation to abide by it and neither does it trigger an automatic change in Government. David Cameron has in fact stepped down and Theresa May will be conducting the exit negotiations as his successors.

What a lot of people have been asking is how will the exit happen. What we do know is how is this meant to happen legally, however what is meant to happen is very different to what in reality really happens. In fact, recently, Mrs May has said that she would only trigger article 50, until there was a clear UK approach and objectives.

What is meant to happen is that Theresa May will have to invoke article 50 of the Treaty of the European Union. For ease of reference article 50 states as follows:

  1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
  2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
  3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

(sub-articles 4 and 5 omitted intentionally).

What the above says in simple wording is that the formal decision to leave the European Union has to be notified formally to the European Council (something which has not yet happened) and negotiations will then go underway with the view to have a new arrangement with the United Kingdom. The article also provides a time-frame, which is that of two years from the notification (unless an agreement is achieved before).

It is important to point out that during the two-year negotiation period, EU laws will still apply to and in the UK and the UK will continue to participate in EU matters until the date of exit.

In the beginning of July, a UK based law firm filed a case against the UK government to ensure that the Government will not trigger the procedure for withdrawal from the EU without an Act of Parliament. The law firm is stating that for the legal process to exit the EU to kick in, there needs to be a decision from the representatives of the people, in terms of the UK Constitution. It is being stated that to invoke article 50 without the approval of Parliament will be unlawful.

 

Immigration

Immigration was the bone of contention in this referendum therefore it is will remain a sore point. Unfortunately, the immigration which was heavily debated was the immigration coming from mainly poorer states, individuals seeking a better quality of life, either due to the economic reasons, persecution, or even war. The immigration which will affect the readers of this article will be different. We are here going to debate the free movement of person within the European Union, one of the pillars on which the Union was build.

How many of you know of individuals who have studied in the United Kingdom, or were posted there for a short span of time or simply sought to work there as experience? Then on the other hand how many of you know of Brits who have relocated to Malta, either by virtue of a special tax status or to work from here or simply retire and enjoy the wonderful weather? Well, these persons’ lives will change and we do not know how.

It has been indicated however, that EU nations which are already in the UK will retain their current status, however new restrictions may be put in force moving forward. This will bring about other complexities, such as the payment of social security contributions. To date EU nationals (including the British) were entitled to work within the EU and carry over the social security by means of the A1 form, a question which we have now is what happens to those A1 forms vis-à-vis the UK? How will someone who carried forward, into or out of the UK access their social security contributions? Will there be a cutoff point?

The sad side of this, is that Brexit will most likely create skill gaps and the effect of this would be the inability to service customers in an efficient way. However, it is noteworthy to point out that it is very unlikely that EU citizens who are already living in the UK will be asked to leave, but it will become more difficult to for EU citizens to move to the UK and vice-versa. Brexit will most probably reduce the attractiveness of the UK’s job market, which is reported to have drawn millions of citizens from other EU countries, including Maltese nationals who may now decide to come back home. This may be considered to be an advantage to countries like Malta, where we have a number of sectors who suffer a labour shortage, such as financial services (in particular funds), aviation and also some aspects of the gaming industry. This together with the Maltese special tax programs will be the perfect opportunity for some to relocate to our sunny island.

What is also sad is that from the referendum results it has emerged that the younger Britons have voted to remain within the EU, they have probably first-hand experience as to how beneficial the EU membership is. So what is their option now? One of the options is to apply for citizenship or residence in another EU country. Another option is to dig up ancestors with an EU descent (not UK) and apply for EU citizenship by decent. Malta similarly to other EU countries does provide for this option legally. There would also be an option to citizenship following marriage and Malta also provides a fact track to Maltese citizenship with the Individual Investor Program.

 

Intellectual Property

A more immediate and evident change which the business man will feel will be that of the registration of intellectual property rights. As things stand when one registers a European Trademark or a Community registered design this would also cover the United Kingdom. Post exit this will not be the case. Also trademarks and designs are registered for a period of 10 years, what will happen with those intellectual property marks which get caught in the middle of this period, that is 5 years before the exit and potentially 5 years after the exit? Will they be covered in the UK? It is expected that the same protection would be automatically granted in the UK, however we still need to see how this will be tackled.

