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Start your business in Europe: Introduction

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Start your

Business in Europe:

Introduction

Mirosława Myszke-Nowakowska PhD, L.L.M.

Text copyright © 2017 Polishbusinesslawyer.pl

All Rights Reserved

Attonery at Law

Mirosława Myszke-Nowakowska PhD

Email: [email protected]

www.e-pbl.com

Would you like to find our more?

Check “How to set up business in Europe’ []

Manuscript completed in January 2017.

Poland © European Union, 2017.

[] Table of contents

Table of contents

1.Introduction – Why Europe?

2.The EU at a glance

3.How to choose the best European location for your business

3.1. How easy is it to do a business?

3.2.1.How Competitive is the particular market?

3.2.2.How free is the Economy?

3.2.3.Could corruption influence your business?

4.Where exactly set up your business in Europe?

5.How to set up business?

5.3. Basic legal options available for a new business

6.The EU business law essentials

More details on business law requirements in particular European States you can find in our e-book: “How to set up business in Europe”. It will help to apply the exact set of legal rules to a foreign investor. When you understand all the pieces of the puzzle, it will be much easier to choose the Member State of the planned investment.

7.The requirements for setting up a business in Europe

More details on business law requirements in particular European States you can find in our e-book: “How to set up business in Europe”.

8.Summary

9.Bibliography

10.Useful Links

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h1<>{color:#365f91;}. [] Introduction – Why Europe?

Functioning as a single market with 28 Member States, the European Union remains an important world trading power. With merely 7% of the world’s population, the EU's trade accounts for around 20% of global exports and imports.

Although, t rade has been seriously impacted by the global recession, the EU is still the world’s largest participant accounting for 16.4% of global imports. The EU is followed by the United States with 15.5% of all imports, and China with 11.9%. The EU was also the biggest exporter, accounting for 15.4% of all exports – compared with 13.4% for China and the 10.5% for the United States.

Doing business across borders normally signifies focusing on the internet and digital technologies that in fact are permanently transforming the world. Europe opens up digital opportunities for people and businesses. A fully functional digital single market could contribute € 415 billion per year to the EU’s economy and create 3.8 million jobs. Citizens should have more opportunities to buy goods and services as well as just shop online from another EU country. The same stays true for Internet companies and start-ups that still are able to take full advantage of online growth opportunities.

Regardless of whether you already run a business or just going to start a new business activity, we provide below some important arguments that without doubt indicate that Europe is a great market to develop your business.

This contribution will help the reader to make a choice and facilitate the establishment of business in Europe, depending on the type of business envisaged, financial resources, the relevant market or the end customer and the target group.

 

 

 

 

The transatlantic economy is the largest and wealthiest market in the world[*:*]

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p))<>{color:#000;}. US affiliate exports from Ireland are 4 times larger than those from China and 3.5 times larger than from Mexico. Other top global export locations are Switzerland, UK, Germany, the Netherlands, Belgium as well as France.

*
p))<>{color:#000;}. 45 of 50 US states focus on export to Europe more than to China. In 2014 Florida and New Jersey each exported almost 8 times more to Europe than to China; New York and Indiana nearly 7 times more.

Total Foreign Affiliate Sales: Estimates for 2014. Source: Bureau for Economic Analyses

*
p))<>{color:#000;}. The US and EU are each other’s most important commercial partners in services trade and investment. Profound transatlantic relations in services industries, provided by mutual investment flows, are the foundation for the global competitiveness of European and US services companies. Europe accounted for 37.6% of US services exports and 43% of imports in 2014.

*
p))<>{color:#000;}. Most employees working for US companies outside the US are Europeans. Both the US and European affiliates employed 8.3 million workers.

*
p))<>{color:#000;}. The Transatlantic Innovation Economy - R&D expenditures by US affiliates were greatest in Germany, France, the UK, Netherlands, Ireland, Switzerland and Belgium. These 7 countries accounted for 85% of US R&D spending in Europe in 2013. (D.S. Hamilton and J.P. Quinlan in “The transatlantic economy 2016…” p. 6)

Source: Bureau for Economic Analyses

As far as UE relations with Canada are concerned, in 2013, the EU was Canada’s most important trading partner just after the US, accounting for 9.8 % of Canada’s total international trade. Canada’s exports to the European Union amounted in total almost $33.2 billion, while the value of merchandise imported from the EU was $53.2 billion. Exports of goods to the EU concerned (given by value): precious stones and metals ($10 billion), machinery ($3 billion), mineral ores ($2.3 billion), mineral fuels and oils ($2.3 billion), and aircraft and parts ($1.7 billion), whereas imports of goods from the EU concerned: machinery ($10.4 billion), vehicles and parts ($6.5 billion), pharmaceuticals ($5.6 billion), mineral fuels and oils ($4.6 billion), and electric machinery and equipment ($3.4 billion).

EU international trade in goods with Canada by main product, 2015

Eurostat 216/2016 – 30 October 2016

Important value in the EU – Canada international trade relations are services. In 2013, Canada exported almost $14.5 billion worth of services to the EU (which is 17% of its total services exports) and imported $17.6 billion worth. 5 years ago - when the latest year for which sector-specific data is available - Canada’s most relevant services export to the EU were: management services ($1.8 billion), research and development (almost $1.3 billion), financial services ($1.3 billion), computer and information services ($1.2 billion), charges for the use of intellectual property ($598 million) and architectural, engineering and other technical services ($675 million).

