How will Brexit affect the UK economy?

How Brexit will affect Berlin's economy

According to the Berlin Chamber of Commerce and Industry (IHK), Berlin companies exported goods worth 794 million euros to the United Kingdom last year. In contrast to the national trend, the number of exports to Great Britain has risen continuously in recent years. This even applies to the past pandemic year: Compared to the same period in the previous year, exports increased by 15 percent from January to October 2020. In the past year, the British in particular saw greater demand for food and pharmaceutical products. British companies have also stocked up on goods as a precaution for the months after Brexit. Against this background, the German Business Institute, which is close to the employer, assumes that the number of exports to the UK will collapse in the coming months. Orders are not placed where the need is met.

While exports have been stable over the past few years, the effects of Brexit on the Berlin economy can be guessed at when importing British goods: Due to the legal uncertainty associated with Brexit, imports have fallen constantly since the referendum on Britain's exit. While goods worth 571 million euros had been sold to Berlin in 2016, the British only exported goods worth 466 million euros in 2019.

Brexit is causing problems for small companies in particular. The IHK Berlin states: "We receive many inquiries from Berlin companies that sell products or services to private customers in Great Britain via their own web shop, for example." These companies are obliged to register as a company in the United Kingdom, says Anke Fredericksen-Alde, Head of Foreign Trade and Law at the Berlin Chamber of Commerce and Industry: "This was previously only applicable from a certain threshold value, but should now take effect from the first order or the first penny." This is a significant bureaucratic hurdle, especially for small providers Company would be mandated by the British. The same applies to customs law: the movement of goods with the British is to remain duty-free, but since January all goods that are intended for import and export to and from the UK must at least be registered.

Meanwhile, Brexit is not only a problem for companies with intensive business relationships with Great Britain, but also for Berlin companies that have chosen a British legal form such as the Limited (ltd.) Or the Limited Liability Partnership (LLP). In the UK, the law of the place of incorporation applies to a company. In contrast to Germany, the location of the actual business activity only plays a subordinate role. In Berlin alone, 1,030 companies were still registered as limited companies at the beginning of 2020. Some of these companies are regular branches of UK companies. Many other companies, on the other hand, have only used the UK headquarters for letterbox companies.

“Escape” into British law was particularly popular with small businesses in the early 2000s. The cheap share capital of just one pound, the low bureaucratic effort and the low liability risk were attractive to many founders. So it was possible until the end of 2020 that the Späti around the corner officially had its administrative headquarters in the City of London, but continued to sell its beer in Berlin-Kreuzberg. In the event of payment difficulties, the creditors were left behind. What sounds like a big, wide world was, in practice, often associated with considerable administrative costs for the companies concerned. The detour via London did not save the companies from having to report to the British commercial register. The British companies were also rather unpopular as customers of banks and insurance companies if they could not offer collateral beyond the company's assets.

Lawyers valued the Limited Liability Partnership as a form of company nonetheless, even after 2016. In the event of expensive advisory errors, it enabled law firms to only be liable with the company's assets without having to pay corporation tax, as is otherwise the case with corporations. That changed on December 31, 2020. Limited partners are now personally liable. Accordingly, notary appointments at the end of last year were in great demand. At the end of the year, many law firms quickly converted their previously registered company under British law into a German company.