Contrasting trends on investment and taxation, but the need for a new Swiss/UK trading relationship trumps all.
Analysing the UK investment market, from Zurich, enables me to view the issues, without having any skin in the Brexit game. Being neither in the UK, nor in the European Union – whilst providing a service to companies in both geographical entities – allows me to take a dispassionate look at the situation.
I run LPX Group, a firm which analyses alternative assets and provides indices for the Private Equity and infrastructure markets and can see how the market is responding and moving, driven by realities, hopes and fears. Here are some macro trends that have become evident.
Firstly, when it comes to fundraising activities, there is little concern in the UK market. Inward direct investment into the UK economy grew at a healthy 6% last year, however, Germany and France are slowly catching up. Manufacturing inward investment is up by 17% so there are no worrying Brexit-related trends to be found there – funding is at record levels
On currency and investments, Brexit has a positive impact because it makes it cheaper for foreigners to invest in the UK. It is already apparent that UK-based firms have been using the window between the referendum and the formal date of departure to increase investment into the EU, with a 35% rise in UK capital being invested in this way. The implication is that UK business is preparing to ride any possible storm, essentially ignoring the political headlines and getting on with doing what it does best: judging risk and applying those judgements to the real world.
Additionally, exporting companies profit because it makes their products cheaper. Tourism is booming and UK citizens are tending to take more ‘staycations’ and holidaying in the UK.
However, in the field of taxation, there are concerns. This is a point where Brexit could have a huge impact on investors, especially entrepreneurs (particularly those with origins within EU countries). Some countries in the EU have so-called ‘taxes of capital appreciation’ on taking up residence abroad, or, taxes on controlled foreign corporation (CFC rules). Historically, there have been major disparities in taxes paid by nationals and non-nationals on Capital Gains for example, (in France tax rates on foreigners was 33% and in Spain 35%) but due to European Court of Justice rulings these differences have been quashed in favour of the non-nationals as long as they were EU citizens.
There are usually some relaxations when investing or taking residence inside the EU. But Brexit could put investors/entrepreneurs living in the UK, but originating from another EU country, in a position where they may be forced to sell investments or move from the UK, complicated by a lack of clarity in post-Brexit movement rules.
As for where I live, the relationship between Switzerland and the UK is in many cases based on the bilateral agreements between EU and Switzerland. Brexit puts the relationship between Switzerland and UK at risk. There is nothing investors can do in this case – they have to rely that Switzerland will find an agreement with the UK.
Dr. Michel Degosciu is founding partner of LPX AG which is a specialist in analysing alternative assets. Before co-founding LPX in 2004 he conducted various studies on the private equity asset class at the Department of Finance, University of Basel. He holds a master degree with a major in Corporate Finance from WHU Otto Beisheim School of Management and a phd in Finance from the University of Basel.