The Free Trade Agreement Between the EU and the UK and Its Impact on the Limited Company in Germany

The Non-Discrimination Clause

The EU and the UK have agreed on a free trade agreement.

Of particular relevance to the Limited in Germany could be the non-discrimination clause (national treatment) contained in the free trade agreement. This is found in the German version of the agreement on page 101 and reads as follows:

Article SERVIN.2.3: National Treatment

1. Each Party shall accord to investors of the other Party and to their covered enterprises a treatment no less favorable than the treatment it accords to its own investors and their enterprises in like situations with respect to the establishment and operation within its territory.

2. The treatment granted by a Party under paragraph 1 means

(a) with respect to a regional or local level of government of the United Kingdom, a treatment no less favorable than the most favorable treatment that such level of government grants, in like situations, to investors of the United Kingdom and their enterprises in its territory, and

(b) with respect to a government of a Member State or in a Member State of the European Union, a treatment no less favorable than the most favorable treatment that such government grants, in like situations, to investors of that Member State and their enterprises in its territory.

As a result, protected English companies in Germany must not be treated worse than German companies in Germany.

However, this is provided that they are covered by the protection of the clause.

Initially, the covered enterprises include those that have already been established or are yet to be established.

An enterprise is (see page 98 German version):

- a legal entity

or

- a branch

or

- representation of a legal entity

Legal Entity

Covered legal entities include:

- English Limited

- PLC

- LLP

- Limited by Guarantee,

if these English companies engage in substantial business activity within the territory of the United Kingdom. What exactly constitutes substantial business activity is not defined. Assuming it means revenue transactions as part of the business operations, this may not apply to many English Limiteds with their headquarters or main branches in Germany.

Representation of a Legal Entity

Representations are dependent branches, meaning a facility of a company without its own decision-making authority and usually without separate accounting or financial resources. Therefore, the contract text correctly states: "Representation of a legal entity". Thus, representations are only protected if the Limited engages in substantial activity in the UK. This also makes sense, as otherwise, English Limiteds, although incorporated in the UK but conducting their substantial activity in third countries (e.g., in India), would be protected with dependent facilities in Germany. The majority of English Limiteds in Germany do not fall under the term representation, as they typically establish independent branches here.

Branches

Initially, it is notable that the wording does not necessarily refer to "branches of a legal entity". Hence, substantial business activity in the UK may not be required. This is consistent, as a branch in Germany necessarily has its own management, competence, and infrastructure in Germany and not in the UK. Covered branches are also established with the aim of creating or maintaining permanent economic relationships.

Conclusion

English Limiteds with headquarters or main branches in Germany are possibly covered under the term branch if these branches are operated with the aim of creating or maintaining permanent economic relationships. Additionally, Limiteds are protected if they also have substantial business activity in the UK.

Conclusion: The protection afforded by the free trade agreement to English Limiteds in Germany is likely to be of limited practical relevance for most companies currently. The relevant provisions are vague and poorly articulated.