Many UK businesses have been hit hard by our departure from the EU and are now looking to set up operations in Europe to avoid hefty customs fees and border delays.
Model train maker Hornby and the retailer JD Sports are thought to be among the companies currently looking for warehouse space in the EU.
But it’s not just big businesses that are investing in premises abroad to bypass the profit-sapping bureaucracy and extra costs thrown up by Brexit. About one in five small businesses exports overseas, according to the Federation of Small Businesses, and many are scouting for space across the Channel.
The pros of setting up an EU base
There is certainly far less paperwork and fewer costs for UK exporters, once established in the EU. Once inside the club, there are zero customs formalities and declarations to slow things down, and you don’t have to grapple with the notoriously complex rules of origin to enjoy tariff-free trade.
Frictionless trade within the EU means no customs duty, no border clearance paperwork or delays at ports to worry about. No-one wants to see their goods left spoiling in the back of a stationary lorry just because a form’s been filled in incorrectly.
With a base in Europe, UK firms can also benefit from EU VAT rules so there would be no need to register for VAT in multiple jurisdictions ‘ one is usually enough. In addition, there are no complicated sanitary and phytosanitary (SPS) checks required to protect animal or public health.
Perhaps the biggest benefit of having an EU presence, however, is the promise of more sales. You have direct access to more than 400 million customers who are all following the same set of rules and freedoms.
Being closer to customers means being able to serve them better. Trading with them can continue as frictionless as before. This avoids them having to worry about customs procedures themselves ‘ just for the privilege of importing from you. This is something few EU businesses have an appetite for.
Continuing to trade with you from outside the EU may otherwise require them to act as an importer which comes with onerous registration and compliance obligations, not to mention being charged customs duty and having to deal with import VAT.
The cons of setting up in the EU
But there are also potential downsides that businesses should consider before rushing to acquire warehouse space in the EU.
Crucially, you should factor in set-up costs which could be considerable and possibly prohibitive for some smaller businesses. Then there are the costs and disruption associated with moving employees out of the UK, or hiring new staff from within the EU.
Finding suitable premises or workers can be a lengthy and frustrating process, especially in a foreign country with different languages and ways of doing things.
It also means complying with new rules and requirements for setting up in the EU, which can vary among member states and result in some duplication of tasks.
However, the EU tries to encourage countries to streamline procedures through a single administrative body and register companies through the national contact points )
You can find more advice on this here: https://europa.eu/youreurope/business/running-business/start-ups/starting-business/index_en.htm
Ideally, UK firms should either rent space from an existing operator or turn premises they already have into a customs warehouse.
This would enable you to store goods on EU territory without being subject to immediate import duties. The payment of duties would be delayed up until the point that goods are imported or sold into the EU.
To be authorised, you would need to meet strict customs warehouse requirements and have the necessary IT systems in place to track goods in and out.
Setting up a base in the EU may not be a viable option for some small businesses, however, but there are other ways to reduce costs when exporting from the UK.
You could consolidate goods in one weekly shipment, for example, rather than export items daily to minimise delays and friction. You could store some products in the EU if you have this capability.
UK-based exporters should make sure they work with well established, competent freight agents and carriers in order to clear customs into the UK or EU efficiently.
You should also ensure you have all the registrations to trade with the EU and upskill staff to learn about the necessary customs processes and procedures. There are several free online tools to help you do this.
Use the Access2Markets database of the EU or ROSA, the EU’s self-assessment tool to assist you in complying with the rules of origin. https://trade.ec.europa.eu/access-to-markets/en/content
The UK also has a great support tool, which allows you to check duties and customs procedures for exporting goods. It shows the rules and restrictions, tax and duty rates and what exporting documents you need. https://www.gov.uk/check-duties-customs-exporting
SME entrepreneurs can read more expert advice on low-cost trading with the EU here: https://elitebusinessmagazine.co.uk/global/item/is-there-a-low-cost-way-to-prepare-for-brexit?category_id=208
But if you are thinking about investing abroad, make sure you look at the potential downsides, as well as the benefits, of setting up shop in the EU.