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Brexit from an Irish Perspective: Opportunities and Issues

STEP Malta Conference – 12 & 13 April 2018

Hilton Hotel, Valetta, Malta

John Gill, Partner, Matheson

Agenda

1. Overview of Brexit

2. Relocation for Corporates

3. Relocation for Individuals

4. Highlighting immigration

1. Overview of Brexit

Reactions to Brexit

Hard v Soft Brexit

Hard Brexit

Favoured by ardent Brexiteers, a hard Brexit arrangement would see the UK give up full access to the

single market and full access of the customs union along with the EU.

The arrangement would prioritise giving UK full control over its borders, making new trade deals and

applying laws within its own territory.

Initially, this would mean the UK would likely fall back on World Trade Organisation (WTO) rules for trade

with its former EU partners.

The International Trade Secretary, Liam Fox, has said a hard approach would benefit the UK by making it a

global trading nation. He said that "the UK is a full and founding member of the WTO", during a speech in

Geneva last on 27 September 2016

A hard Brexit, however, could see British goods and services subject to tariffs, adding 10 per cent, for

example, to the cost of exported cars. While sectors such as agriculture could lose protections against

cheap imports from abroad.

Leaving the customs union would mean a significant increase in bureaucratic checks on goods passing

through ports and airports. And nations such as the US and Australia have said that reaching a new trade

agreements with the EU would take priority.

Soft Brexit

This approach would leave the UK's relationship with the EU as close as possible to the existing

arrangements, and is preferred by many Remainers.

The UK would no longer be a member of the EU and would not have a seat on the European Council. It

would lose its MEPs and its European Commissioner. But, it would keep unfettered access to the European

single market.

Goods and services would be traded with the remaining EU states on a tariff-free basis and financial firms

would keep their "passporting" rights to sell services and operate branches in the EU. UK would remain

within the EU's customs union, meaning that exports would not be subject to border checks.

Pro-EU MPs argue that maintaining “proper connections” with the EU’s trading arrangements is a matter of

national interest.

However London’s position as a financial hub could be dealt a severe blow if the UK left the single market.

Timeline

23 June 2016 – The UK votes to leave the EU

27 March 2017 – The UK invokes Article 50

19 June 2017 – Negotiations between the UK and EU begin

8 December 2017 – Joint Report issued - EU and UK make “sufficient

progress” on Phase One issues

28 February 2018 – Initial publication of Draft EU Withdrawal

Agreement

19 March 2018 – Refined EU Draft Withdrawal Agreement

29 March 2019 – “Brexit Day” - Deadline for UK withdrawal

31 December 2020 – End of transition period

Draft Text of EU’s Withdrawal Agreement – February 28 2018

168 articles, 118 page long treaty to embody key principles from the Joint Report of 8 December 2017 of the

Commission and the UK on the first three elements of the Brexit negotiations i.e. People, Ireland and Money

Uncontroversial aspect – Citizens rights – follows on from Joint Report – Gaurantee of EU citizens in UK

and UK citizens in EU & effectively will also apply to migrating citizens during the transition period

During the transitional period, the UK will continue to benefit from the Single Market – Customs Union

“Nothing is agreed until everything is agreed” – Donald Tusk, President EU Council

David Davis, the UK’s Brexit secretary, said he “could live with” a 21-month transition period as UK leaves

the EU. Davis told BBC’s Newsnight programme: “I’m not bothered too much about the question of whether

it is Christmas 2020 or Easter 2021.” He said that getting a deal at the next week’s council was “more

important to me than a few months either way”.- 15 March 2018

However, if no agreement is reached, there will be no transition period and the UK will withdraw from the

Single Market and Customs Union

The Norway Option – in 1994 Norway opted to remain in a single European market in goods, capital and

labour but outside from common fisheries and agricultural policies. Also stayed outside EU customs union

to secure its own trade deals elsewhere.

Theresa May comments to first draft of 28 February 2018

“The draft legal text that the Commission has published would, if implemented, undermine the

UK common market and threaten the constitutional integrity of the UK by creating a customs

and regulatory border down the Irish Sea and no UK prime minister could ever agree to it.”