EU Member States’ international trade in goods with Canada, 2015 (in € million)

Eurostat 216/2016 – 30 October 2016

On 30 October 2016, the EU and Canada celebrated the historic conclusion of the Comprehensive Economic and Trade Agreement (CETA). Once implemented, the agreement is expected to remove most tariffs and create new opportunities for businesses, including SMEs. The benefits for Canadian businesses are expected to be significant, especially for small and medium enterprises.

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[] The EU at a glance

28 Member States are at the core of the European Union. Nevertheless, there is something unique about the EU; namely, although all of the Member States are independent and sovereign, they in fact have decided to delegate some of the decision-making powers to the institutions they have commonly created. As a consequence, the decisions on particular issues of joint interest are actually made democratically at European level. Therefore, the EU is an organization that can be placed somewhere between the federal system of the United States and the solely intergovernmental cooperation model of the United Nations.

As far as establishing business in the EU is concerned, one of the EU’s greatest achievements is the internal market. There are various definitions of the concept of the internal market, however, the fundamental definition is provided by the Treaty on the functioning of the European Union (hereafter: TFEU)

*
p))<>{color:#000;}. The internal market is defined there as an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured (art. 26 TFEU).

*
p))<>{color:#000;}. Other sources describe the internal market as “a group of countries wherein all private economic agents are free to trade, to invest, to offer services, to work and to pay or purchase wherever they prefer. Essential is that all economic freedoms, normally enjoyed in a national market, are extended to the total area of the group.”(J. Pelkmans “Market Integration in the European Community” …, p.154.)

*
p))<>{color:#000;}. The internal market can also be seen as the meeting place of supply and demand from all the Member States without any discrimination by the Member States or the participants in it on the grounds of nationality or any other distortion of competition.

The internal market has got a deep, economic justification: liberalization, which is conducive to the economic growth and competition, better allocation of resources and their more effective exploration: (A.-L. Sibony, A. Defossez “Liberté d’établissement et libre prestation de service”… p. 511)

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p<>{color:#000;}. The internal market aims at ensuring the compatibility of the rules applicable in the Member States concerning conflict of laws and of jurisdiction.

*
p<>{color:#000;}. It offers the opportunity to attain a better overall macro- and microeconomic performance. For instance, producers will profit from it since they will be able to lower costs through taking advantage of cheaper sources of EC component supplies and lower costs of financial services and distribution. (E.Elgar “Free trade, the customs union and internal market”… p.75.)

Fundamental for setting up the business is freedom of establishment that is of decisive importance for the EU. The notion of establishment includes the possibility of pursuing the permanent economic activities in the host Member State, i.e. in other Member State than that to which a company belongs. This may take the form of e.g. a full transition or by setting up an agency, a branch or a subsidiary.

In principle, there is a high level integration between the pursued economic activities and the economy of the receiving country. This implies the host Member State’s responsibility for the regulation of the immigrating company and for sufficient and efficient protection of employees, shareholders and creditors.

Economic and Monetary Union (EMU) represents the real spirit of the integration of the economies of the EU Member States. Within the economic and fiscal policies’ coordination, it involves also the euro as a common currency. All 28 EU Member States participate in the economic union. However, only 19 of them make up the euro area.

The euro currency is the second largest international currency in the world after the United States. Its value, resistance and power of the economy in the euro – area, make the euro more and more attractive also for countries beyond the EU. It is then used in third countries not only for trade but also as currency reserves.

As we already mentioned, the euro is not the currency of all EU Member States. Namely, on the one hand Denmark and the UK applied their ‘opt-out’ clauses in the Treaty that exempted them from participation in the euro area. On the other hand, the remaining 9 Member States are still to meet the necessary conditions for adopting that currency.

The euro area consists of: Belgium, Ireland, Germany, Spain, Estonia, Greece, France, Italy, Austria, Cyprus, Latvia, Lithuania, Luxembourg, Finland, Malta, the Netherlands, Slovakia, Portugal and Slovenia. The Member States of the UE that still keep their national currency and awaits the introduction of the euro zone are (apart from Denmark and the UK): Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania and Sweden.

International trade and business relations are commonly known as having been an engine for global growth. They have a feasible impact on the day-to-day lives of businesses and people around the world and in Europe.

*
p<>{color:#000;}. Member States of the EU have consented to apply a common policy on international investment and trade. As a consequence, this common approach amplifies their power in trade negotiations, maximizing their influence and actual impact.

*
p<>{color:#000;}. In practice, Member States of the EU are represented by the Commission at the world organizations, summits and meetings, for instance at the World Trade Organization (WTO) as well as in bilateral and multilateral negotiations.

In 2013 the EU entered into negotiation of free trade agreements with its two strategic partners: the US (Transatlantic Trade and Investment Partnership (TTIP)) and with Japan. The fundamental goal is to overcome the classic approach of just removing tariffs and to focus on opening markets for trade, services as well for investment.

T aken together, the US and the EU have the largest bilateral trade and investment relationship in the world, that stand for almost 31% of the world trade and over 49% of the world GDP. Taking into account the evolving political and legal personality of the EU, there is a visible trend of active cooperation across number of sectors: cooperation in energy and energy security, justice and home affairs, science & technology, environment as well as education & training.

Most important and intensive economic relationship is the one between the US and the UE. Despite the economic and financial crisis of recent years, the US and the EU remain each other’s most pertinent and valuable trade and investment partners.