When it comes to patents, the European Unitary Patents and the Unified Patent Court this will no longer be an option for Brits. The same can be said of the OHIM, this TM and Design registration and protection will not cover one in the UK.

 

Corporate

From a company/ corporate point of view, there will be some companies/ business which will be effected more than others. These will be those companies/ businesses which have contracts with territorial restrictions in particular, intellectual property and franchise agreements. This will have a detrimental effect on UK companies which have included in the agreement as territory the ‘EU’. Contracts entered into by EU (non-UK) companies will have less of an effect as long as the target market was not 100% the United Kingdom.

The fact that nearly half of the UK’s export goes to the EU, leaves a huge gap of uncertainty from a UK point of view. From a Maltese point of view only a low % of import and export is in fact trading to and from only the UK and therefore this should not affect us as a country. Also, Malta is one of the Commonwealth States and it is expected that if the UK exits the EU, Malta would still have a preferential position vis-à-vis the UK, the latter being the head of the Commonwealth states.

Multinational companies who have relocated to the UK to have access to the single market, should now be re thinking their options and potentially consider a move out of the UK. Another option which may be contemplated is that of having a UK company re domiciled to Malta. The Continuation of Companies Regulations, 2002, provide for the possibility of “flight” of companies into and out of Malta. To be able to continue a company into Malta, the foreign company must satisfy the following:

 

  • Similar Company – The foreign company must be a body corporate similar in nature to a company as recognised under the laws of Malta.
  • Approved Jurisdiction – The foreign company must be registered for at least one year in a jurisdiction which is not blacklisted by the FATF.
  • Legislation within Approved Jurisdiction – The laws in the country or jurisdiction where the company was formed must contain provision authorising the company to continue in Malta.

 

The three above mentioned points are all possible with respect to UK companies, therefore, making a re-domicile of a UK company to Malta possible, and in view of the Brexit, a good idea.

 

Shipping

The United Kingdom, like Malta is an island nation and like any island nation it would need to make its way in the trading world through buying and selling, this is the reason that there is a shipping industry. In fact, approximately 95% of the UK’s international trade is moved by shipping. To ensure that things remain as they are the UK Government is being urged to enter into free trade deals with trading partners around the world or even the establishment of a Free Trade Commission. However, the question here is how will the remaining EU member states see this? There have already been discussions that a new agreement with the UK will surely not be as favorable as membership. Will the UK be allowed to cherry pick the best aspects of the EU? Probably not! As full members of the EU, the UK benefited from a tariff free trade with the other EU members, and it is highly unlikely that this will remain applicable.

In fact, the effect of Brexit on the shipping industry in the UK will depend very much on the relationship that the industry will have with their partners and the agreements that the UK will manage to negotiate with the different countries, the most important one of which will be the access or otherwise to the single market.

 

Conclusion

The suggested date for the UK leaving the EU is that of 2020, however it would be a good idea for businesses and individuals to use the time before then, to plan their exit from the United Kingdom and explore new areas.

Legally, there will be other ‘minor’ problems for the UK such as following EU Court judgements, the UK will now not be obliged to do that as a final recourse, UK court judges will need to establish to what extent should English courts follow EU judgements. Will London continue to be used a favorite place for arbitration? Was it preferred because it was part of the European Union, or because London is a financial hub? Is this the end of the judicial world as we know it!

What is certain with respect to Brexit is that if the exit happens it will not be any time soon which allows one to plan accordingly both from a business point of view and from a personal relocation point of view.Legal-Services-Malta-Ann-Bugeja

On a brighter note, the aftermath of Brexit from a European point of view, is that it is expected that there will emerge a stronger more united, European Union.

 

About the Author

Dr. Ann Bugeja joined CSB Group in January 2011 where her areas of interest cover Ship and Yacht Registration, Employment Law, Contract Drafting,Residence and Work Permit applications and applications for Special Tax Status.