May acknowledged that life outside the EU will be different for the UK, and access to European

markets will be reduced as it will leave the customs union and single market.

“Every free trade agreement has varying market access depending on the respective interests

of the country involved. If this is cherry-picking, then every trade agreement is cherry-picking,”

May said, hitting back at EU officials who tell the UK government that it cannot have the level of

access it has now while not taking on the obligations stemming from the EU market.

May also pledged that the UK would not try to undercut the EU in areas such as regulation and

state aid, an important promise for many EU countries who feared the UK would turn into a

low-tax, low regulation haven.

Language on 19 March more conciliatory – Theresa May hailed a “new dynamic” while Michel

Barnier said the EU was “crossing a decisive point in this difficult and extraordinary

negotiation”.

Commentary on Revised Draft EU Withdrawal Agreement 19 March 2018

As part of withdrawal text a “backstop” solution for the border between

Northern Ireland and Republic of Ireland, in line with paragraph 49 of

the Joint Report, was agreed.

Under this option Northern Ireland will remain in full alignment with the

EU’s single market and customs union.

A commitment to no hard border.

Alignment between North and South for customs, VAT, energy,

regulations for the production of the environment and governing

agriculture and fisheries.

UK’s Brexit negotiator David Davis “It remains our interest to achieve a

partnership that is so close as that it requires no specific measures for

Northern Ireland”.

The Irish problem

Joint Report para 49 – 3 options for avoiding a “hard border”

2 of 3 options can only be discussed in the context of the future relationship. A protocol has

been included in the draft withdrawal agreement setting out how the third option may be

“operationalised”. A common regulatory area comprising the Union and the UK in respect of

Northern Ireland

Draft Text Withdrawal Agreement - Quite permissive in some respects e.g. allowing Ireland and

the UK to maintain the Common Travel Area and separate arrangements of their own.

Ireland’s prime minister has warned that Brexit threatens the Good Friday agreement and could

“drive a wedge” between UK and Ireland. Leo Varadkar also sought to reassure Unionists, who

fear that his government is using the moment to push for a united Ireland, that he does not

have “a hidden agenda”.

Although its suggested they can make strides on a trade agreement, they need to make

progress on a contentious “backstop” arrangement. Leo Varadkar (23 March) said “it’s our

objective to have the Irish Protocol agreed in June.”

Scepticism that May can negotiate a Brexit deal for trade that is “as frictionless as possible”

and that this can only be guaranteed with some form of customs union

Brexit – How will it affect Business

Brexit & Ireland

Ireland uniquely exposed to Brexit due to

high trade intensity with the UK

Trade costs will increase in all scenarios

However, Brexit has potential to make

financial services sector more attractive:

sector is predicted to expand by 2% (EEA

scenario) and 3-4% (non-EEA scenario)

insurance sector expected to expand

between 1% (EEA) and 3% (non-EEA)

Copenhagen Economics

Relocation of activity from the UK to Ireland

to maintain EU market access will increase

The UK as a competitor for FDI post-Brexit?

Ireland UK (Post-Brexit)

Long standing commitment to 12.5% rate Rate is to reduce to 17% - possibility of further

reductions?

Continued access to Single Market and Customs

Union

Trade arrangements with EU to be agreed

Continue to avail of benefits under EU tax Directives

(eg PSD, IRD, Mergers Directive)

EU Directives will no longer apply but some

equivalent benefits may be available bilaterally

Continue to qualify as ‘equivalent beneficiary’ under

US tax treaties with EU countries

Cease to qualify as ‘equivalent beneficiary’ under US

tax treaties with EU countries

Continue to be subject to EU State aid rules EU intend to include State aid provisions in any Free

Trade Agreement

Continue to be subject to EU tax developments Likely to have more autonomy on tax matters

Brexit: The future

Flux is good for opportunities – for those who have the relevant

expertise!

