Brexit... Charities

How will Brexit affect the Charities sector's activities in the UK? We look at some possible issues.

If you have any questions about this topic or other Brexit related topics, please get in touch.

What are some of the areas which charities should to monitor as we get closer to 1 January 2021?

What are some of the areas which charities should to monitor as we get closer to 1 January 2021?

Data Protection – If the UK leaves the EU with no deal, or an incomplete trade deal which only covers goods, it will become a ‘third country’ in respect of data. Under GDPR rules, personal data cannot be transferred into the UK as a third country from an EEA country, unless either: (a) the UK is declared to have an ‘adequate’ legal regime for GDPR purposes by the EU; or (b) additional measures are taken by the data importer and exporter to make the transaction legal, for example, by obtaining individual consent to the transfer or having standard contract terms. The UK being declared as an ‘adequate’ legal regime is factored into the UK’s current position in the trade deal negotiations with the EU. However if this is not agreed, it could take months or years to obtain such official status separately. If you deal with individuals based in the EU, or have data-hosting agreements with a company that has servers in the EU, this is something to be aware of.

Contracts – In the event of a no-deal Brexit, many contracts will not work as intended, and so it will be worth doing a wider contract review at this stage. Charities should consider any territorial restrictions, delivery obligations or clauses such as force majeure which may be triggered by Brexit.

VAT – There are unlikely to be significant changes to the current system immediately, but over time however we may see a slightly diverged system develop. For charities, in particular, there are some EU-imposed VAT exemptions, such as cultural admissions and cost-sharing, which the UK government traditionally does not particularly support; these may be challenged or limited in the future.

Immigration – Finally, the end of the UK’s participation in free movement of people is a momentous change. Charities should be sure to encourage any EEA nationals in the workforce to register under the EU settlement scheme before 30 June 2021. Many charities who have never done so before may now need the ability to sponsor visas. We would recommend applying for a licence to sponsor visas as soon as possible.

Should my charity establish a 'sister' charity in an EU member state?

The EU treatment of UK charities post-Brexit is currently unclear. Many charities in the UK benefit from EU harmonisation and freedom of movement. In EU countries UK charities are automatically treated in the same way as domestic charities for tax purposes and qualify for EU subsidies and funding. Whether any of these benefits will have been preserved when the transition period ends largely depends on the deal that is reached, if any. Deal or no-deal, it is likely that there will be significant change to the way UK charities interact with the EU.

For many charities it is therefore worthwhile considering establishing a ‘sister’ entity in the EU. The advantages include eligibility for EU funding, greater certainty that the charity will be able to benefit from tax benefits in respect of donations from EU citizens and the ability to collaborate with and influence other organisations within the EU.

There are a number of EU jurisdictions offering feasible routes to charity registration, and if considering the establishment route to maintain an EU presence, a charity should weigh up the relevant merits of each. We would suggest that Ireland, the Netherlands and Germany are all worth consideration. Then a charity must also decide how to manage the EU entity. For example, will the EU entity be established as a subsidiary; what agreements are need to govern matters such as IP and data sharing; will domestic regulation applicable to the EU entity impact the UK charity?

If you would like to discuss your charity’s options for establishing an EU ‘sister’ charity, please get in touch with Alison Paines or your usual contact in the Charities team.

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