Doing Business in Europe: Setting Up a European Base - Damalion - Independent consulting firm.

At one point in time, talks of Brexit without the UK Parliament negotiating a deal with the EU, UK-based companies were already starting to plan their departure from the UK shores and considering to establish some place else in the EU. While there were plans of setting up shop in another Europe (EU) location, most companies were simply looking for other jurisdictions to ensure business continuity and growth after Brexit

True enough, many companies moved their headquarters to another EU country, while some set subsidiaries in other EU member nations as a means to strategically prepare for the end of the Brexit transition period. Multinational companies with the likes of Sony and Panasonic relocated their headquarters from Great Britain to The Netherlands. Even iconic British brands, including Lloyds of London opened a subsidiary in Brussels, while SMEs also set up shop elsewhere in the EU, including Germany, The Netherlands, and Belgium, to name a few. 

Should UK-based companies move to an EU member nation or set up their subsidiary elsewhere after Brexit? While the Trade and Cooperation Agreement between the UK and the EU and the European Union Withdrawal Agreement Act of 2020 have set out a solid trading framework, the reality are as follows:

  • The movements of goods, services, and data will not be as efficient as they did prior to the UK leaving the EU. The cause of this issue is not only be Brexit relate but also heavily influenced by the global pandemic in exports and imports out of the UK and supply chains across the globe. 
  • While the European Union Withdrawal Act of 2018 retains a few EU laws, the UK is still in process of making new legislations and regulations. Over time, we will be seeing increased divergence between UK and EU law and regulations. 
  • The UK-EU red tape involved in setting up a trading company or a hub in the EU makes more commercial sense amid the expensive overhead and ongoing expenses. 
  • Setting up a base or subsidiary in the EU is a fine way of saving a company from losses in case trading between the EU and UK becomes more challenging over time. 
  • Great Britain is not the only premier hub for companies and foreign investors. In some cases, establishing a shop in an EU country with a thriving tech or digital landscape becomes advantageous as it fosters growth and innovation.  This also provides company a steady supply of skilled workforce and resources on hand. Lastly, UK companies based in EU can take advantage of grants and incentives, allowing greater EU market penetration. 

The Benefits of Setting up an EU Base

  • A UK company can legally declare they are an EU company. Goods and services can mover around smoothly and without tariff. 
  • Significant reduction of bureaucracy and red tape, thus speeding up the sales and delivery processes. 
  • EU-based company can take advantage of the local knowledge and expertise of EU workers about the local market and trading conditions. This gives a company the competitive edge it needs over UK businesses who chose not to set up shop in an EU member state. 
  • The overall cost and expenses of setting up an EU base is more cost-efficient as opposed to dealing with tariffs, transportation issues, and regulatory issues related to operating a wholly-owned UK-based company.
  • A base or subsidiary in the EU can function as a springboard to expand into other EU member nations. This can also be a platform where you can kickstart global growth through being considered an EU company. 

Performing due diligence remains imperative prior to setting up a business, hub, or subsidiary in the EU. Factors, including one’s physical office, workforce, and management must be considered seriously among key decision-makers. 

UK business owners must conduct a thorough analysis in order to make informed decisions, determining whether setting up a base in an EU member state is a worthwhile initiative over time. It is therefore important to accurately get costings for every element required to establish and register a business in the EU and measure the numbers against those if one chooses to run operations in the UK. 

The Drawbacks of Setting up an EU Base

  • Overextension of our finances to set up a business in the EU. To avoid losses and ensure profits, you must think of both short-term costs and the long-term gains that your company will face throughout a transition. 
  • Taking off your main hub from the UK can be a major risk , especially if your business relies heavily on UK profit to fund the set up and operation of your EU subsidiary. Transferring senior executives from UK to EU could leave your UK operations exposed. 
  • Fear of the unknown due to COVID-19-related business closures, recession, and inflation concerns. 

  • Tariffs

Setting up your EU base or subsidiary using the right structure will offer you benefit due to being an EU company. Your company can benefit from EU customers, single market with free movement of goods, services, workforce, and capital. If you have clients outside the EU, it may be ideal to export to third party countries from the UK or depending on the existing trade and deal comparisons between the EU, UK, and third-party nations. 

  • Duties on Goods

When the UK and the EU were negotiating their trade deals, some say that UK companies were too rash in establishing their bases . Apparently, there was no need for transferring as the Trade and Cooperation Agreement generally prohibits custom duties on all goods coming from the UK or in an EU country. Additionally, the trade and Cooperation Agreement also prohibits restrictions on the export and import of certain goods. To take advantage of the prohibition, goods being exported from the UK to the EU must come from the UK as per Rules of Origin. It is therefore crucial to ensure that your company is classified as an EU legal entity in order for it to make use of the privileges and rewards of EU status. 

