8 Mar 2017

EU registration options for NGOs: Preparing UK-based NGOs for Brexit

A4ID held an event for UK-based development organisations with lawyers from Belgium, Germany, Spain, Ireland and the UK to discuss options for those considering registering elsewhere in preparation for Brexit.

A4ID Guide and Event

On 21 February 2017, A4ID met with representatives from approximately 70 international development organisations to explore the options for registration in Europe as they seek to prepare for Britain leaving the EU.

The event discussed A4ID’s guide on registration options in Belgium, Germany, Spain and Ireland, and practical considerations for NGOs considering establishing a new entity. Registration options in the Netherlands are also set out in the guide.

We were joined by guide authors: Marleen Denef from Curia Lawyers in Belgium; Aliresa Fatemi and Astrid Mayer from Shearman & Sterling in Germany; Elisabeta Perez-Arda from White & Case LLP in Spain and Alice Murphy from Mason Hayes & Curran in Ireland. Stephanie Biden from Bates Wells Braithwaite provided guidance on practical and strategic questions, and Karl Wilding from NCVO spoke about his work relating to Brexit.

Relationship between entity and access to EU funding

A recurring theme during the event was how to ensure any new entity is sufficiently established to meet any requirements for accessing EU funding. One issue raised was the distinction between being a registered NGO in an EU member state and being established for the purposes of some EU funding. The guide sets out how there are some possibilities in the five jurisdictions for establishing virtual offices simply through a registered address or PO box, but this may be insufficient to meet EU funding requirements. For example, eligibility criteria may require the organisation to be established for up to three years in an EU member state, or have a more substantive presence (its ‘real seat’) in the member state, before being eligible to apply for funding.

One suggestion for carrying on the history of an existing UK entity into a new entity in another EU member state was to have the new entity take over the work of the existing entity through a cross border merger. Although it would require a lot of work, it could succeed in managing the challenge. However, this may mean the UK entity is extinguished, which could be undesirable for organisations who wish to maintain a UK presence and activities.

Country-specific discussion points

Some other points that came out during the Q&A with the various country representatives were these:

  • If you already have an office in a country that is simply a branch of a UK entity, you will still need to establish a new entity from scratch to have a true presence (or ‘real seat’) in that country.
  • In Belgium and Spain, the organisation’s activities need to be carried out in those countries in order to be a fully recognised entity. In Spain, it was noted that receiving funds would be sufficient to constitute activities but this activity would need to be managed by personnel on location. In Germany, the entity must have a bank account for money to flow into, but there are no limitations to fundraising being conducted outside of the country.
  • When establishing a new entity, it is important to consider employment law which may vary considerably across countries.
  • Potential advantages of selecting Ireland as a new location are that the legal system is very similar to the English system, and that the Common Travel Area is likely to continue potentially providing easier access than to the rest of the EU.

Organisational considerations

Stephanie Biden made the following points in her presentation:

  • Immigration considerations are important. For example, you may want to consider encouraging non-UK EU staff currently based in the UK to apply for permanent residency now if they are eligible to do so, so that they may stay working in the UK or be able to visit the UK easily once Britain leaves the EU.
  • Organisations must address the structure of the relationship between the UK entity and the new one.
    • There are various ways one can maintain a level of control over the new entity, even if it will need to have a certain level of autonomy and its board will have control of the programmes. In choosing a new entity, you should consider how much control can occur through a corporate structure, and whether the UK entity is allowed to be the sole member (and therefore in a relationship similar to a parent/subsidiary).
    • You should also consider whether the UK entity could have the right to remove and replace the board of the new entity, and how the name of the new entity might be controlled.
    • To regulate the relationship between the two entities it may help to have a formal agreement to state clearly how financial and other information between the two entities is to be shared, and how public funding and fundraising will be managed, and to ensure that both entities are working together to approve the overall budget. A formal agreement would ensure collaboration and state how that process would work, i.e. when to meet and how often.
    • Having clearly defined roles for both entities is fundamental when trying to meet eligibility criteria for funding. When bidding, it should be clear which entity is responsible for delivering what part of the programme.
    • It is also vital that board members share the same vision for the organisation and the direction it is taking, so that a divergence between boards does not become problematic. This issue may be prevented by considering whether some of the UK board members could also be on the new entity’s board, ideally forming a majority if control is to be maintained.
    • The UK entity may wish to provide services to the new entity for a fee, in which case the details should be formally set out in an agreement.
  • When receiving donations, it is important to look at the rules in the country of the donor as to any eligibility for tax exemptions. You should also check whether income coming from abroad will be subject to taxation. Specific eligibility for tax exemptions for each form is addressed in the guide.

Next steps

All of A4ID’s Brexit-related publications can be found on our Resources page. In addition to the guide discussed in this article, there are briefings on the implications of Brexit on contracts and choice of law, finance, tax, intellectual property and data protection. Guides on EU funding and environmental policy will be published soon.

Information on A4ID’s pro bono legal broker service can be found here. To seek pro bono advice on issues relating to Brexit or any other matter, please contact our Deputy Head of Partnerships and Legal Services, Joe Tan.