As aforementioned, the transatlantic economy is the largest and most integrated economic relationship in the world, as proven by exceptionally unique levels of mutual investment stocks (€ 2.4 trillion). Total US investment in the EU is three times higher than in Asia, whereas the EU investment in the US is around eight times the amount of EU investment in India and China. Therefore, it is clear that investments are the actual and tangible drivers that enhance the economic growth and increase of jobs placements on both sides of the Atlantic.

More than 15 million people are employed by American companies in Europe or by European companies in the US. The transatlantic economic relationship has great potential which still could be exploited to a much higher extent.

Taking into account that the level of the average tariffs is rather low (under 2 %), it is important for the better cooperation to tackle the non – tariff obstacles. They encompass by and large the customs procedures and the border regulatory restrictions. The difficulty to address these barriers lies in the fact that they are rooted in different approaches to regulations, often based on various historic background and political realities.

The economic crisis continues to catch headlines in most countries and regions all over the world, leading to skepticism about the advantages of establishing and expanding the existing business across borders.

While understanding the magnitude of the obstacles the business world is facing, there has been a significant progress made in tackling those difficulties:

At European level:

*
p<>{color:#000;}. A firewall was created as well as financial assistance provided for the Member States most in need;

*
p<>{color:#000;}. System of economic governance has been reinforced;

*
p<>{color:#000;}. The EU is now working towards establishing a true banking union.

At national level:

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p<>{color:#000;}. Member States are taking necessary measures to improve their fiscal position and carry out structural reforms that will boost their growth.

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h1<>{color:#365f91;}. * * How to choose the best European location for your business

When deciding where exactly in Europe it would be most beneficial for you to start your business, you may consider several key factors, such as employment rate, birth / death ratio of enterprises, costs of employment, etc. in a particular European Member State that might be most crucial not only for the statistics but first of all for appreciable profitability and efficiency of the planned business.

Therefore, for your convenience we present below number of schemes and diagrams that should facilitate to make a decision on the final location of an economic activity in Europe. Therefore, in order to evaluate the business-friendly and economic environment worldwide as well as to analyze the conditions of competitiveness, we base the analysis on the following three rankings with each different approach emphasizing a different set of angles:

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p<>{color:#000;}. The Global Competitiveness Index (The World Economic Forum) 

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p<>{color:#000;}. focuses on 12 pillars: institutions; infrastructure; macroeconomics; health and primary education; higher education; goods, labor, and financial markets; technology; market size; business sophistication; and innovation.


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The Index of Economic Freedom (the Heritage Foundation)

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p<>{color:#000;}. captures economic freedom through 10 dimensions: property rights; corruption; fiscal policy; government spending; business, labor, and monetary policy; trade; investment; and finance.

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p<>{color:#000;}. Doing Business Index (The World Bank)

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p<>{color:#000;}. the 10 dimensions cover starting a business, construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.

3.1. How easy is it to do a business?

According to the aforementioned report of the World Bank, the highest ranked European countries in 2016 are: Denmark (3rd in the ranking) followed by the UK (#6) and Nordic Countries: Sweden (#8) Norway (#9) and Finland (#10).

Other European significant economies are ranked a little bit lower: Germany (15th in the ranking), swiftly followed by Estonia (#16) and Ireland (# 17) and then the Netherlands (#28) and France (#27). Then there is a small break and the next in the ranking is Spain (#33) and Italy (#45).

In contrast to most common expectations, Europe’s Great Recession was not that long and in much less painful than in the rest of the world, including the US. It should be emphasized that the most competitive European economies were least buffeted by the recession, showing resilience and stability.

It clearly emerges from that picture that there is a visible increase of competitiveness and ease of doing business. This remains is line with the perception that Europe effectively managed to overcome lingering risks, including the banking tribulations and political opposition toward tighter integration.

The example of Denmark illustrates how regulatory quality and efficiency go together and in fact strengthen each other. The same stays true for the employment flexibility and job quality. The system introduced in Denmark offers flexibility in employing and dismissal rules and provides a strong safety net for workers in the form of social benefits and unemployment protection.

An important emphasis in the analysis of the potential of the market plays also internet. This instrument significantly influences both the creation of demand and supply as well as affects the development of the brand and the current/future needs of the customers. The internet offers not only the opportunity to set up the business in a time – and money saving manner but it also to gain higher efficiency in other areas of business regulation.

With reference to that, more than 80% of the surveyed economies use web-based applications to process export and import documents. The same stays true for banks gathering credit information via online platforms. Furthermore, in more than 40% of surveyed economies the tax authorities make it possible for businesses to file taxes online, which is pertinent in particular for foreign investors.

The aforementioned makes a real difference for businesses. Where online platforms are widely used in regulatory processes, entrepreneurs simply save their precious time on compliance.

It is, however, clear that the use of the internet to streamline business remains confined to more developed economies. As a consequence, the greatest use of online systems in regulatory processes belongs to the OECD high-income economies as well as Europe and Central Asia. For instance, as it follows from the report, Australia, Denmark and Estonia enable entrepreneurs to complete online eight or more out of the nine possible regulatory transactions.