Future – Brexit means Brexit – The New Norm!

Significant opportunity - One in seven businesses from EU countries

with a presence in the UK have moved parts of their business out of

the country because of concerns about disruption after Brexit,

according to a survey by the UK’s Chartered Institute of Procurement

and Supply (CIPS) (20 March 2018)

Furthermore, 11% of EU companies had moved some of their

workforce out of the UK since the Brexit vote in 2016, the survey of

supply chain managers showed.

2. Relocation for Corporates

“Brexit Contingency Planning”

Access to the Single Market – chief requirement for financial services

companies to relocate as they need to have an entity located in an EU

member state to avail of “passporting”

Pending classification of form of Brexit, business decisions cannot be

made

Regulated industries have been the “early adapters / movers”

Amongst these are financial services companies, asset management

companies and insurance companies, seeking a “passport” facility

Brexit driven legal activity

Timelines for getting authorised within EU results in timing pressure

with respect to decision making

This activity creates an opportunity for Ireland and other jurisdictions

such as Malta

17

Source: Irish Times October 10 2017

Relocating

Possible relocation jurisdictions

Ireland (Dublin)

Germany (Frankfurt)

France (Paris)

Netherlands (Amsterdam)

Luxembourg

Malta?

Key factors in decision making for a Financial Institution

Where are its strategically important markets?

How does the regulatory environment compare?

What is the quality of the infrastructure in possible relocation jurisdictions?

Does it have an existing business in the jurisdiction?

19

Ireland – What Can We Offer?

Ireland – Quick Facts

EU Member State

Common law jurisdiction

English Language

Regulatory framework

Education - Skilled workforce – 52% of 25 – 34 age bracket with third

level education

Demographics

Youngest population in Europe – 1/3 under 25 years old

EU and OECD approved competitive corporation tax rate of 12.5% for

trading activities

Ireland – Quick Facts (cont.)

Investment Company Regime (discussed further below)

Comprehensive DTA’s – 73 in effect

Established FDI platform location

Attractive investment incentives to foreign investors – Industrial

Development Authority / Enterprise Ireland / Science Foundation

Ireland provide grant funding including training grants and employment

grants, subject to state aid rules

Established sources of FDI

Key areas in our FDI landscape:

Information and Communications Technologies (“ICT”)

Life Sciences

Medical Technologies

International Financial Services

Entertainment and Media

Corporate Tax

Competitive Corporate Tax Regime:

12.5% rate of corporate income tax for trading activities

Amortization regime for intangibles

IP Box (knowledge development box) for qualifying IP income –

6.25% effective rate

R & D tax credit for qualifying R & D carried on in Ireland

Holding company regime

Irish Holding Company Regime

Option 1 – Irish Holding Companies

Foreign dividends taxed at either 12.5% or 25% with benefit of foreign tax

credit. This may fully offset any Irish tax

Treatment of the shareholder:

Wide exemptions from Irish dividend withholding tax for a non-Irish

resident shareholder.

No Irish capital gains tax on disposals of shares in an Irish company by a

non-Irish resident, except where the Irish company derives the greater part

of its value from Irish land or Irish mineral rights.

Treatment of the Company:

Capital gains realised by an Irish resident company on disposals of

shareholdings in qualifying subsidiaries are exempt from Irish tax subject to

certain conditions.

Who is here / coming here? – Opportunity

Insurance and Financial Services

In the absence of a soft Brexit, it is difficult to see how UK based

multinational companies will maintain profitability and efficiency if

isolated from the single market. Relocation to other EU countries to

maintain access has and will serve as a practical solution for many.

Twice as many people in UK applying for Irish passports since Brexit –

162,000 last year

Financial institutions expanding their presence in Ireland post Brexit -

JP Morgan, Citigroup, Credit Suisse, Northern Trust, Citadel, Bank of

China

Who is here / coming here? – Opportunity (Cont.)

