BREXIT ACT

11. February 2019

On March 29th, 2019 it will have been two years since the United Kingdom of Great Britain and Norther Ireland (further only the UK) announced their decision to leave the European Union (further only the EU) following the results of their referendum. A unilateral decision of the British nation to leave the EU led to the invocation of Article 50 of the Treaty on European Union in March, 2017, and thus, the EU is for the first time in history facing the dissolution of a relationship with a member state that has so far been an important one. In accordance with Article 50 of the Treaty on European Union, the two-year period began in which an agreement should be arrived at as to the conditions under which the UK shall leave the union and as to the relationships between the countries. When this period ends on March 30th, 2019 0:00 (CET, the UK becomes a so called third country and will no longer be subject to the EU's primary and secondary law.

A draft of the Brexit withdrawal agreement proposed a transition period which was agreed on at a special meeting of the European Council on November 25th, 2018. During this transition period (March 2019 to December 31st, 2020), the UK shall have the status of a third country but at the same time shall remain a member of the single market and the customs union. This would mean that while the UK continues to be bound to the rules of the EU and to fulfil the obligations of international treaties of the EU, British representatives lose the right to vote.

The current state of affairs makes a no deal Brexit (also called unregulated or hard Brexit) seem more and more likely, which is why the Committee for EU asked the Ministry of the Interior to draft a Brexit Act. This temporary bill provides measures with which the Czech Republic can bring to the minimum some of the negative effects that a Brexit without a deal would immediately cause. The absence of any such legal provision whatsoever for the transition period would endanger the approximately 5 thousand British citizens at the Czech labour market who would become third country citizens overnight and would lose the right to profit from the privileges guaranteed for citizens of the EU. It is expected that in such case the UK would take a similar stance and without any further agreements would apply stricter rules to the approx. 40 thousand Czech citizens who reside in the UK and would find themselves there on the critical day of March 30th, 2019. To avoid this situation, the Czech Republic has adopted this temporary bill which deals with questions related to the Czech residence of British citizens, their access to the labour market, public health insurance, existing pensions, building savings accounts, and also status of students, academic staff, and the questions of direct tax or recognition of qualifications. It is necessary to mention, that the bill (if it is approved) will take effect only if the EU and the UK do not reach an agreement, or alternatively will only stay in effect until such an agreement is agreed upon.

In order to provide legal certainty to British citizens and their family members, the Brexit act allows them to work here legally without a permit, employee card or an EU Blue card up until the end of 2020, if they have a working contract signed before the date on which the temporary legal provisions take effect. During the transition period, these citizens will have enough time for arrangements to receive the necessary permits which will allow them to work in the Czech Republic as third country citizens.

For the purposes of meeting the conditions for eligibility to state unemployment allowance the time period of insurance, employment or self employed activity in the UK will be viewed as a time period of social insurance as per the intranational legal provisions.

Furthermore, British citizens and their family members shall stay eligible to parental allowance, child allowance and care allowance, if they became eligible before the date this bill takes effect, i.e. March 30th, 2019.

Regarding the tax obligations during the taxation period that includes the day on which the UK leaves the EU, persons subject to income tax who are tax residents of the UK will be treated as tax residents of a member state of the EU. Thus, if the taxpayers meet the given conditions, they will continue to be able to apply the non-taxable part of the tax base and tax credits. A different approach will be applied in the case of tax collected by withholding according to a special tax rate, in which case the UK will be treated as a third country from the day it leaves the EU.

For the purposes of tax for tax non-residents of the UK, the UK will be treated as a member state of the EU until the taxation period during which this bill loses effect.

These temporary provisions aim to regulate the mutual relationships so that they can remain as similar to the way the are now as possible regarding the free movement of persons and to provide a smooth transition into the regime for third country nationals. The relations between the Czech Republic and the United Kingdom will be regulated by this special Act until a withdrawal agreement between the EU and the UK takes effect, however, the last date this bill will be effective is December 31st, 2020.

The draft was passed by the Chamber of Deputies during its first reading on 23 January 2019. The senate passed the Brexit Act on 27 February 2019.

Šárka Veselá, Soňa Hanigovská

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