Last summer’s Brexit vote has put a spotlight on London and speculation is rife as to which European cities could benefit from businesses relocating employees out of the UK. However, our research suggests that no single city is likely to ‘dethrone’ London in the short term, but we will see a dispersal of functions to other cities.
The last six months have seen an abundance of headlines highlighting the property and labour costs involved in relocating staff to cities such as Frankfurt, Dublin, Paris, Amsterdam and Madrid; all seen as potential rivals to London. Paris and London are the most global cities in Europe, and their accommodation and workplace costs reflect their status. At the other end of the scale are Warsaw and Berlin, the cheapest of Europe’s financial ‘hubs’ to accommodate staff in Europe.
However, for organisations committed to locating employees or roles to Europe, incentives, tax and talent will be much higher up the tree than real estate costs. When you compare the corporation tax rates across these six cities, the disparity between them is significant.
Source: KPMG. Savills World Research
Dublin, Amsterdam and London all rank highly in terms of ‘ease of doing business’, compared to Madrid and Paris. Ireland boasts the lowest corporate tax rate in Europe, at 12.5 per cent, which explains why numerous US corporations are attracted to Dublin, and why several companies are likely to have factored a relocation of employees to this city into their contingency plans.
The UK has a corporate tax rate of 20 per cent, which looks attractive, especially when you compare it to Paris, where the corporate tax rate is set at 33.3 per cent, 50 per cent higher than the European city average (25.1 per cent). Germany also has high corporate tax levels of 29.7 per cent and, despite proffering accommodation costs of less than 33 per cent of those of Dublin, it will be difficult to mitigate the sharp corporate tax rate.
Of course, attracting talent will always be a major factor in allocating roles to any cities, and those cities without the breadth and depth of a serious talent pool will suffer.
Nonetheless high taxation rates will act as a significant disincentive to companies and other occupiers and it is unsurprising that Milan’s Municipality is one of several cities flirting with reductions and special tax zones in the city to make it more competitive.
We will now watch to see the impact of the Government’s proposal to lower the UK’s corporate tax rate to 17 per cent in 2020, in an attempt to make London globally more competitive. Could a post-Brexit London in fact become the ‘tax haven of Europe’?
Read more: European Cities