Moving or expanding your business to Europe opens a whole new market for your products and promises the opportunity for generating more profit. When planning this great step, deciding on the location of your new European company is one of the most important things because local conditions will heavily influence your performance in Europe. You should consider not only taxation, but also the local legislation, labor market, and incentives as well as the market opportunities for your products.
Before you get lost in the details of all the available options, try defining your business requirements first. A specialist who is familiar with your line of business can help with just that, while a local expert will be able to help you with business planning once you have selected a promising location. As a first step, take a look at the most important aspects of company formation in Europe.
The ease of company registration
How much time does it take to set up a business in the country you are considering right now? How many documents are required? Can you register a company on your own, or do you need a local shareholder to partner up with you? Regulations in European countries differ widely, and company setup can take only a few days, or almost a month.
The World Bank yearly report on the ease of doing business might be a good starting point, but make sure to check not only the overall ranks but also the subcategories, together with the relevant details. For example, European company setup and registration in Hungary is among the fastest, occurring within with only 4-5 business days, while Hungary ranks only 52nd in the overall list. In comparison, the neighboring Austria, at the same time, ranks 27th in the overall list, while company formation may take up to 22 business days.
The local market: Customers and suppliers
When selecting your European headquarters, consider its distance relative to all the physical needs of your business. Where do you expect to find the majority of your customers? Will you be close to suitable suppliers? What will your shipping needs be, and how are you planning to arrange for getting your products to your customers?
While in Europe wherever you go, you will most probably find adequate infrastructure for your business, there are some trending or popular hubs to consider. For example, London, Paris and Berlin are prominent members of the tech scene, Eastern Europe is an excellent venue for manufacturing machinery, while a label with “Made in Italy” will add to the prestige of any apparel you are planning to create.
VAT in Europe
Beside corporate tax, VAT (value added tax) should be among the most important aspects to consider, to the point of asking for specific tax advisory regarding VAT. In most EU countries, VAT is between 15% and 27%. Although it is always the seller who pays it forward to the relevant tax authority, when shopping locally, VAT is typically included in the indicated prices. In B2B deals, however, typically the net prices are indicated, since the VAT content of purchases can often be reclaimed.
If you are planning to do most business locally, consider moving closest to your primary costumer base. If you are planning to do international business within the EU, consider the speed of registration for EU VAT – in some countries, it is possible together with the company registration, while in other countries it is an extra application procedure, to be completed within a few weeks or months. If you are planning to sell mainly digital products, especially cross-border, consider entering the MOSS scheme, which is a framework simplifying international VAT reporting within the EU.
Staffing solutions for your European company
How many local employees will your EU company need? Take a look into locally available work force, typical working hours and salaries, legislation concerning the rules of employment and paying compensation for work, and, of course, current employment taxes. Since wages and labor costs might be a significant portion of your company costs, choose a location where you can manage them cost-effectively.
Regarding taxes, watch out for who is supposed to pay each, and what local accounting and finance services typically include. For example, payroll administration in Hungary will in general cover reporting the employment relationship itself to the tax authority, and calculating how much payroll tax you must pay – and how much income tax you must also pay on behalf of your employee, who will receive only their net salary from you.
Available incentives in your line of business
Many European governments offer incentives to attract foreign investment. This is most common in economically disadvantaged areas, but it is used even in more well-to-do countries to boost local economy. These incentives most often take the form of tax allowances. At the same time, grants might also be available, in some cases directly from an EU fund, especially if your project is considered beneficial for the whole (European) community.
Survey your business needs and plan ahead
Before setting up a company in Europe, consider the pros and cons of each location you have in mind. Think about the speed and ease of setting up a company and starting your business activity, the proximity to your intended customers and suppliers, the availability of local workforce, labor costs, and incentives you might apply for. Timely business consulting can save you time and effort, which can be realized in additional profits.