[_ Source: Eurostat : Individuals who used software run over the internet for editing text documents, spreadsheets or presentations, by age group, EU-28, 2014 (% of individuals). _]

I

Average score for use of online systems (0–9) t is visible to the naked eye that the impact of the internet on the life and development of the business permanently continues to grow. Therefore it should not come as a surprise that given the economic opportunities from the use of electronic services, many of the most reforms in the surveyed economies focused on introducing or enhancing electronic platforms and services. The enhancements encompass establishing or improving online tax payment systems, introduced or enhanced web-based systems to streamline cross-border trade as well as electronic business or property registration and enforcing contracts.
p<>{color:#000;}.

6

5

4

3

2

1

0

South Asia

Sub-Saharan Africa

Europe & Central Asia

OECD high income

Latin America & Caribbean

East Asia & Pacific

Middle East & North America

 

 

 

 

 

Source: Doing Business database.

Note: The score shows the average number of areas in which online systems are in use, out of a possible total of nine areas: online business registration, online submission of construction plans, online submission of applications for an electricity connection, online information on land, online access to credit information for banks, electronic movable collateral registries, online tax payment, electronic submission of trade documents and electronic filing of court cases.

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h3<>{color:#4f81bd;}. [] How Competitive is the particular market?

The Global Competitiveness Index provided in this report might be a very helpful tool in assessing not only the market competitiveness of a particular state but also it may significantly influence the decision where to locate one’s business. Without any doubt, the efficiency, stability and trustworthiness of the financial and banking system as well as labor market flexibility or application by business of an innovative technology make the economic environment respectively more of less competitive and enhancing foreign business to invest.

The Global Competitiveness Report “identifies impediments to growth and thereby helps stimulate the development of relevant strategies to achieve sustained economic progress…It is the most comprehensive and authoritative assessment of the comparative strengths and weaknesses of national economies, used by governments, academics and business leaders.”

12 Pillars of Competitiveness

The report’s Global Competitiveness Index proves that there exists a close link between competitiveness and an economy’s ability to provide high – quality education and training as well as flexible labor markets. The leader in the ranking for the seventh consecutive year is Switzerland. Clearly its outstanding resilience throughout the economic crisis could be explained by its excellent results in all 12 categories of the index.

The next place on the podium belongs to Singapore that remains the 2nd and the United States that remains the 3rd. Germany improved its position in the ranking to the 4th, whereas the Netherlands returned to the 5th place that it held three years ago. The next countries most competitive according to the index are Japan (6th) and Hong Kong SAR (7th), both stable. The subsequent place belongs to Finland that falls to the lowest position ever, i.e. 8th. The ranking of the top 10 of the most competitive economies in the world ends up with respectively Sweden (9^th)^ and the United Kingdom (10th).

In a nutshell, most advanced economies have best recovered after financial crisis. They were inclined either to resist it (e.g., Germany, Switzerland) or recover more quickly than countries rated as less competitive before the crisis. For instance, the United States commenced growing again by 2010, while Greece needed another 4 years to return to the positive trend.

From the comparative analysis of the results from 2007 and 2015 we can see that the financial crisis has created new obstacles for business all over the world. It highlighted existing weaknesses and changed the priorities of companies in regions at all stages of development.

The most serious problems for business, as a consequence of the global financial crisis, is the access to financing. Finding a source of financing is difficult due to deleveraging and stricter regulations in the banking sector as well as uncertain economic prospects. Access to finance mostly influences growth in most of these economies, including the United States. Similar to previous years, states with most advanced economies fill all the top positions in the rankings. However, since eurozone finance is much more difficult to be accessed than it was eight years ago, it underscores one of the factors slowing down growth on the continent. The visible result is that some Eastern and Southern European countries such as Greece occupy currently the lowest rankings.

Find out more about top European competitive economies as well as top European emerging and developing economies in our e-book: How to set up business in Europe”.

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h3<>{color:#4f81bd;}. [] How free is the Economy?

The Index of Economic Freedom is based on 10 economic pillars and it is published annually by The Heritage Foundation and The Wall Street Journal. According to the index: “the highest form of economic freedom provides an absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself.”

Why is the market and economic freedom so important? The more free and unrestricted are societies, the better they capitalize of the pros of the free economy in addressing the desires of its citizens, including individuals as well as any business forms. These economies are able to provide a larger scope of varied opportunities by which the virtuous growth is created characterized by most efficient resource allocation, value creation and innovation. There is currently no doubt that States with higher degrees of economic freedom have flourished not only socially but first of all economically.

In a nutshell, the freer the economy, the more successful and efficient your business may be there. The freer the economy, you may have the higher degree of certainty that you business will be enhanced and the economic freedom promoted via adequate changes in law, including not only the opening the gates for doing business but also restraining the scope of action of government. It is simply an environment that inspires talented people to think innovatively and to develop practical responses to emerging new social and economic challenges confronting the world.

If you choose for your business a State with limited economic freedom, you have to accept the risk that the economic dynamism will be smaller simply because the government takes some control of the economic policies and dilute the power and influence on the economy of individuals and their firms. Doing business and creating innovative solutions is restricted to a various extend depending on the scope of limitations of that particular economy.

In contrast, people are more likely and willing to engage into economic activity if they have more choices and freedom. Such a free economic and legal environment is a perfect platform that encourages to create vacancies, opportunities for investments as well as new services and products that complement our lives to a higher extent.

When the economic is maximized? It is when individuals, bigger business players and investors but also manufacturers have a chance to exercise their own individual opinion in identifying and realizing business opportunities without an excessive intrusion of any government. Maximum economic freedom should bring, develop and maintain personal but also national prosperity.