Ireland as HQ for EMEA operations post Brexit – Bank of America

Merrill Lynch, TD Securities, Kroll Bond Rating Agency

Insurance – Beazley Re, Chaucer

European agencies – European Banking Authority – Paris, European

Medicines Agency - Amsterdam

3. Relocation for Individuals

Executives & Lifestyle relocators

With migrating corporates comes migrating executives

Remittance basis of taxation for personal investment income outside of

Ireland

Importance of pre-entry planning

Capital Acquisitions Tax issue to consider

Issues for executives – Remittance basis – Foreign employment

income taxable to extent such income is referable to days worked in

Ireland

High personal income tax rates (Income Tax, PRSI & USC) – personal

investment income position can be managed

Special Assignee Relief Programme (SARP) – Overview

SARP was introduced to make Ireland more attractive for highly skilled

employees who are assigned to work in Ireland

The relief exempts a percentage of the individual’s employment

earnings from income tax above a minimum threshold of €75,000 and

is capped at €500,000.

Other benefits include flights to a person’s ‘home’ jurisdiction and a

specified amount of school fees are provided tax free.

SARP - Basic Conditions

The employee must have been for the whole of 12 months immediately

before arrival in Ireland, a full time employee of the relevant employer

company and exercising the employment duties for that relevant

employer outside Ireland.

The employee must work for a minimum of one year and a maximum of

5 years and cannot have been a resident in Ireland 5 years prior to

their arrival

SARP - Tax Benefits

The employee must have taxable income in excess of €75,000.

The formula to calculate basic relief is (A−B) X 30% where

A is the total remuneration of the employee and is capped at €500,000

and B is €75,000.

The maximum tax relief amounts to €127,500 and therefore saves

€51,000.

There is no requirement for the money to be spent on a specific project

and remittance is allowed.

Other Benefits

Flights

SARP exempts the reasonable costs associated with flights to their

‘home’ jurisdiction. One return trip per annum for the employee, spouse

and children can be paid for by the employer tax free.

School Fees

An exemption of up to €5,000 in respect of school fees can be provided

for each child of the employee. These fees are exempt from all taxes

including social security. Any primary school, post primary school and

all international schools established in Ireland qualify for the

programme.

Dual Contracts of Employment

Where an individual will be working both in Ireland and outside of

Ireland and is not domiciled in Ireland, it may be possible to engage the

individual under dual contracts with one contract covering the

employment duties to be carried out in Ireland for the Irish established

business and the other contract with the non-Irish business covering

duties to be carried out outside Ireland. This may prove efficient in

certain cases.

Illustration of Dual Contract of Employment

Assumption is the employee is Irish resident and non-domiciled

Irish contract of employment governed by Irish law

Overseas contract of employment governed by non-Irish law. e.g.UK

law

Detailed records are kept regarding Irish and overseas work and this is

used in the allocation of the total remuneration package

Payment for Irish contract made in Ireland and overseas for overseas

contract

Employee

Remittance Basis of Taxation

Ireland offers a remittance basis of taxation for foreign held wealth for

resident non-domiciled persons.

No remittance basis charge

Pre-Entry Planning for Non-Domiciliaries

Segregate clean capital and establish clean capital, income and capital

gains accounts prior to arrival to avoid mixed fund problem

Consider remitting funds into Ireland before arrival

Ensure all foreign investments are held via a non-Irish platform / bank

accounts

Consider selling investments in regulated funds established in an EU /

EEA or OECD / DTA jurisdiction prior to arrival

Re-base assets where possible, including moving foreign currency

from one foreign bank account to another prior to arrival

Remittance basis friendly portfolio

Pre-Entry Planning for Non-Domiciliaries

Possible restructuring of existing companies and trusts prior to arrival

Gift assets to family members to overcome potential CAT charge

Capital Acquisitions Tax – Gift & Inheritance Tax

Residence - key connecting factor

Capital Acquisitions Tax (“CAT”) borne by beneficiary rather than donor /

estate

Charge to CAT arises where:

