With the UK being the most vibrant startup ecosystem throughout Europe, attracting founders from all over the union, and … leaving the EU at the end of the month, there are many uncertainties that might occur. In a no deal Brexit scenario, which is starting to become more and more probable, the European startup ecosystem will experience complications quite quickly.
In a nutshell, the no deal Brexit will affect, rather sooner than later, companies dealing with private data of EU citizens, employing EU citizens in the UK, startup selling digital content, most online service providers, businesses headquartered in the UK using .eu domains, startups that host user-generated content (including reviews), Horizon 2020 funded projects. So pretty much everyone.
The Coalition for a Digital Economy (Coadec), together with UK Tech Cluster Group & Tech Nation have put together a guide to help the startup community prepare and go through the process of complying with the new situation, once or in case the UK leaves the EU without a deal. Although the Digital Single Market framework, which is crucial for online businesses within the union, will continue to apply to the UK too, there are several other aspects and systems that may change. Here are some highlights:
Bye .eu domains
The .eu domains are only for persons and companies residing within the EU, plus Norway, Liechtenstein and Island. UK companies and citizens will have time to migrate all their content on .eu domains till 31st of December 2019. On the 20th of November 2020 all of these domains will be again available for purchase.
It’s important as a company to check whether any intellectual property issues will arise after the change of the domain, e.g. company name, and also to prepare to migrate to a new domain and inform customers.
Hello settlement status & visas
The fact that citizens are free to move around and work in all countries in the EU is about to change. This will affect international startups that have their offices in the UK and employ foreigners, or employ UK citizens in any other EU country. If the UK leaves, EU citizens will have to apply for the European Settlement Scheme by December 2020. Tech talent from the UK will most probably also have to take some actions to be able to work in EU states – the process and procedures, however might differ depending on local legislations. The guide suggests further that due to the change of long-term residency rules visas might be required for business trips and work. Yet, nothing is yet set in stone.
Hard to get your VAT back
This will impact all startups selling digital content from the UK to Europe, and the other way around. Currently startups in this area need to register in the EU wide Mini-One-Stop-Shop (MOSS) portal used to report and remit VAT. The problem – this system was not designed for countries leaving the union, so once it happens, companies from the UK will have to register as non-union members through the system of another EU state.
Digital content traders from the EU may no longer be able to report UX taxes through their national MOSS systems. The cherry: in case of no deal Brexit UK traders will no longer be able to use the EU VAT refund system to reclaim VAT from EU states, and the other way around – for a while this process will remain manual and dependant on 27 different country specific tax rules.
One important steps that companies could undertake is to choose an EU state to register through their MOSS portal as a non-union member.
New data protection rules, just after the GDPR hell?
The data protection and data flows rules will potentially change for companies registered in the UK. Currently, data flows freely across borders thanks to GDPR and other EU regulations. When the UK leaves, it will become a “third country” to the European data protection framework a.k.a startups will have to think of new contract-based legal structures to replace the free flow of data that was taken for granted. Coadec, quoting the UK’s data protection regulators, advises companies to look at model clauses, binding corporate rules, codes of conduct, and certification mechanisms.
What needs to be done is to audit the data transfer from the UK to the EU, determine whether a legal representative is needed in the EU, update privacy notices for customers, etc.
Another look at your business information
For every startup in the space of “information society services” where most of the online service providers are, there’s the E-Commerce directive. It basically says the information and terms that a business needs to display to its customer (regarding their location) is based on the legislation of the country where the company is registered – as long as it’s an EU member. It also says providers are not liable for the users’ posts and reviews regarding their business.
Companies that continue to operate in the EU after Brexit, might have to comply with the laws of each country of operations. This includes displayed information about legal incorporation, online advertising, sales conditions, how users can come in contact with the company, etc. As the UK Government has agreed to maintain the European liability framework, UK companies will continue to not be liable for user-generated content.
Remains to be seen…
The Coades guide also gives some hints about what startups need to do in case they are applying for Horizon 2020 funding out of the UK, or using content to do business with clients in Europe. Yet, whether all these warnings and preparations are needed remains to be seen in the next days.