The 10 elements of economic freedom analyzed in the Index may be divided into four pillars:

Rule of law – the rule of law responds to the scope of recognition of private property rights and reflects the existing (or not) legal instruments that protect them. In order to enhance the better functioning of the economy, property rights, including enforcement of contracts should be effectively secured. In this way, people have more confidence to undertake business activity, save their income and plan in the long-term concerning their income and savings, because they have certainty that their property and rights are safe from theft, extortion or unfair expropriation. The foundation of the free economy, its further specialization, the proceeds from commercial exchange and trade across-borders is the voluntary and responsible undertaking of contractual obligations.

With respect to the scope of the government’s interventions when reconsidering the new placement of your business, it will probably concern you to the smallest extent. Nevertheless, we all know that sometimes high governments spending might negatively influence us all, because the higher governments’ share in national wealth, the lower is the income for individuals engaged in business activities. One of the aspects of negative and too extensive governments’ intervention are high tax rates that in fact provide more resources to the States but at the same time they reduce the ability for business to conduct economic activities within the free market.

By regulatory efficiency we understand business, labor and monetary freedom. The former in particular should guarantee an individual or a company the right to set up business activity without an undue State’s interference. Burdensome and redundant regulations can make it difficult for entrepreneurs to succeed in the marketplace. This includes the problems starting from the very beginning of the entrepreneurial existence, i.e. relating to obtaining a business license. It some States that procedure can be uncomplicated and encompass only a mail in a registration form with at least a minimal fee, like in Hong Kong. However, there are places like South America or India where the process of obtaining a business license can be really burdensome and require a lot of time and obviously money to succeed.

As far as the latter component is concerned, market openness is meant to immanently include trade, investment and financial freedom that require a stable currency and the prices determined by the market itself. In particular, the degree to which the State hinders the free flow of foreign trade impacts directly on the ability of individuals and companies to pursue their economic goals and maximize their productivity and well-being. Furthermore, trade barriers and obstacles may also put innovative technology services and products beyond the reach of local entrepreneurs, limiting their own productive development.

In this contribution, I intend to provide sufficient information in order to facilitate the choice where and how to set up business in Europe. It is because in cases where individuals and companies are free to choose where and how to invest, capital can flow to its best use: to the sectors and activities where it is most desired and the profits are most considerable. The government action to redirect the flow of capital and limit choice puts unfair burden on the freedom of both the investor and the person seeking capital. The more restrictions are imposed on investment, the lower is the level of business activities.

You can learn more about European States and their scope of economic freedom in our e-book: How to set up business in Europe”.

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h3<>{color:#4f81bd;}. [] Could corruption influence your business?

There is no doubt that a business climate, including business credibility and profits, is diminished when the public trust is put at risk as a result of corruption. It might have a wide variety of economic impacts, such as the inefficient use of resources, inflated prices as a result of bribes for corrupted governments officials or additional costs of increasing employee ranks that were inflated to cover up the corrupt professional’s activities.

When you plan to buy an existing business, you should be rather careful if you intend to do business with a company or within a country that are known for corruption. Clearly, your risk as an investor is additionally multiplied by changing business environment that follow corrupt business practices. Even potential due diligence of the target must be defeated when the facts change as a result of the actual levels of corruption.

At first, it follows from the ranking that in the USA corruption is not a significant business risk for foreign investors nor for the companies themselves that could be an obstacle to their operations. Although the US market is highly competitive, investors must take into consideration additional costs and time spend on requirements for compliance with anti-corruption laws as well as internal controls.

As far as Europe is concerned, there is no secret that in particular Eastern and Southern Europe is inherently tied up with corruption as a part of doing business there. On the other hand, most of the Western European States have a moderate level of corruption, which makes them an attractive place for investment and does not interfere with conducting a successful business.

Corruption Perceptions Index (CPI) is based on published annually by the Transparency International of a survey of corruption worldwide and it is to show how corruption may actually affect not only doing business but also just a daily life, economy and politics.

According to 2016 CPI ranking, Denmark takes the first place for the 2nd year running, with North Korea and Somalia the worst performers. Top performers have common some key characteristics: high levels of press freedom; access to budget information; independent judiciaries. In contrast, some political conflict and war, poor governance, weak public institutions, including police and the courts as well as a lack of independent media characterize the countries with the lowest ranking.

Ranking – corruption level in the European countries 2015

V

ery clean
p<>{color:#000;}. M

ostly clean
p<>{color:#000;}. M

oderately clean
p<>{color:#000;}. N

ot very clean
p<>{color:#000;}. M

oderately corrupt
p<>{color:#000;}. M

ostly corrupt
p<>{color:#000;}. Highly corrupt

The ranking from 2015 shows that Scandinavian and Central European countries are rather clean. Next in the ranking are Southern and Eastern European countries that rank fairly law and that have the highest perceived corruption in the entire Europe. It is also worth of note that the former Soviet Republics in Eastern Europe (Russia, Ukraine and Belarus) have one of the highest corruption indices in the world.

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h1<>{color:#365f91;}. [] Where exactly set up your business in Europe?

