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Impact of Brexit on UK Romanian Companies

Much has been written about the impact of Brexit on the United Kingdom economy but very little has been written about its direct impact on United Kingdom companies and business in the European union. As an international law firm in Romania dealing with foreign investment into Romania, we are seeing a rise in queries from companies as to how Brexit will affect all types of transactions including M&A deals and investments in relation to Romania.

The Trade and Cooperation Agreement set out the way of collaboration between the United Kingdom and the member states of the European Union and now after six months since the Agreement United Kingdom companies are now getting used to the new regimes. However, the Agreement has thrown up a number of issues relating to employment in Romania of United Kingdom nationals in Romania. If you are a United Kingdom investor and have a Romanian company, you need to look as to how that Romanian company will be affected. Further the Romanian company needs to look as to how its relationship with the United Kingdom will affect it.

The first thing to remember is that the United Kingdom companies will no longer be considered as participants in the European union’s single market and thereby benefiting from the free movement of people, goods, and services. Before 2021 there was no issue in respect of the Romanian company having staff seconded to it from the United Kingdom. Now they must consider the terms on which an employee will be sent from England. Theoretically they would be required to apply for a work permit if they were going to work in the Romanian company even for a short space of time. If the employee is coming for a few weeks, we are sure many employees will come into Romania on a tourist visa and work for less than 90 days and then leave Romania. This means that the Romanian company may suffer from a high turnover of United Kingdom staff and the disruption this may cause. If the employee is in Romania for more than 90 days, then a temporary residence permit will be required.

Then there will be the issue of export of goods to the United Kingdom. How will Romanian company deal with its relationship with its United Kingdom parent. Those with exports will now have to consider an export regime which they did not have to worry about before. Any transfer of goods to the United Kingdom will count as exports outside of the European union. This will require a change in the application of VAT and other taxes. The common provisions of the system of VAT, excise duty, or customs formalities will no longer be applicable in relation to all dealings with the United Kingdom. Romanian tax lawyers will now have to take this into account when advising on these aspects.

The funding of the Romanian company may also become an issue. Whereas previously loans from the United Kingdom parent were not an issue as the parties were both part of the European union there is in the future the possibility that the National Bank and the authorities may start to look at transfers to the Romanian company from the United Kingdom in a different light. I am not saying that the transfers from the United Kingdom may be treated as a money laundering issue but that is possible. Banks may also look at transfers and amend their fees accordingly.

Regarding the payments from the Romanian company to its parent in the United Kingdom the Agreement will also bring about a change as the various Romanian withholding tax exemption will no longer be applicable to flows of dividends, interest, and royalties sent from Romania by a Romanian resident subsidiary to the United Kingdom.

Romanian companies may have to look at the medical insurance and the benefit cover which they must supply to their employees from the United Kingdom whilst working in Romania. Whilst the employee may be covered under the Romania state health insurance for many this will not be sufficient. Group medical policies will need to be reviewed to see what cover is not afforded to temporary or even full-time residence under these policies.

Another issue to be considered is the position of United Kingdom nationals who are currently living in Romania based on a Romanian resident permit. Until now when you left Romania there was no issue. Now however the Border officials will check to see if you have overstayed your visa and the time you are allowed to stay in Romania. United Kingdom citizen can overcome this by presenting their resident card, if they have one, when leaving or returning to Romania. If you cannot prove that you have a right of residence in Romania the authorities are entitled to assume that you have overstayed your visa and the unfortunate person may be banned from returning to Romania for some time. It should be remembered that residence in another European union country may not give automatic right of residence in Romania.

As a business law firm in Romania, we are seeing more and more clients who have these questions and require answers following Brexit. The answers must be addressed not based on a United Kingdom company, but how they will impact on the Romanian company from the local Romanian law perspective. Many of the problems have simple solutions and as Romanian business lawyers we are used to addressing such problems. It should be remembered that United States companies and non-European Union companies have been dealing with these issues and to them these are everyday issues. The important thing is to get the correct Romanian legal advice before the problems become a real issue.