Everyone has heard the term Brexit, but few have any concrete idea of how the U.K’s planned split from the European Union will impact U.S. companies and investors doing business there. To help you plan ahead, Silicon Valley Bank is bringing together U.S. and British experts to answer your questions. We recently hosted a series of events featuring British consuls general Harriet Cross and Andrew Whittaker, and Stephen Chipman and Katie Davies of Radius, a U.S-based global growth consultant. As one of SVB’s senior currency advisors, I presented my thoughts and forecasts of the currency markets.
Many U.S.-based innovation companies first set up in London because of the availability of a skilled workforce. Now some are concerned that the U.K. talent pool might shrink should Britain adopt more restrictive immigration rules. Radius’ Stephen Chipman suggests that now is the time to prepare “a heat map” of where all of your employees are and chart all aspects of their immigration status, especially new hires. Length of time in the country is likely to be critical in determining if a non-British EU employee can remain in the U.K. British Consul General Andrew Whittaker, based in San Francisco, said the British government is “committed to ensure that the U.K. is a great place to do business.”
2. Managing Foreign Exchange Risk
The British pound dropped in value after June 23, benefiting U.S. companies with a U.K. cost base and those, including private equity and venture capital funds, looking at potential U.K. investments or acquisitions. On the other side, the value of assets and investments denominated in pounds declined.
As Brexit negotiations proceed, we recommend that U.S. companies review their European and U.K. contracts for pricing and other issues, and take steps to manage currency fluctuation risks.
It is my prediction that the Brexit process could take longer than the planned two-year negotiating period, leading to increased uncertainty and volatility in the financial markets during this time. That’s why a currency risk mitigation strategy makes good business sense. Doing nothing and hoping for the best may not be the best strategy.
My analysis reveals that the British economy is actually performing reasonably well (all things considered), and that the EU and the euro may have a tougher time next year, given key elections in Europe.
“At no time has trade and prosperity been more important. Britain remains an outward facing nation and will continue to be an advocate for foreign trade.” – Andrew Whittaker, British Consul General, San Francisco
3. Corporate Taxes and the VAT
One advantage of the current EU single-market is that most goods moving between EU countries have lower VAT (value-added taxes) and carry lower or no tariffs. What might change post-Brexit?
Radius' Chipman says the VAT system in Britain is likely to change and is currently advising clients who don’t already have a VAT registration and plan on doing business across Europe to consider choosing a country other than the U.K. for their VAT registration. In fact, once Britain leaves the EU, it is free to redo all of its taxation policy and that could impact repatriation of profits and withholding taxes on dividends and royalties. The U.K. has already announced plans to lower the corporate tax rate in an effort to cushion any blow from Brexit.
4. Data Transfer Regulations
The transfer of consumer data between the EU and U.S. has been the subject of thorny negotiations for years. Brexit has made many consumer internet companies increasingly worried. For example, Sumdog, an online education company based in Scotland and New York City, raises questions about the impact on data transfer rules.
Brexit makes the U.K. a third party in any EU-U.S. negotiations. Radius’ Katie Davies says that eventually all three – the U.S., the U.K. and the EU – will have to reach an agreement on how to safeguard information transfer. In the meantime, revisions to the safe harbor agreement renegotiated in July between the U.S. and EU – unrelated to Brexit – call for dramatically higher penalties beginning in 2018, and the UK is expected to adopt an equivalent law after Brexit is complete.
We're Here to Help
SVB, the U.K. government and Radius are here to help you and your business master the new challenges created by the Brexit vote. Change is never easy – and many may focus on what we might lose with Brexit rather than how we can benefit from it. Where others see problems, we see possibilities and solutions.
As British Consul General Harriet Cross, based in Boston, points out, while Britain is leaving the EU, “we are not leaving Europe. Britain will remain a close friend, ally and trading partner with our European neighbors and maintain a strong, business friendly environment for foreign investment.” She also predicts that the U.S -U.K. economic relationship will grow increasingly important. The two nations are each other’s largest investors, with trade in goods and services valued at more than $200 billion a year.
Whatever your concerns or questions might be, about regulations, implementation, investment of financial or human capital, currency risk management, strategy or tactics, we are here to help guide you to success in the future – in the U.S., U.K. and EU.
This article is intended for US audiences only.
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources.