It's been three months, and three rounds, since Brexit negotiations formally began on 19 June, and the two sides don't seem to have moved very far from where they started. The EU's Chief Brexit Negotiator Michel Barnier closed the last round of negotiations on 31 August by announcing that neither side had made "any decisive progress" on any of the key issues surrounding the UK's withdrawal from the bloc. David Davis, his UK counterpart, was only slightly more optimistic: "We've seen some concrete progress. ... There remains some way to go."
The last round, like the one preceding it, aimed at reaching some sort of breakthrough on the three major divorce issues surrounding the UK exit from the bloc – citizens' rights, the UK financial settlement and the border between the Republic of Ireland and Northern Ireland – which the EU insists must be addressed before the parties can move on to discussing trade and their future relationship.
It's a tall order, but both sides anticipated they could reach agreement by October. Now, the EU isn't so sure. "The current state of progress means we are quite far from being able to say sufficient progress has taken place – not far enough for me to be able to say to the European council that we can start to discuss the future relationship," Barnier said.
With the clock ticking towards the two-year deadline, UK Chancellor Philip Hammond has set out his ambitions for a transition period after Brexit, "during which the UK and the EU 27 will retain access to each other's markets, and will operate a harmonised customs arrangement". This would avoid asking businesses to face two sets of changes – first in March 2019 and secondly when a new trade deal has been agreed between the UK and EU.
So what is at stake? The EU is a political and economic union made up of 28 member states (for the time being) with an estimated population of 510 million. At the forefront of EU policies are the free movement of people, goods, services and capital within the internal market. If treated as a single country, the EU is the second largest economy in the world in both nominal terms and purchasing power parity (PPP). Its GDP was estimated to be €16.5 trillion in 2016 according to the International Monetary Fund, representing 22.8% of nominal global GDP. EU member states are estimated to have the largest net wealth in the world, equal to 30% of the $223 trillion global wealth.
Many firms will now be wondering whether they can continue to use the UK as the location for their EU headquarters, while for businesses currently without a base in the EU, the uncertainty effectively rules out the UK as a choice until matters are clearer. It is in this context that Malta and Cyprus could be viable alternatives as a foothold in the EU.
The sector most immediately affected is expected to be financial services. London has always been regarded as the EU's principal financial centre, attracting a wide range of global financial institutions and service providers. This was not just to participate in the UK financial market but also to use the UK as a hub to access clients and markets across the EU.
No one yet knows what kind of access to the EU's Single Market UK-based firms will have. But the assumption is that that things cannot remain the same, and UK-based financial services firms are reviewing their options. Indeed, they are obliged to do so by regulators asking how they will maintain continuity of service to their clients in the event of a "hard" Brexit. To guarantee continuity of access to EU markets and clients, they should now be activating their Brexit contingency plans by establishing an alternative EU base in another EU Member State and obtaining regulatory authorisation there.
Both Malta and Cyprus are full members of the EU and are also within the euro zone. They have all the requisite business structures, robust regulatory regimes and have adopted all the EU directives for investment businesses. They also have highly competitive tax systems. By incorporating a company in Malta or Cyprus, UK-based investment managers and financial service providers can maintain their current operations without having to re-locate staff. They would have a fully-EU compliant platform with a European passport to market their services in the EU.
But Malta and Cyprus also have close trading, historical and political ties with Britain. As a result they offer a legal and business environment that is based on common law and British procedures, a high quality of life and wide availability of English speaking staff, many educated at British universities. Indeed Malta is the only other EU country, other than Ireland, that is English-speaking. Both islands also have the benefit of a long-standing relationship with the UK through the Commonwealth and can work collaboratively with the UK to provide a mutually beneficial alternative to other EU locations.
The message is that Malta and Cyprus are keen to work with rather than against the UK. They offer a complementary EU base for UK-based businesses that will enable them to continue operating in the UK while having a foothold in the EU Single Market to passport their services. For UK firms seeking to establish an alternative post-Brexit base in the EU, these are some of the compelling reasons to choose Malta or Cyprus:
- EU member states within the euro zone
- Highly developed financial services sectors
- Highly attractive corporate and individual tax systems
- Legal systems heavily based on English common law
- Highly skilled and educated workforces
- English widely spoken and the primary language of business
- Low costs – both professional and regulatory
- Comprehensive tax treaty networks
- Similar time zones to the UK
- Excellent flight connections to London and major European cities
- High quality of life
- Residency and Citizenship available to non-EU citizens
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