Back in 2006, Anne wrote an article (featured in the Cambridgeshire Chamber of Commerce magazine) about expanding within Europe (including the UK).
This is still a very topical subject in 2013 so it seems appropriate to revisit this subject here in the AE journal.
When the time comes to expand your business, expansion across Europe is an obvious – and often highly successful – strategy.
However, it is a common misconception that setting up an overseas operation should not be significantly different to your home country, and in particular this should be the case between EU countries due to EU legislation.
Unfortunately, this is not the case. Whilst EU legislation does provide some commonalities between the various member states and facilitates trade in many ways, there are still significant legal, accounting, social and economic differences in the way businesses are incorporated and operate in each country.
Essentially, when setting up a business in a different country, you need to start from scratch and thoroughly research the costs involved, the legalities and the business culture to develop a robust business model and expansion strategy.
First, consider how to expand your business, would a distributor network or “virtual office” approach be suitable, or does your business need local staff?
Second, consider whether you need to incorporate a legal entity in the “target” country? A simple guideline is that if you intend to employ one or more individuals in that country, you will usually require a “permanent establishment”and will therefore need to create (or “incorporate”) some kind of legal entity.
Assuming you need to incorporate, the next stage is to decide which type of legal entity will best suit your requirements. In each EU country there are several different types of entity with different rules associated including type and minimum value of equity. Unfortunately the rules relating to, for example, a limited liability company will be different from country to country. To illustrate, a “Ltd” company in the UK has minimal share capital requirements (many start-ups have share capital of just £1 or £2), whereas the equivalent in Germany (a “GmbH”) requires a minimum share capital of €25,000.
Another important consideration is the actual process of setting up a company, including the timeframes involved. In some countries (notably the UK and Ireland) this is inexpensive and can be completed within 48 hours online or just a few days by post. In other countries, the incorporation process can be more involved, take longer and the cost may be significantly greater.
Once you have incorporated a company in your chosen country, and completed the various registration processes such as for VAT and payroll taxes, there are some other important matters to attend to:
- set up a bank account (again this process will vary between countries)
- take out necessary insurance policies (those required by law will not necessarily be the same in each country)
- research & implement local employment regulations
- put in place appropriate accounting, administrative & corporate governance processes
- ensure compliance with local Health & Safety regulations
- research the local business culture
The last on the list above is by no means the least important. Business cultures (and applicable laws) are significantly different from country to country. This can have a material impact on working capital for instance, where you may arrange to give customers 40 day payment terms at a corporate level, but the local business culture means that suppliers expect payment within 30 days or even sooner.
The above discussion is a brief overview of the considerations for companies looking to expand beyond the borders of their home country. To manage expectations, budgets and cash-flow, it is crucial to thoroughly research the legal and economic environment, and culture, of the target countries.
The team at AE are experienced in working across Europe and in project managing business expansion. If you would like more in-depth advice, or assistance in taking that important step of expanding into Europe, please contact us.