By Sinead Floody, 15th February 2019 (Updated 29th August 2019)
The United Kingdom was set to leave the European Union (EU) on March 29th 2019, that deadline has since been extended to October 31st 2019. All Irish companies that have ties to the UK and UK registered companies should be aware of the following implications that will affect their business. A major implication is that the UK will no longer be a part of the European Economic Area (EEA) and many company structures that were previously defined as EEA company structures will be defined as Non-EEA company structures post Brexit.
EEA Resident Director Requirement
Under Section 137 of the Companies Act 2014, Irish registered companies are required to have at least one director who is resident in the European Economic Area (EEA). Existing Irish companies that have fulfilled this incorporation requirement by appointing a UK resident director should consider replacing that director or adding an additional director who is an EEA-resident. Another option is the Section 137 Revenue Bond.
When an Irish Company does not have at least one EEA-Resident Director, it must take out a Section 137 Revenue Bond which acts as a type of insurance policy against fines or penalties incurred for non-compliance. A Section 137 Bond covers the company for a period of two years at which point the company will either need to renew the bond or appoint a director who meets the requirement.
Please note: This requirement is based on residency, not nationality. For example, a company director of Irish nationality who lives in the UK will not satisfy this requirement.
When the UK leaves the EU on 29th March 2019, any Irish companies with just UK directors will be in breach of Section 137 of the Companies Act 2014 and will need to put a bond in place immediately.
The Exception to the Rule – ‘Real and Continuous Link’
It is possible for the directors of an Irish Company who have no EEA-resident directors to apply to the Revenue Commissioners for a Statement under Section 140 of the Companies Act 2014 which, if granted, will relieve the company from the requirement to hold a Section 137 Bond or to have an EEA-resident director.
The Statement is granted based on the company having a “real and continuous link to the State of Ireland”. The successful company will satisfy one or more of the following provisions laid out in Section 140 (9) of the Companies Act 2014:
- the affairs of the company are managed by one or more persons from a place of business established in the State and that person or those persons is or are authorised by the company to act on its behalf;
- the company carries on a trade in the State;
- the company is a subsidiary or a holding company of a company or other body corporate that satisfies either or both of the conditions specified in paragraphs (a) and (b); or
- the company is a subsidiary of a company, another subsidiary of which satisfies either or both of the conditions specified in paragraphs (a) and (b).
This Statement is granted based on retrospective activity and will generally not be granted to a company that intends to have a real and continuous link to the State. Once the Statement is made by Revenue to the successful company, the Company Secretary can apply to the Registrar of Companies for a certificate that exempts the company from the Section 137 bond requirement or the need to have an EEA-resident director appointed to the board.
Only if the Registrar of Companies in Ireland is satisfied and issues the certificate will the company be permitted to continue operating without purchasing a Section 137 Bond or appointing an EEA-resident director. The above information applies to Irish registered companies, including subsidiary and holding companies. Company Bureau can assist with this application on your company’s behalf.
Individual Entity Financial Statements filing Exemption for Irish Subsidiaries
In some cases, an Irish subsidiary company may not be required to file ‘Individual Entity Financial Statements’ with its annual return. This exemption applies only when an Irish subsidiary company that is held by a holding company that is established under the laws of an EEA country. Under the Companies (Accounting) Act 2017, the holding company must guarantee of all the subsidiary’s liabilities declared on its financial statements. This also includes the subsidiary’s ‘commitments’ in the financial year.
It is important to note that this filing exemption is only available to subsidiary companies held under an EEA-registered holding company. Subsidiaries who are held by a UK company will no longer be eligible for this exemption post Brexit.
Changing Financial Year Ends of Multi-Company Structures
Under the Irish Companies Act 2014, an Irish company can change its financial year end date once every five years. There is an exemption under Section 288 (10) of the Act; when an Irish company is part of an EEA multi company structure it is not restricted, this allows the various financial year end dates of the companies to be aligned. However, after the UK exits the EU a company structure involving a UK company would be considered a non-EEA company structure as such attempting to change to an Irish company’s financial year end within the 5-year period could incur a penalty.
Irish Branch Companies
UK Companies that have a sufficient presence in Ireland may have elected to register an Irish branch company. Before Brexit, this would have been registered as a branch of an EEA company. However, post Brexit the branch will be changed to that of a non-EEA company and will be subject to filing annual returns with the CRO under the external company legislation which is more stringent than that of an EEA branch.
Non-EEA Branches are required to submit a copy of the accounts filed in the country of incorporation and a director’s annual report prepared in accordance with the Accounting Directive 2013/34/EU or IFRS. An auditor’s report is required if the accounts are audited.
Stamp Duty Relief in Ireland
Companies can claim Irish stamp duty relief for reconstruction or amalgamation which involves the transfer of shares when the acquiring company is an EU registered company. This would bring significant stamp duty liability to UK companies post Brexit. UK acquirers may choose to expedite any planned acquisitions to ensure stamp duty relief.
Importing and Exporting Goods
Companies that import or exports goods into or out of the EU are required to have an Economic Operators Registration and Identification (EORI) number. An EORI number is required for customs and other authorities to track and monitor shipments coming into and out of the EU. After Brexit, the UK will be outside the EU and the non-European Union trade rules will apply, this means that all EU registered companies will need an EORI number in order to import and/or export to the UK. For more information on EORI numbers please visit this link Do I need an EORI number?
At this stage, a post Brexit environment is still uncertain and it is important for Irish companies with links to the UK to take steps to prepare for certain eventualities. Whilst it is possible that emergency legislation may address some of these issues in the weeks prior to Brexit, company directors are responsible to take the appropriate steps and ensure the business is compliant with the Irish Company Law implications of Brexit. Company Bureau can assist a company to plan for changes covered in this article. Please contact us today for more information.