  • Product Regulation 

Setting up an EU base means that products and services must meet the standards of EU regulations. This may not be a problem if your current products and services feature harmonization, but this may change anytime. Working with two sets of product regulations can be challenging, since you will be expected to meet higher standards if you are looking to offer your products and services from your EU hub. 

  • Commercial Contracts

Your commercial contract may need to be re-drafted to ensure you are EU compliant. 

  • Digital Trade and Data Protection 

Your company must take measures to protect your data and facilitate digital trade and act within the law. It will be efficient to set up an EU base if your intellectual property (IP) is protected and your personal data transfers are authorized, allowing you to continue smooth digital trade. 

  • Premises

When setting up an EU, you have numerous options, such as no physical office, serviced offices, commercial lease, or the purchase or commercial property in your preferred jurisdiction. There are hard and fast rules on which is the best option for premises, but it is imperative to seek accounting recommendations to arrive at the most cost and tax-efficient plan. 

  • Taxation 

Taxation should be a major concern fro UK companies looking to transfer to an EU jurisdiction. This typically includes company taxation in the EU and the UK, as well as the personal taxation issues for senior executives who will be dispatched to the EU. 

Workforce Considerations When Setting Up an EU Base

  • If your senior executives in the UK will be transferred to the EU base, you must consider immigration rules. This will include the need for visas and if your key executives meet the eligibility criteria to secure a clearance in your chosen EU member state. 
  • For key officials of a UK company, they will most likely want to be joined by their family members. With this in mind, will the family members require a dependent via or consider other eligibility criteria. 
  • If your UK staff is relocation completely to the EU, you must look into the laws related to purchasing a property in in your chosen EU country, as well as taxation implications when owning a property in the country and receiving income from the UK headquarters. 
  • If you are planning to recruit UK-based staff to oversee the operations in the EU base, what are the grounds for supervision. You must consider whether they need a business visa to work temporarily in the EU country. If you plan on flying your EU staff to the UK for training, you must consider the type of visa to provide them. Will you need a visitor visa, a business visa, or an intra-company transfer visa? 
  • Consider the cultural and language barriers that your UK staff may face should they be assigned in managing your EU base. 
  • You must consider whether you need to recruit a team that will oversee the UK operations while key executives are in the EU managing the company during its early days. Should you recruit senior executives from the UK or from the EU base country?

How to Set Up a Company in the EU

If you are a UK company planning to trade in more than one EU member nation, it is recommended to set up a European company or SE. This is a public limited liability company that will allow you to manage your business under a single European brand name in various EU member countries, while following a single set of rules. 

To set up a European Company or SE, you must:

  • Decide on the location of your registered office. it must be in the same country as your head office. 
  • Prepare a minimum share capital of EU 120,000. 
  • Establish presence in at least two EU countries. 

Do not forget that some EU countries have additional requirements for a European company; hence it is crucial to check the specific requirements of the country you chose to be based in. 

You may also choose from other set up alternatives other than a European Company. UK companies may also consider setting up in individual EU countries. For instance, you may set up a private limited liability company or SA in Luxembourg. 

The Best Jurisdiction for your EU Base

Many countries in the EU encourage UK companies to set up their hubs within their jurisdictions. A lot of these countries have set up their government-backed websites to explain how you can set up a company in their country to fully take advantage of the growing EU markets. Some of the ideal destinations for UK companies are Luxembourg, Germany, the Netherlands, and Ireland, to name a few. 

Your decision as to where to set up your EU base will depend on your specific business needs. For instance, if most of your business is dealing with clients and consumers in the Czech Republic, it is then recommended to set up a business in the Republic. You may also consider incubator hubs in nearby countries that offer proximity to your existing market share and better long-term financial advantages. 

It is recommended to check out the World Bank Doing Business Ranking if you want to check out EU countries with fast and smooth company formation process. At present, the UK ranks 8th when it comes to ease of doing business, but this may either improve or become more challenging in the future. 

Is It Possible to Set Up an EU Business without Having Physical Presence in the EU?

If your work with a trusted business consultant, they can facilitate setting up a company on your behalf in your chosen EU jurisdiction. They will be responsible for documentation, opening a bank account, and even provide you with a physical address or office space, when needed. 

At the least, you must visit your registered EU office at lease once to complete paperwork and other important activities. 

If you prefer not having a registered address in your chosen EU country, you may want to consider setting up your business in Estonia, where they offer an e-Residency programme. This initiative allows foreign investors to set up and manage their EU company online from the UK or anywhere in the world. 

If you are a UK business looking to set up a company in Luxembourg or other EU member state, Damalion can help you explore your options. We will provide you with comprehensive services that will enable you to make the right decision that meet your business needs and goals. Our global service network consisting of lawyers, accountants, and consultants who will assist you in various EU company formation activities, management, bookkeeping, and tax obligations. Get to know more about European company formation by reaching out to a Damalion expert today.