Baltic Investment in the UK: Instability Presents Opportunities

Brexit has put much of the Baltic investment in the United Kingdom on hold. That comes as no surprise, given the post-Brexit uncertainty and consequent market volatility. Despite a number of inconveniences such situation presents, some opportunities that have arisen must not be overlooked. There are ways in which Baltic investors, particularly new investors, might benefit and this note seeks to highlight them. 

The pound and interest rates

The sharp decrease in the value of the pound can save you up to 10% of the money needed to make the same investment three months ago. Given the measures recently applied by the Bank of England (BoE), namely quantitative easing and interest rate cuts, we can well expect the pound to remain bellow 1.20 to the euro.

The BoE has cut interest rates from 0.50% to 0.25%. We can thus expect greater lending availability. More liquidity in the markets will, in turn, be a contributing factor keeping the pound low, coupled with market expectations. The cut has brought the BoE's benchmark rate below the Fed's (first time since 2007) - which lifted it from 0-0.25% to 0.25-0.5% late last year. Rates could be as low as 0% by the end of the year, according to the BoE's MPC.

Although the pound is unlikely to suffer losses of cataclysmic proportions, such expectation means that the value will remain low for 5-8 months. Thus, the cost of the initial investment in euros will be much lower and generous loans will be readily available. 

Commercial real estate is cheaper

Coupled with savings stemming from cheaper pound comes cheaper real estate.  The uncertainty in the markets lowered the commercial real estate prices, meaning that a London office would no longer cost a Baltic business an arm and a leg. Moody’s anticipate a drop of up to 10%. For those wishing to establish themselves physically, this might be the best time to do so. The opportunities in pro-European Scotland, particularly Edinburgh, must not be overlooked either. 

Deploying employees from continental establishments will no longer be cheaper

The amendments to the Posted Workers Directive 96/71/EC, will be coming into force, aiming to ensure equivalent wage conditions between posting and local companies in the host country.

We can expect changes in remuneration of posted workers, including in situations of subcontracting, rules on temporary agency workers, and long-term posting.

Posted workers will be covered by the host country rules governing pay and working conditions. Until now the employers were not obliged to pay a posted worker more than the minimum rate of pay set by the host country. This meant that companies could save on their payroll, since posted workers could be remunerated less than local workers for the same job.

The reform is not limited to the minimum rates of pay, but also touches upon other elements such as bonuses or allowances.

The amendments also ensure that national rules on temporary agency work apply when agencies established abroad post workers.

Most importantly, if the duration of posting exceeds 24 months, the labour law conditions of the host Member States will apply. 

Regulatory arbitrage

The ‘bonfire of regulations’ rhetoric of the Leave campaign is indicative. That, in turn, can put UK-based subsidiaries to good use, especially tax-wise. The United Kingdom, in all likelihood, will be gradually turned into regulatory haven. A subsidiary in the UK might (and can) save a business more than it costs, if used wisely. 

Easy establishment

It is already quite simple to establish a company in the UK. By comparison, the process takes 30% less time than in Latvia, Lithuania or Estonia and, in some cases, can be cheaper. Basic business structures can be easily established by the entrepreneurs themselves. For more complex structures or new entrants, agency services are widely available, including those of Gencs Valters associates in the United Kingdom. 

/Lukas Šimkus/

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