Hard brexit: global mobility considerations for cross border financial services

However, what are the potential global mobility (GM) consequences of this for financial service providers, and what steps can be taken to prepare for this?

Context – Loss of EU passporting rights and GM impact

At present UK financial service (FS) providers can provide financial services in the EU through the EU passporting system as a result of the withdrawal agreement.

In order to continue providing these services after 31 December, many UK FS providers have transferred relevant activities to existing EU entities or have set up corporate vehicles in the EU to provide these services.

In order to facilitate this, FS providers have moved, or are planning to move, a number of their UK based staff to the relevant EU country. These moves might involve permanent transfers, long or short-term assignments, or remote working arrangements. Each of these options presents its own challenges that employers should consider to ensure compliance and talent retention.

GM challenges –UK-EU movement following a hard Brexit

Transfers & assignments

Immigration – From 1 January 2021 UK nationals working in an EU state will be treated like any other non-EU national. If an employee is not an EU national, then it is likely that they will need to obtain a work permit/visa to work there. These work permits/visas may only be granted to employees working in certain professions, are time limited, and can be expensive to obtain.
Relocation expenses – depending on the nature of the move and the country involved, these expenses may be tax free – but if not, then employers should consider whether to bear the cost of any tax due on these expenses.
Social security contributions and benefits – Subject to any agreement reached between the UK and EU, social security contributions could be due in the country the employee works in (rather than UK NIC). The cost of employer contributions could be significantly higher compared to UK NIC, therefore making intra EU-UK moves more expensive.
Net pay – differing tax and social security rates in EU countries mean that the net pay employees receive may vary significantly compared to their existing UK remuneration package. These differences may be exacerbated by the different rules applicable from 1 January 2021. Employers should consider the impact of this on their employees, and what measures that they might take to address any employee concerns.
Cost of living and housing – Employers should consider compensating employees for any cost of living differential, and whether to provide housing support, not forgetting the tax burden associated with such payments.
HR considerations – Employers should weigh up the costs and benefits associated with transferees and assignees vs hiring locally based employees under the circumstances that will be applicable from 1 January 2021.

Remote working arrangements

It may be possible for employees to work for EU based entities on a “remote worker” basis, i.e. from the UK or another country that is not where their employer is based.

This poses the following GM challenges: –

Permanent establishment exposure – where employees live and work in a country that is not where their employer is based, and their employer does not already have a tax presence there, that country’s tax authorities could impose tax on the portion of the employer’s profits deemed to relate to their employee’s activities there.
Employment law – the employee’s contract may need to be compliant with labour law in the country of residence rather than that of the employer, e.g. working hours, pay, holiday and paternity leave.
Employer compliance– It is likely that the employer will need to withhold payroll tax (and potentially social security) in the employee’s home country and to make regular payments and filings to the authorities.

What should employers do?

HR, Finance and Global mobility professionals should ensure that they play a key part of any discussions regarding corporate restructuring arising from Brexit planning, ensuring that key stakeholders are aware of the regulatory compliance and costs associated with recruiting and retaining key talent.
Scenario planning and modelling should be used to illustrate compliance obligations and costs connected to each type of intra UK-EU move.
Consideration should be given to any additional costs that will be needed to support transferees and assignees; for example, tax differentials, relocation costs, cost of living and housing.
Existing policies and processes should be reviewed to ensure these are fully compliant with immigration rules, tax, social security and employment law.
Take necessary steps to ensure tax withholding and immigration compliance requirements.

For assistance in preparing for these changes or any other global employment mobility issues, please get in touch with your usual Mazars contact or:

– Head of Global Mobility – Joe Pilley

– Senior Manager, Global Mobility – Robin Bailey

– Senior Manager, Global Mobility – Sukhraj Kandola