The consequences of Brexit are beginning to be felt across Europe, with more countries implementing changes to their employment laws and tax regimes.
With the departure of Great Britain from the European Union (EU), banks based in London have been forced to seek a second foothold on the continent due to the numerous activities they conduct that are subject to EU financial regulations. As a result, Germany is seeking to loosen the protection against dismissal for certain highly-paid managers.
It is hoped that by easing the protections for well-paid bank employees in the draft Brexit Tax Accompany Act, Frankfurt will be seen as more attractive and competitive as financial institutions consider where to settle in the EU.
In Germany, termination of employment generally requires justification. The implementation of this Act would remove the employer’s burden of justification for certain workers in the financial sector. In particular, ‘significant’ financial institutions would be allowed to terminate the employment relationship of ‘risk takers’ without any reason. The idea behind this change is that misconduct at this level could lead to high losses for the bank, as well as endanger the financial system.
Writing in Lexology, Christoph Crisolli, shareholder at Littler Mendelson PC, explained that it was unclear whether this proposal would be adopted, as although there are advocates in Frankfurt for this change, there is significant opposition from unions (with regard to employee rights) and employers’ associations (who believe the Act does not go far enough).
“The legislature is unlikely to consider the Act before March or April 2019,” said Crisolli. “If the law is adopted, it would come into force presumably around May or June 2019. In any event, we expect the proposal to be introduced early next year.”
There have also been significant changes made in France to encourage financial institutions and employees to relocate to the country. Measures include an ‘inpatriates tax regime’ for those who move to France for professional purposes. This regime will cover an eight-year period and allows any inpatriation premium received during incoming professionals’ stay in France to be exempt from Income Tax.
Other measures outlined in 2018 Finance Act in France include: reducing Corporate Income Tax to 25 per cent; introducing a flat-rate withholding tax of 30 per cent; and, abolishing wealth tax on financial assets and replacing it with a real estate wealth tax. Employment laws have also been reformed to make the country more attractive and competitive.
Luxembourg is another country that has set up tax incentives to lure highly skilled and qualified workers. In particular, relocating costs such as moving, travel, accommodation, school fees and travel expenses for special occasions are treated as deductible operating income for the employer and are not seen as taxable income for employees.
Luxembourg is already a well-establish centre for financial institutions and, as a result, has already attracted 33 companies from the UK as they prepare for Brexit.