Verifying the attractiveness of any of the European regions or a particular country as an investment location is intended to support to make most efficient investment decisions. Currently there appears a great variety of annual surveys of major business centers in Europe based on data and assessments from leading European companies: you can rely on Cushman & Wakefield Index (a privately held commercial real estate services firm), the Forbes Leading European Cities Ranking or on the Big Four consulting companies such as EY, KPMG, Deloitte or PwC, which are the four largest professional services networks, offering audit, assurance, tax, advisory, corporate finance, and legal service.

However, please keep in mind that it is very important to determine the particular needs, limitations and goals of your business or business start-up before putting your faith in any of the surveys and studies mentioned in this contribution. The reason is simply that that what makes London, Berlin or Paris attractive for Europe’s leading businesses may not necessarily be as significant for small businesses or start-ups.

All of the aforementioned surveys focus not only on the main topic “city best for business” etc., but first of all they intend to verify and take into account also quality of life, telecommunications, access to markets, human capital, cost effectiveness, infrastructure, business friendliness, the amount of foreign direct investment, technology and financial services. Those factors might be important in indentifying best business locations.

If you would like to know more about Leading Business Cities in Europe, M&A operations as well as operational constrains: time, costs and required minimum paid-in capital please check our e-book: How to set up business in Europe”.

 

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h1<>{color:#365f91;}. [] How to set up business?

Setting up your own business can be an exciting time – you just need to take the first step. Here’s how to get through the administrative hurdles faster than you think.

You are ready to start your new business, but have you considered how the decisions you make now will affect its growth? One of the earliest is company structure: you must verify the pros, cons, ongoing filing and tax associated with the main start-up structures, to help you decide which is right for you.

What is better: to buy an existing business or to establish a new one? To answer that question please see our e-book: How to set up business in Europe”.

Investing time into proper planning is key to turning your dreams into reality. Operating a small business is not just about working for yourself or working from home, it’s also about having the necessary management skills, industry expertise, technical skills, finance and of course a long-term vision to grow and succeed.

One of the first things you need to find out when you’re starting a business is what laws will apply to you. Having the correct registrations, licenses and permits is fundamental when running your business. They allow you to operate without fear of closure from non-compliance or other legal concerns. In case of any doubts, consulting a legal professional can help you understand your legal requirements, such as registrations, taxes, licenses, contracts, loans, leases etc.


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p<>{color:#365F91;}. Is it better to establish a partnership or a company?

 

5.3. Basic legal options available for a new business

If you would like to know more about European forms such as:

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p<>{color:#0070C0;}. Sole proprietorship

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p<>{color:#0070C0;}. Partnerships and Companies

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Civil Partnership

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General Partnership

**

Partnership

**

Limited partnership

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Partnership limited by shares

**

Limited Liability Company


**

Joint – stock Company

please check you our e-book: How to set up business in Europe”.

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h1<>{color:#365f91;}. [] The EU business law essentials

It is important to note at the very beginning of your experience with setting your business in the EU that there will be several legal sources that must be taken into account. Namely: European Union law, international regulations as well as national legal provisions of each of the EU’s Member State.

  • * More details on business law requirements in particular European States you can find in our e-book: “How to set up business in Europe”. It will help to apply the exact set of legal rules to a foreign investor. When you understand all the pieces of the puzzle, it will be much easier to choose the Member State of the planned investment.

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h1<>{color:#365f91;}. [] The requirements for setting up a business in Europe

The EU Member States have the competence to posses their own national company law, which, however, must comply with company law directives and regulations of the European Union. This means that if you plan any investment in the EU, you can assume that the basic aspects of companies’ business activities will be rather similar in each country. Furthermore, this will be strengthened by the application of fundamental freedoms including the free movement of companies and partnerships within the EU. However, as far as detailed and more concrete issues are concerned, you need to search for them in the specific national legislation and possibly rely on an opinion or advice of an attorney and an accounting office.

Apart from the aforementioned, each European Member State has its own unique, national rules concerning foreigners from outside the EU who want to set up a business in that particular State. Although the European Union has a joint immigration policy (the Schengen Agreement), there are still different laws relating to working and setting up a business as a foreigner. Some European States make it fairly simple to obtain a residency permit and set up a business, while others make it virtually impossible for non-Europeans to establish residency and incorporate a business.

Despite the different rules regarding business permits for foreigners, there is one principle that most European States share: foreigners intending to open a business do not need a work permit or any other type of visa. The only requirement is to obtain a residency permit in the State where the intended business will be incorporated and conducted. Initially, the residency permit will be temporary, but after few years, depending on the success of the business, one might apply for a long-term residency permit. In principle, there are several types of businesses that can be set up to qualify for a residency permit. You can set up your business as a sole proprietorship, a partnership, a branch or office of a foreign company, or a private company limited by shares.

In order the business proposal will be approved and a residency permit will be granted to start a business in the EU as a foreigner, it should be proved that the self-employment or business activity is likely to make a significant contribution to the economy, culture or sciences of the chosen State of destination. With this respect, some States require a business plan examined by labor and immigration authorities to determine if it suits the economic needs of that State and sufficient investments as well as services (for which there is a need in that State) will be provided.

One of additional requirements to start the business is to prove that the business owner has a sufficient amount of money available to fund the start-up. In the UK for instance, at least 200,000 £ is required as well as additional funds to support the business owner and his/her family until your business is profitable.  Apart from that, most European States also require full-time involvement in the business and declaration that public assistance or even employment will not be seek while operating the business. Furthermore, the UK requires that two new full-time jobs for UK residents be created by the business. This requirement could be found in other States but not everywhere.

