Business in the EU: Real Opportunities & Challenges for Foreign Investors
With the expansion of the global economy, coveted markets, such as the EU, are becoming more open to foreign investors. At the recent European Business & Investment Summit (EBIS) in Warsaw, Poland, Olga Fleming, the founding partner of Oruga Group & the Foundation of Innovative European Economy, shared with the guests the real challenges and rewards of doing business in the EU.
EXPANDING INTO THE EU
Today, the EU is the biggest global trade player with 500 million consumers. Its prime position is a good enough reason for any investor to want to be a part of it, which is possible through:
- establishing a business;
Mergers and expansion are great options for revenue growth and more effective cost management. Diversification allows any given company to develop various business lines. Mergers increase a business's market share and are a low-risk expansion alternative.
In many cases, taxation options become instantly more attractive with the expansion. Venturing into a new market is a great opportunity to unlocking greater business potential. A larger business offers more personal incentives for managers whose compensation grows with the size of the company.
Finally, through expansion, a business can achieve international goals, not attainable in the domestic market.
PLAN YOUR ENTRANCE
Although entering a new market holds great potential, there is no unified, perfect solution for a seamless process. However, there are steps any business, whether a startup or an established company, can take to plan its establishment and expansion phase.
Choice of jurisdiction
The initial analysis of the market is important, and the choice of jurisdiction, which stretches beyond just taxes, is a crucial step.
When planning to enter the EU market, consider the following during the jurisdiction check:
- taxes (corporate, personal, dividends, etc.)
- tax residency;
- court processing;
- recent legal changes;
- economic situation;
- licenses & permits;
- investor relations.
Also, consider how the choice of jurisdiction will fit with your branding strategy. If the intention is to brand the product for higher profit, Germany and Switzerland are the more popular choices.
Remember to research the relationship between the selected jurisdiction and your corporate structure. For example, holding companies pay lower taxes in some European jurisdictions.
Before making the final decision, it is also important to explore the impact the connection between your citizenship, selected jurisdiction, and tax residency options will have on your business.
Assessment of enterprise needs
Before venturing into a new market, careful consideration should be given to the proposed sales, marketing, storage, and distribution solutions. When estimating costs, factor in:
- real estate costs (rental or lease);
- delivery rates based on your distance from the target audience;
- equipment costs;
- social security funds.
Fortunately, it is easy for a company to optimize costs within the EU, and each member state offers certain incentives.
There are provisions for inward and outward processing regulations. Businesses can benefit from easy, cheap logistics without custom clearance, easy VAT operations within the EU, and access to a qualified workforce from different EU regions.
The advantages of establishing a business in the EU stretch beyond cost optimization.
Depending on the type of business, a company can take advantage of tax incentives for startups, EU funding, and special economic zones.
Loans are more advantageous in some states, offering an array of interest rates and leasing options. For example, running a business in Germany is expensive, but the interest rates are low.
The EU customs union offers great business benefits. A status of being manufactured or made in Europe instantly boosts the product image. Once a product is imported into the EU, it can be delivered anywhere within its borders. Thanks to the attractive bilateral agreements, many countries also offer lower import custom duties on EU goods.
Another attractive feature of doing business in the EU is that a product doesn't have to be completely manufactured in the EU. There is no difference between it being "made in" or just "assembled" within the region.
EU registered business
Having an EU registered company brings more rewards.
- A business can hire an employee without opening a registered office in other EU member states.
- It is possible to change a jurisdiction within the EU through a simplified procedure, without liquidation.
- A company can rent premises in other EU member states without restrictions.
Political economic situation
The changes that have taken place in the EU over the past few years have caused businesses to give more careful consideration to the economic and political climate of the region. Here are some of the most common concerns for businesses.
- Pro-social policies make running a business harder for entrepreneurs.
- Political decisions affect economics and the socio-cultural environment of the state.
- Politicians have a strong influence on the rate of emergence of new technologies and their acceptance by the public.
- The changes in EU politics and economy also influence the levels of bureaucracy, corruption, freedom of the press, tariffs, trade control, education law, anti-trust law, and employment law, among others.
E-commerce in the EU
2015 marked the beginning of an ambitious effort in simplifying the EU digital economy by bringing down barriers and unifying the online market across the member states. The Digital Single Market Strategy opened new opportunities in the e-commerce sector, with a bigger consumer market and greater options for cost optimization and low delivery costs.
As the UK and the EU continue negotiations about Brexit terms and conditions, the influence of it cannot be understated.
When finalized, it will force all British companies having EU offices to formalize their presence.
Businesses will have to apply for work permits for company directors from the UK.
Additional permits will have to be acquired for ownership or purchase of properties.
It is also possible that businesses may face restrictions in obtaining certain licenses and permits, limited only to local residents. Nevertheless, despite the existing challenges, the EU remains an attractive option for foreign investors. It offers incoming businesses a number of strong advantages:
- greater competition in services and goods, which brings benefits to businesses and consumers;
- removal of trade barriers;
- opportunity to reduce business costs, if optimized;
- greater business efficiency and larger markets;
- an environment without anti-competitive prices such as cartels or monopolies.