If the UK leaves the European Union (EU) without a deal the UK will no longer be a member of the European Economic Area (EEA).
In certain EEA member states, a company must ensure that at least a proportion of its directors are resident in the EEA. At the moment, some companies may be fulfilling this requirement by appointing directors resident in the UK.
For example, companies incorporated in Ireland, Sweden and Norway have a requirement to have a proportion of their appointed directors resident in an EEA member state (subject to certain exceptions). We have summarised these requirements in this note.
Action should be taken by companies now to ensure that they do not breach board residency requirements on the date that the UK leaves the EU.
There are no equivalent residency or citizenship requirements for limited companies incorporated in Germany, France, Spain or Italy (amongst others).
This is a brief overview only and you should seek your own local legal advice in the relevant jurisdiction if your company may be affected by these requirements. Whilst this note looks at private limited companies, there may be similar requirements for other types of entity and in other EEA member states.
Subject to exemptions (detailed below), at least one of the directors of a company incorporated in Ireland must be resident in an EEA member state. Having an EEA-resident alternate director does not satisfy this requirement.
This requirement does not apply if either the company holds a bond, in the prescribed form, in force to the value of €25,000 or, alternatively, the company applies to the registrar of companies for a certificate confirming that the company is exempt from the requirement to have at least one EEA resident director.
The bond must be in the prescribed form and provide that, in the event of a failure by the company to pay certain fines and penalties (for example, a fine imposed on the company in respect of an offence under the Companies Act 2014), the bond can be used to discharge payment of the whole or part of such a fine or penalty.
The bond must be valid for a period of at least two years and should commence on the date of the event that gave rise to the requirement for the bond.
For Irish companies that currently meet the requirement to have one director resident in the EEA by the appointment of a UK resident director, the bond will need to be in place from the date that the UK leaves the EU (assuming the UK leaves without a deal and the company does not appoint another director resident in an EEA member state).
As an alternative to the bond, a company can apply to the Companies Registration Office for a certificate pursuant to section 140 of the Companies Act 2014 (section 140 certificate) that the company has a real and continuous link with one or more economic activities that are being carried on in Ireland, which, if granted, would exempt the company from the requirement to have at least one EEA resident director. The exemption will apply from the date of the certificate and will last for as long as the certificate remains in force.
In order to apply for this certificate, it would be necessary to obtain confirmation from the Revenue Commissioners that it believes the company to have a 'real and continuous link' with an economic activity being carried on within Ireland. This can be done by evidencing that the affairs of the company are managed by persons from a place of business established in Ireland, or that the company carries on a trade in Ireland.
If the necessary bond or section 140 certificate is not in place, it is a criminal offence not to have at least one EEA resident director and the company, together with every officer of the company in default, may be prosecuted.
For all Swedish-incorporated limited companies, the following persons must be resident in an EEA member state (subject to the exemption detailed below):
- at least half of the board members;
- at least half of the deputy board members;
- the managing director;
- all deputy managing directors; and
- at least one of the persons authorised to sign on behalf of the company.
If a company is unable to meet the residency requirements, an application for an exemption must be submitted to the Bolagsverket (Swedish Companies Registration Office).
The application must include details of the reason the company is applying for an exemption and how the company will organise the board of directors and management (and how this will affect the company's customers, suppliers and authorities).
For all limited companies incorporated in Norway, unless an exemption is awarded (as detailed below), the following persons must be either a Norwegian resident or an EEA citizen residing in an EEA member state:
- at least half of the board of directors; and
- the general manager.
A company may apply for an exemption to these residency and citizenship requirements by submitting an application to the Norwegian Ministry of Trade, Industry and Fisheries.
In anticipation of a "no deal" Brexit, a regulation was issued by the Norwegian Ministry of Trade, Industry and Fisheries in April this year which provides that, in the event that the UK leaves the EU without a deal, UK nationals who reside in the UK or in an EEA member state are exempt from the citizen and residency board requirements. The regulation will remain in force until 1 January 2021 and means that, for the short term at least, there is no requirement to seek an exemption or appoint new directors to the board who would otherwise meet the residency and citizen requirements.
What should companies do now?
There are currently many uncertainties relating to Brexit. What is clear, however, is that if you have a company incorporated in an EEA member state, and directors resident in the UK are appointed to the board of that company to meet residency requirements, you should seek local legal advice in that jurisdiction to confirm if you need to take action before the UK leaves the EU. The exception to this is for companies incorporated in Norway where transitional arrangements are already in place in the event that the UK leaves the EU without a withdrawal agreement.
One solution may be to appoint new directors to the board who will meet the EEA residency requirements following Brexit. There may not however be a suitable candidate to fill such a position and companies will need to carefully consider who they appoint given the duties and responsibilities of directors.
Alternatively, the company may be able to apply for one of the exemptions which will enable the board to remain in its current composition. Local legal advice in relation to any exemptions should be sought as soon as possible given the short timescales before the UK is due to leave the EU.
For further information or specific advice, please get in touch with your usual Shepherd and Wedderburn contact, or any of the local contacts listed at the top of this note.