Free Zones: Brexit Security for British SMEs
Britain’s decision to leave the European Union was the beginning of the end of an era of unified political and economic purpose among European nations that began after the Second World War. Today, almost a year on from that decision, the actual end of that era is not much closer, political chaos, and economic turmoil prevail, and the only certainty surrounding Brexit at this point seems to be uncertainty.
Markets, and the companies that operate in them, abhor uncertainty. As such, It is only natural that in an environment where currency valuation, customs and excise rules and regulations and
even access to your customer base could change from one day to the next, companies – particularly small and medium size enterprises (SMEs) – are beginning to seek other options to a UK base.
Tim Sarson, tax partner at KPMG, has spent a great deal of time and energy analyzing the possible impact of Brexit on his clients, and concludes that many of them are indeed getting itchy feet in the UK.
“Brexit impacts different industries in different ways. It does look as if the UK will end up with customs or border tariffs and that makes the UK less attractive as a hub for companies who consider their UK businesses to be a European base,” he says “Where companies think they may now have a supply chain problem, one response might be to ensure they have a fallback option within the EU, so that could lead to locating an office in Ireland or Holland, for example.”
Free zones present an attractive option for companies looking to relocate outside their primary jurisdiction, as they tend to offer advantageous tax regimes, helpful business setup programs, and a ready-made community of like-minded entrepreneurs on hand to advise and to trade with.
“Companies tend to use free zones in places like the UAE or Singapore or those in Latin America, when they want logistics hubs for a particular region,” Sarson says. “One of the things that Brexit has done is to force companies to really think more widely about their location. Brexit has been the trigger for discussions about where companies should locate shared services, where their headquarters should be, and what their international supply chain looks like.”
The uncertainty of Brexit is perhaps counterintuitively leading SMEs to take greater risks than they ordinarily would, and to take the leap into geographical diversification. “Businesses are realiZing that it could be less risky to diversify and not be entirely dependent on one country or region,” Sarson says. “For instance, in the university sector this has been one of the responses to Brexit. A university we are advising is considering setting up a new campus in either the UAE or Singapore because they want to tap into new sources of income, attract new students and have identified the Middle East and Asia as places where they want to have a presence.”
Dubai, with more than 30 free zones including DMCC, named Global Free Zone of the Year for the past two years, is enjoying a particularly strong flow of British SMEs seeking to broaden their global reach as the uncertainty of Brexit persists.
“There has always been a steady flow of companies looking to set up in Dubai because of the region itself and the access it gives to the Gulf Cooperation Council,” Sarson says. “These days it is not just about the tax advantages, because there are other zero tax locations. But also that lots of companies are setting up there as a hub location for the Middle East or the Subcontinent, particularly in oilfield services or commodities. If a company decide on a restructuring or pivot away from say North America and Europe, then Dubai, because of its great flight connections, may well benefit.”