In addition to aforementioned legal requirements to establish a business as a foreigner from outside the European Union, there are other regulations regarding business permits, registrations, etc. To incorporate a business, it should be registered with the local authorities (including social security) and tax identification number should be received.

In order to help the reader and possible future investors in the EU market to find out most relevant national company law regulations and solutions, certain legal aspects of particular and most convenient business locations will be presented below.

  • * More details on business law requirements in particular European States you can find in our e-book: “How to set up business in Europe”.

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h1<>{color:#365f91;}. [] Summary

Today’s business world offers to its worldwide participants, territorially almost unlimited possibilities of action. Thanks to new technologies and increased mobility, economic activity across borders of the States or the supranational organizations should not come as a surprise. This applies to both large corporations as well as small entrepreneurs, including start-ups.

 

Based on the aforementioned, one could fairly say that an international aspect of doing business beyond national frontiers, that reaches out to customers from various countries around the globe is already evident. This can be experienced through extremely easy access to internet, but also as a result of the legal changes in regulations between countries and between international organizations, for example: CETA agreement (Comprehensive Economic and Trade Agreement between the EU and Canada) or still negotiated TTIP (Transatlantic Trade and Investment Agreement between the UE and the US). While corporations commonly operate on a global scale, as far as the European Union is concerned, the laws governing their internal affairs remain either European or national.

 

This contribution intends to guide and advise you exactly where to locate your business, based on the investor chosen priorities. For some it will be time necessary for establishing a business vehicle, for others more pertinent could be the costs and accounting issues in the initial stages of incorporation or flexibility and efficiency of the judiciary. Furthermore, some other issues may appear similarly significant such as the availability of highly qualified employees, the average salary/costs of employment in the region, the risk of corruption or the availability and accessibility of public authorities for national and foreign entrepreneurs.

 

All the aforementioned factors are, in our opinion, much more important for a successful start-up of business activities than detailed knowledge of legal or tax and accounting regulations, which still may significantly differ from country to country around the world, but which can be simply accessible as a result of professional advice or assistance. From this point of view, we believe that the comparison made in the contribution at hand concerning the best, fastest, cheapest, easiest, etc. location to run a business, could facilitate the decision to launch the adventure and the competition for customers especially in the European Union.

In recent years there have been significant changes with respect to the companies’ mergers, other reorganizations and moves, as the European legislation and the ECJ’s decisions have opened the possibility that these actions can be implemented across borders The European Company Statute, the Cross-border Merger Directive or the prospective European Private Company Statute prove the high demand for corporate mobility.

The global economy has indeed impacted the way that business is done. One of the consequences is the increasing awareness of cultural differences influencing the style of management of a particular business, its key priorities and business relations with partners as well as among employees themselves. Therefore, the key managers in any organization should already be prepared to properly cooperate both with American, Canadian and European business partners.

The key management should understand that business culture has a significant impact on the relations with their business partners, the methods of negotiation, the manner of standard procedures, the way of cooperation with employees, the working hours, work-life balance (or not) and so on. For instance, the biggest difference in doing business between the US and Europe is the variety of languages that have to be dealt with. Additionally, in Europe companies choose a traditional business structure. In contrast, the US businesses tend more towards a flatter management structure with a few levels between senior management and the employees. Furthermore, in most European States, there exists substantial care of work – life balance that provides for much more days off (including fully paid sick leaves or maternity/paternity leaves) than in the US as well as less working hours.

Understanding and mutual respect for any differences in running a business is absolutely vital to operate on a wider global scale. We hope that this contribution helps assess and choose the most suitable place to do business in Europe and will successfully contribute to the expansion overseas with benefit for all of the parties involved.

Good luck!


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h1<>{color:#365f91;}. [] Bibliography

Literature:

I. Erel, R. Liao, M. Weibach World Markets for Mergers and Acquisitions, Fisher College of Business – Ohio State University Working Paper 2009;

D.S. Hamilton and J.P. Quinlan The transatlantic economy 2016, Annual survey of jobs, trade and investment between the United States and Europe;

H. Hansmann, R. Kraakman The essential Role of Organisational Law Yale L.J. 110, 2000.

J. Harrop Free trade, the customs union and internal market in “Political economy of integration in the European Union” E.E.Elgar 2000;

M. Lutter Legal Capital in Europe, European Company and Financial Law Review, 2006, Special Volume 1.

J. Meeusen, M. Myszke-Nowakowska International company law in the European internal market: three decades of judicial activity, XI Brazilian Yearbook of International Law (Anuário brasileiro de direito internacional) 17th edition, October 2016;

M. Myszke – Nowakowska The role of the choice of law rules for the freedom of establishment, Intersentia: Cambridge, Antwerp, March 2014

J. Pelkmans Market Integration in the European Community, Martinus Nijhoff Publishers, The Hague, Boston, Lancaster, 1984;

A.-L. Sibony, A. Defossez Liberté d’établissement et libre prestation de service RTD eur. 45 (3), 2009 ;

E. Wymeersch Das Bezugsrecht der alten Aktionäre in der Europäischen Gemeinschaft, eine rechtsvergleichende Untersuchung, Die Aktiengesellschaft, 1998;

Case law of the Court of Justice of the European Union

ECJ, 27 September 1988, Case 81/87, The Queen/H. M. Treasury and Commissioners of Inland Revenue, ex parte Daily Mail and General Trust plc;

ECJ, 9 March 1999, Case C-212/97, Centros Ltd/Erhvervs- og Selskabsstyrelsen;

ECJ, 5 November 2002, Case C-208/00, Überseering BV/Nordic Construction Company Baumanagement GmbH (NCC);

ECJ, 30 September 2003, Case C-167/01, Kamer van Koophandel en Fabrieken voor Amsterdam/Inspire Art Ltd.

