The European Union is an appealing market for various business opportunities. It is well-known for its long-term political stability, strategic location, competitive taxation regime, competent workforce, and thriving international community.
Foreign investors and entrepreneurs should take advantage of the globalization wave as this allows them to reach beyond the borders and conquer new jurisdictions that deliver a positive impact not only on businesses but to the global economy over the long term.
An Overview of the European Union
The European Union is an economic and political union among 28 countries that cover much of the European continent. It was inspired by its predecessor, the European Economic Community (EEC) that was created in 1958 that was focused on enhancing the economic cooperation among six countries, namely Belgium, France, Germany, Italy, Luxembourg, and the Netherlands. Since its inception, 22 more countries have joined the cooperation.
It was in 1999 that a single European currency, the Euro, was released. It is currently being used by 19 out of the 27 countries. The European Union has the power to create its own set of laws and treaties among member nations. These laws and treaties are designed to fulfil common actions in various fields , including agriculture, human rights, the environments, foreign relations, and security policies.
Business Structuring and Launch Strategies
At the beginning, businesses need to decide the business structure that best matches their needs and expansion plans in the European Union. Factors that influence the decision of which business structure to choose, including the following:
- Business revenue model
- Tax profile
- Ease of raising debt
- Equity finance
- Available commercial strategies
Foreign investors and corporate entities looking to do business in the EU must consider whether their presence can be achieved through the formation of a new vehicle or acquisition of an established business, such as in the case of mergers and acquisitions.
Raising Financing in the European Union
Each EU member state presents various sets of challenges for investors in terms of raising equity and debt finance. Additionally, the ease with which local financing can be raised is a crucial consideration that shareholders must carefully analyze when choosing a jurisdiction in the European Union.
Foreign investors must also review the local taxation regimes in their prospective countries as many operational decisions are driven by local taxation. Besides value added tax and sales tax, foreign businesses and investors must gain and understanding on how local taxation regimes influence corporate revenues, income, capital gains, real estate securities, and equity incentives. The different local tax relief or treaties must be put into consideration when choosing a country to start a business in the European Union.
Choosing a Business-Friendly Jurisdiction in the European Union
Certain types of EU regulations are applicable on an origin country basis. This means that a business that was incorporated in one member state may take advantage of the local regulatory framework when marketing their products and services in other EU member nations. Therefore, selection an EU member state with an attractive regulatory regime is crucial to further expansion.
Engagements and Talent Management
At-will employment is non-existent in the European Union. Instead, employment contracts prevail across European Union member states. EU employment contracts are subject to several statutory protections for employees. Many of the EU-wide laws are designed to unify the rights of employees across the European Union.
Some of the critical considerations are as follows:
- Immigration riles
- Impact of local taxation regimes on employee stock options
- work council establishment
- Talent acquisition and availability
- Transferring employment rights after an M&A
Protection and Utilization of Intellectual Property
Each EU member country has their own set of IP regime in addition to being subject to EU-wide IP laws and international treaties. It is possible for foreign investors and corporate entities to gain access to EU-wide protection for intellectual property rights, such as in the case of trade marks on single application.
Other critical EU-wide IP issues include the acquisition of employee and consultant-generated IP, licensing, distribution controls, and counterfeiting protection strategies.
Selecting the Appropriate Distribution Model
The use of distributors is commonplace in Europe but regulated by the European Union and applicable in national laws. Agency arrangements may attract goodwill compensation upon termination, while buy and sell distributor models draw antitrust restrictions on pricing controls.
Localization of Contacts
Any foreign business or investor enforcing transactions with European consumers must understand the various consumer law systems in place across EU member nations where customers are domiciled. It is therefore important that consumer contracts are carefully reviewed as a critical part of due diligence.
Data Privacy in the European Union
Countries in Europe by far has some of the most stringent data protection laws in force. There are many complex rules that govern every stage of the data lifecycle that influences when and how businesses can send out marketing, use of website cookies, operating of whistleblowing lines and choice of data center location.
Setting up data centers without following a strict set of protocols or setting up in the wrong country can increase a company to regulatory exposure, resulting in impaired business operations and further growth, as well as deterioration of data assets over the short and long run.
Anti-Bribery Compliance Rules in the European Union
The European Union has established strict rules when it comes to anti-bribery compliance through local laws, with some inspired by OECD rules.
Tax and Duty Implications in the European Union
Given that importing goods from other countries into the European Union involves complete adherence with Custom Union rules, here are the regulatory requirements that foreign investors and corporate entities must earnestly comply with:
Tariff Codes
Refer to the means of categorizing products for the purpose of gathering information on duty notes, applicable protective measures, and external trade information.
Import Duties
These pertain to payables taking into consideration the value of goods, applicable custom tariff, and the origin of goods.
Rules of Origin
This necessitates importers to show evidence of how and where all goods were manufactured, including data from where constituent elements come from. Importers need to prove economic nationality of their products, which means figuring out the total value and where values were added along its manufacturing lifecycle.
Value Added Tax
Also known as consumption tax, refers to charged amount on most goods and services sold across EU member states. The VAT structure in the European Union is harmonized within all members of the European Union.
The primary legislation on the VAT common system in the European Union focuses on unifying the internal legislation of EU countries by creating a common VAT structure, a streamlined assessment system, and minimum rates across EU countries.
VAT is typically assessed on the importation of goods, and usually charged when customers clearance procedures take place in order to be released for circulation.
When goods are imported from one EU country but are intended to be distributed and consumed in another EU country, the former can be placed under a VAT suspensive agreement. Under this arrangement, VAT can be assessed in the country of destination and not in the country of entry in the European Union.
VAT in the European Union is essentially computed based on the taxable amount which includes the value f a product plus import duties and other expenses incurred to the place of destination.
Knowing that the European Union is an appealing market for your products and services, the best way to access this booming market is by setting up a company in your preferred EU jurisdiction. To help you in the decision making process, you can trust premier consulting firm Damalion to help you every step of the way. Apart from choosing the ideal domicile for your company, we have a global service network that can assist you in the process of registering and incorporating a company in your chosen jurisdiction in the European Union. Our network consists of skilled and extensively trained lawyers, accountants, tax planning specialists, and other seasoned consultants. We will help you understand everything that you must know about the pros and cons of setting up a company in different EU countries. Our Damalion consultants are always prepared to recommend the right strategies and solutions to take advantage of infinite possibilities on offer. From opening a bank account, bookkeeping, management, accounting, tax planning, and more, Damalion will be your partner in achieving your long-term goals and objectives. Reach out to our Damalion experts today should you wish to learn more about how to successfully do business in the European Union.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
