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The Brexit transition phase is nearing its end – What is next? A little overview

A. Brexit- what now? 

In the last past couple of years, the possibility of the UK to leave the European Union was a popular topic. Now it is for sure that the UK is going out. Since the first of February 2020 the UK is not a member of the EU anymore.

The final exit is planned for 31th December 2020. The reason for this date is, that everyone involved has enough time until the final exit. Which consequences this exit will have on citizens living abroad and on the economic life in terms of international trade should be illustrated in the following article.

B. The role of the UK in the EU

I. The transition phase

The official exit of the UK is on 31th December 2020. Now we are on a transition phase.

First, for the citizens and the entrepreneur will change nothing. The EU-Law is until the exit, applicable law in the UK and outside the UK. This gives the citizens and the entrepreneur time to prepare for the exit from the trade and economic zone of the EU. In order to comprehensively protect the rights of those during the transition phase, the so-called cession agreement was agreed upon. The citizens of the EU and the citizens of the UK should be able to live without problems. However, it is unclear how things will continue for citizens and entrepreneurs. The EU-commission has only drawn up a draft on a partnership agreement between the EU and UK. It was based on three main pillars: the economic partnership, a partnership for foreign affairs and sectoral affairs. Despite this promising draft, nothing was agreed. At the end of the year this transitional phase ends. Great Britain is from the 1th January 2021 no longer a member state. 

II. The exit of the United Kingdom from the European legal system

    The imminent departure of the Kingdom from the EU feels as unnatural in its form as a fracture to a foot bone.

From an economic but also from a legal point of view, the rehabilitation process will take time until everything runs smoothly again. The Brexit thus raises not only political but also economic questions.

1. Internationally operating companies in Brexit

a. Customs Effects

In principle, goods traffic between EU member states is not cleared through customs. The exit of the UK from the EU means also an exit from the custom union. Due to the close partnership between the UK and the EU, the customs clearance of the respective trade in goods depends first of all on the ongoing negotiations on the free trade agreement. In addition to the general procedures, such as the registration of economic operators with the customs authorities, companies that can import and export goods to and from Great Britain should check in advance to what extent existing authorizations have been adapted. In concrete terms, this means the expansion of the district and processing and storage locations in Great Britain. In addition, new permits must be applied for with regard to a depository for the disruption of goods. Furthermore reference amounts for a permit are now also recalculated with regard to the overall security on exit. This is the case if after the end of the transitional period no free trade agreement was agreed and now goods from the UK were covered under the license for a depository if under a common transit procedure, goods were to be delivered to the UK. However, all this can only be taken into consideration if no free trade agreement is agreed under the implementing regulation (EU) 2019/444, and a so-called “hard Brexit” is adopted. In this case, the general customs regulations apply to companies.

b. Decline in cross-border networking in companies

One way often used in the past to switch between the applicable company law of the respective local branches between UK and EU was so-called cross-border merger. Entrepreneurs who had been a little hasty in acquiring a British limited company appreciated this. In principle this led to the fact that a limited could still be converted into a German legal form as part of the so-called ‘Asset-Deal’. All assets and legal relationships of the limited could be transferred to a German corporation by way of a transfer of individual rights. When Brexit becomes effective, this cross-border network will cease to exist. After Brexit, this would no longer possible from now on, which is why cross-border networking would also be a sensible and legally secure procedure after Brexit. If the United Kingdom wishes to remain a close economic partner of the EU, this cross-border structuring process should therefore continue to be offered.

2. British Citizens living in the EU

As mentioned above, the Brexit agreement still allows British citizens in Europe and vice versa to continue their accustomed lives until the UK finally leaves, as they continue to enjoy freedom of movement. At the moment one could speak of a calm before the storm. How the situation will change for those affected will depend on whether regulated or unregulated Brexit is agreed. The latter, that means a ‘no-deal-scenario’, would be devastating, especially for many. In a no deal scenario, a visa may be required for the duration of the stay. This would mean that British citizens who already have their centre of life in Germany would have to go through a visa process. This would then also raise questions of residence law, which would have to be dealt with when a free trade agreement is concluded, especially in connection with the residence law.

C. Conclusion

In summary, it can be said that the Brexit is heading for a wave of problems rather than a predicted relief for the United Kingdom and the EU. The idea behind the transition phase is obvious, but only if it is implemented according to its concept. In retrospect, it can be said that the initially very promising handling of Brexit was extremely neglected after the failed exit extension. This is particularly noticeable in the lack of planning security for companies and citizens. Many do not know how to handle Brexit. Of course, one can say that Brexit is suffering from the ongoing Covid-19 pandemic. However, this should not be the case under the handling of a diplomatic or political decision. Concrete decisions or rather signals can still be sent to companies or citizens during development. In the current negotiations, one is more likely to encounter hardened fronts than the open-mindedness of two familiar business partners. One can only hope, that the Brexit will run as smoothly as possible for everyone involved and that it will be regulated in as much details as possible.

Copyright by Hülya Oruç

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Attorney at Law Hülya Oruç, LL.M.

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