ECJ, 13 December 2005, Case C-411/03, SEVIC Systems AG.

ECJ, 16 December 2008, Case C-210/06, Cartesio Oktató és Szolgáltatóbt.

ECJ, 29 November 2011, Case C-371/10, National Grid Indus BV/Inspecteur van de Belastingdienst Rijnmond/kantoor Rotterdam.

ECJ, 12 July 2012, VALE Építésikft, Case C-378/10.

 

European legislation:

First Council Directive 68/151/EEC of 9 March 1968 on co-ordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, with a view to making such safeguards equivalent throughout the Community OJ L 65, 14/03/1968 amended by Directive 2003/58/EC of 15.7.2003 as regards disclosure requirements in respect of certain types of companies.

 

Convention on the mutual recognition of companies and bodies corporate BULL. SUPPL. NO 2-1969 P. 7-14.

 

Council Directive (77/91/EEC) of 13December 1976 on Co-ordination of safeguards which for the protection of the interest of Members and others, are required by Member States of companies within the meaning of the second paragraph of article 58, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view of making such safeguards equivalent [1977] OJ L26/1.

 

Second Council Directive 77/91/EEC of 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent OJ L 26, 31/01/1977, amended by Directive 2006/68/EC of the European Parliament and of the Council of 6 September 2006 as regards the formation of public limited liability companies and the maintenance and alteration of their capital

 

Third Council Directive 78/855/EEC of 9 October 1978 based on Article 54(3)(g) of the Treaty concerning mergers of public limited liability companies, OJ L 295 of 20.10.1978.

 

Eleventh Council Directive 89/666/EEC of 21 December 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State OJ L 395, 30/12/1989 p.36.

 

Twelfth Council Company Law Directive 89/667/EEC of 21 December 1989 on single-member private limited-liability companies OJ L 395, 30/12/1989 p.36.

European Commission “Proposal for a Fourteenth European Parliament and Council Directive on the Transfer of the Registered Office of a Company from one Member State to another with a Change of Applicable Law” (1997), doc no XV/D2/6002/97-EN REV 2.

 

Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings.

 

Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. OJ L 012 , 16 January 2001.

 

Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) – OJ L 294.

 

Directive 2003/58/EC of the European Parliament and of the Council of 15 July 2003 amending Council Directive 68/151/EEC, as regards disclosure requirements in respect of certain types of companies.

 

Communication from the Commission to the Council and the European Parliament, Modernizing Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward, COM 284 final, 21.5.2003.http://www.eu.int/comm/internal_market/company/seat-transfer/2004-consult_en.html

 

Council Directive 2005/19/EC of 17 February 2005 amending Directive 90/434/EEC 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States.

 

Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies, O.J. 2005 L 310/1.

 

Proposal for a Council regulation of 27 June 2008 on the Statute for a European private company COM (2008) 396/3.

 

Revised Presidency compromise proposal for a Council Regulation for a European Private Company, Annex to Addendum 1 16115/09 Brussels 27 November 2009;

 

Treaty on the Functioning of the European Union [former EC Treaty]. The consolidated version of this Treaty together with the Treaty on European Union is reproduced in O.J. 2010, C 83.

 

European Commission proposal for a Council Directive ona Common Consolidated Corporate Tax Base (CCCTB) COM 2011 121/4).

 

European Parliament resolution of 6 April 2011 on a Single Market for Enterprises and Growth (2010/2277(INI)); P7_TA-PROV0146.

 

European Parliament resolution of 14 June 2012 on the future of European company law (2012/2669(RSP))

Rankings:

The Global Competitiveness Index (The World Economic Forum); 

The Index of Economic Freedom (the Heritage Foundation);

Doing Business Index (The World Bank);

Cushman & Wakefield Index;

Forbes Leading European Cities Ranking;

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h1<>{color:#365f91;}. [] Useful Links

The European Union

https://europa.eu/

 

The European Union – “Your Europe”

[+ http://europa.eu/youreurope/business/start-grow/start-ups/index_en.htm+]

 

The European Union – European Commission – Trade Policy with the United States of America

[+ http://ec.europa.eu/trade/policy/countries-and-regions/countries/united-states/+]

 

The European Union – European Commission – Trade Policy with Canada

http://ec.europa.eu/trade/policy/in-focus/ceta/index_en.htm

 

The European Union – EurLex

http://eur-lex.europa.eu/homepage.html?locale=en

The Global Competitiveness Index 2016 – 2017 (The World Economic Forum) 

[+ https://www.weforum.org/reports/the-global-competitiveness-report-2016-2017-1/+]

The Index of Economic Freedom (the Heritage Foundation)

http://www.heritage.org/index/

Doing Business Index (The World Bank)

http://www.doingbusiness.org/rankings

 

 


Start your business in Europe: Introduction

  • Author: MirosÅ‚awa Myszke-Nowakowska
  • Published: 2017-05-23 16:05:18
  • Words: 8677
Start your business in Europe: Introduction Start your business in Europe: Introduction