For corporate groups which may have an Irish registered company, either forming part of, or heading up the group, there are several Irish company law considerations to be borne in mind and which may require action as a result of the UK’s departure from the EU. It should be noted that unless the UK were to apply and be accepted into the EEA, the effect of their departure from the EU is that they are also treated as having left the EEA with effect from 1 January 2021.
Future relationship with the EEA
Following the UK’s withdrawal from the EU on 31 January 2020, the UK ceased to be a party to the EEA Agreement between the EU Member States and the three EEA EFTA States. During the Transition Period, for the purposes of the EEA Agreement, the UK continued until 31 December 2020 to be treated as an EU Member State and, therefore, was treated as an EEA country for that duration. However, from 1 January 2021, the UK is a third country with regard to the EEA Agreement – a position that is not affected by the TCA reached between the EU and the UK. Such a position can only be remedied by agreement between the UK and the three EEA EFTA States of Iceland, Liechtenstein and Norway. This may not be a course that the UK chooses to follow as the UK government has already indicated that it does not intend to apply for membership of the EFTA.
Indeed, in September 2018 Minister Lord Callanan said of continued EEA membership:
"Were we able to carry on with membership of the European Economic Area, of course freedom of movement would continue, which I think would disappoint a lot of people who voted for Brexit, while the legal options are not straightforward. It would require the agreement of existing EEA countries and the ongoing agreement and co-operation of the EU, which would not necessarily be forthcoming. I know that the option has been put forward in good faith by a number of people, but I am afraid that the legal and practical difficulties would be considerable. That is why we default to our proposals, which we continue to negotiate on in good faith in Brussels and in other member state capitals."
1. EEA Resident Director Requirement
The Irish Companies Act requires an Irish registered company to have at least one director who is resident in an EEA country:
- Any company that is relying on a UK resident director to fulfil this requirement will need to consider whether that director should be replaced with another director who is resident in an EEA country
- Alternatively, a bond can be obtained from an insurance company which would pay fines or penalties incurred under Irish tax or company law up to the value of €25,000 over a two year period
- A company could also obtain a certificate from the Irish Registrar of Companies to state that the company has a real and continuous link with an economic activity being carried out in Ireland on the basis of the Irish Revenue Commissioners being satisfied that this is the case.
2. Irish subsidiaries exempt from filing individual entity financial statements with the Irish Companies Office
Where an Irish company is a subsidiary undertaking of a holding undertaking which is established under the laws of an EEA country, the Irish subsidiary may not be required to file its individual entity financial statements with its annual return at the Irish Companies Office.
Certain conditions must be fulfilled in order to avail of this filing exemption, including the requirement that the holding undertaking gives an irrevocable guarantee of the subsidiary’s liabilities included in its financial statements for the whole of that financial year. The scope of this guarantee was recently expanded in the Companies (Accounting) Act 2017 to include “commitments” in the financial year as well as liabilities. However, this filing exemption is only available where the holding undertaking is incorporated in an EEA country.
Groups who do not want commercially sensitive information on their Irish subsidiaries to be publicly available may want to look at options such as having another EEA parent in the group guaranteeing the subsidiary’s liabilities or preparing and filing abridged financial statements on the basis of qualification as a small company.
There are further considerations to be borne in mind where the Irish subsidiary is also a holding company and had been relying on the size exemption from preparing and filing consolidated financial statements. The Companies (Accounting) Act 2017 has decreased the size thresholds which must be met in order for a holding company to qualify as a small group. As a result, it is now only a small group which can avail of the size exemption from consolidation. A group that previously qualified may not be able to avail of this consolidation exemption. In other words, unless the group qualifies as a small group (see table below for criteria to be met), consolidated financial statements may be required to be prepared and filed at the Companies Office which could increase the extent of potentially commercially sensitive information on public record.
Qualifying Criteria for a Small Group. Two out of the three criteria must be met for at least two consecutive financial years
</= €12 million
Balance sheet total
</= €6 million
Average number of employees
3. Irish Stamp Duty Relief
A relief from liability to Irish stamp duty can be claimed under Section 80 of the Stamp Duties Consolidation Act, 1999 (as amended) in the case of a reconstruction or amalgamation involving the transfer of an undertaking or a transfer of shares. There are several conditions to be satisfied in order to qualify for the relief, key amongst which is that the acquiring company must be an EU or EEA registered company.
By virtue of the Brexit Omnibus Act 2020, an acquiring company, for the purposes of a section 80 relief claim, can be a UK incorporated company.
4. Some Other Considerations
- The Irish Companies Act permits an Irish registered company to change its financial year end date once in every five years. However, this restriction does not apply in the event that a change in financial year end by a subsidiary or holding undertaking of another EEA undertaking is to align its financial year end with that other EEA undertaking. Post the UK’s exit from the EU and EEA, this could have practical consequences, for example, for an Irish company that has been recently acquired by a new UK parent.
- A UK company that has a sufficient presence in Ireland will have registered as a branch of an EEA company. However, as the UK has ceased to be part of the EEA, the branch registration will have to be changed to that of a non-EEA company.
- The UK's exit from the EU impacts the information that UK Companies House requires in relation to EEA companies who have registered UK Establishments (branches). Irish companies that have established a presence in the UK and that have registered under the UK's Overseas Companies Regulations will be required to provide, for example, details of the Irish company's purpose and details of issued share capital by 31 March 2021.
In the context of the implications for Irish registered companies who place reliance on the fact that the UK is a member of the EU / EEA, failure to act will likely result in a breach of Irish company law or having a corporate structure that is not ideal. Directors of Irish companies should examine all associations with the UK now to determine what action is needed.
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If you have any queries on how Brexit will affect your business, please get in touch with our dedicated Brexit Response Team.
Brexit deal agreed: Sections
- Business Impact and Planning: In Ireland
- Business Impact and Planning: In Northern Ireland
- Suggested Business Planning Framework
- Key Dates to be aware of
- The Trade and Cooperation Agreement (TCA)
- The Withdrawal Agreement
- The Northern Ireland Protocol
- The Brexit Omnibus Act enacted in Ireland
- VAT and Customs: The Rules of Origin
- Key VAT and Customs actions for Irish businesses to take
- Key VAT and Customs actions for Northern Ireland businesses to take
- An explanation of the key VAT and Customs measures
- Impact on employees' mobility – immigration and social security
- Impact on Financial Services
- Impact on Services
- Impact on Data movements
- Impact on Direct Tax matters
- Impact on some Company Law provisions