Donor of gift / inheritance resident / ordinarily resident at date of

disposition; or

Beneficiary of gift / inheritance resident / ordinarily resident at date of

disposition; or

Subject matter of gift / inheritance is Irish situate property

Domicile relevant for trusts settled pre 1 December 1999

Special concession for resident non-domiciliaries, not treated as resident for

CAT purposes unless they have been resident for 5 consecutive tax years

immediately preceding year of assessment in which gift / inheritance arises

4. Highlighting Immigration

All EU citizens within UK and UK citizens within EU present during up

to and including the transition period will be protected

Special arrangements between Ireland and UK under our Common

Travel Area shall remain post Brexit - reciprocal rights to work and

reside

Non EEA nationals right to work - residence generally linked to

employment permit

Practical Immigration Points on Relocation to Ireland

Free movement for EU / EEA workers and family

Non EEA immigrants may be granted initial permission to remain for up

to 3 months

Permission to remain for more than 3 months will depend on:

Independent source of private wealth

No intention to work in Ireland

Stamp 0 endorsement – low level form of immigration

Residence period under Stamp 0 does not count as ‘reckonable residence’

for citizenship by naturalisation

Employment permit required for non EEA nationals seeking to work

Practical Immigration Points on Relocation

Immigrant Investor Programme

Willing to make investment of between €500,000 and €2,000,000

dependent on investment category

Qualifying investments including Endowment, Enterprise Investment,

Regulated Funds, REIT’s

Minimum investment of €1,000,000, required net worth of €2,000,000

Stamp 4 endorsement

Provides long term right of residence

Requirement to visit Ireland one day a year only during qualifying period

Residence period counts as ‘reckonable residence’ for citizenship by

naturalisation

Benefits of the Immigrant Investor Programme

The residence rights are granted to both the applicant and family

members once the investment is granted and facilitates the applicant in

travelling to Ireland to reside with their family straight away.

The IIP is a more efficient way for high net worth individuals to secure

residence rights in Ireland than an Employment Visa/Work Permit.

The IIP is a relatively straightforward process that obtains long term

residence rights in Ireland without necessarily having to work in Ireland.

Does not confer citizenship

Practical Immigration Points on Relocation

Citizenship

Acquired by one of the following:

Birth - where individual is born in Ireland

Descent – where parent / grandparent of individual is an Irish citizen

Naturalisation – Minister for Justice and Equality has discretion but

otherwise following criteria must be met:

18 years of age and of good character

Continuous ‘reckonable residence’ of 1 year immediately preceding

application

Total of 4 years ‘reckonable residence’ in 8 years preceding application

Bona fide intention to reside in State post naturalisation

Declaration of fidelity and loyalty to State

Take Aways and Relevance to Malta

Pending clarification of the form Brexit will take, it will continue to

present opportunities for those jurisdictions that offer an attractive

alternative

Brexit contingency planning – as much driven by shareholder demand,

not sufficient to adopt a wait and see approach

Key early adopters in the Irish context have been financial services and

insurance companies

Ireland plays to its strengths – has advantage of a well established FDI

platform

Must accentuate the positives from both a corporate and individual

relocation perspective

Relevance to Malta

Brexit is part of an overall discussion on FDI

FDI is about creating the right environment for international businesses

to operate in - legal / tax / regulatory / employees / business friendly

Global financial services (asset management / insurance / e-gaming)

are a strong potential growth area for Malta, example: asset

management sector

Asset management sector in Malta €109 billion, Ireland fund industry is

broken down as non-domiciled but Irish administered funds €2.012

trillion and €2.396 trillion of Irish domiciled funds

Relevance to Malta

Post Brexit Malta will be one of only two English speaking EU member

countries

Malta can look to Ireland’s success to grow its own indigenous financial

services sector

Growth rates can be significant, year on year double digit growth in

annual asset management growth (save 2008)

Brexit represents an opportunity to benchmark against best

international practice and strengthen offering

John Gill

Matheson

70 Sir John Rogerson's Quay

Dublin 2

T: +353 1 232 2159

F: +353 1 232 3333

E: john.gill@matheson.com

W: www.matheson.com