Checklist for SMEs to establish a EU company

Establish a EU company

Checklist for SMEs to establish a EU company

In simple terms

How to bypass EU trade barriers

Bypassing EU trade barriers. Admittedly, this sounds like a variation of ‘cakeism’, but be assured it is not. In fact, the concept of it is best practice for more than 100 years, albeit mostly used by big international companies in a fairly complex and expensive way. Which is why many decision makers in small or medium sized businesses assume such solutions are unattainable for them – but you might be surprised what today’s international business environment has in store for you.

Size doesn’t matter anymore – EU subsidiary or new company 

What do multinationals do to access protected foreign markets? Quite simple really; they establish subsidiaries . They do it, because there is no alternative – and because they can. SMEs with their limited resources have effectively been excluded from this option, at least up until now.

The digital revolution has created a new industry offering affordable solutions for smaller enterprises based on modular structures. There is no need anymore to replicate your UK business in another country. You simply register a EU company at a serviced business address. Then you merely buy the services you need and combine them to a working system. This allows you to run your foreign operation from your UK headquarters or, in fact, from anywhere on the planet.

Legal requirements to found a EU business

Task one: Compliance. The key legal terms to facilitate solutions like this are ‘Legal Entity’  and ‘Permanent Establishment’. The former means that the type of company you need to establish has to serve as a legal person, the most common form would be a limited company . The latter means that your enterprise needs a fixed place of business that is recognised by the foreign tax and customs authorities. Once set up you can legally trade from your foreign Permanent Establishment as a EU company, and this way avoid all trade barriers.

Checklist for SMEs to establish a EU company

Task two: Looking for service providers. Since legal requirements and procedures vary in different EU countries you need to research the following for the location of your choice:

1. Choose a type of Legal Entity that works best for your business (one elementary precondition should be a limited liability). The best source of information is usually a reputable, local tax advisor.

Legal Entity

2. Find out who and what is needed to establish a Legal Entity. The most common procedure is to have the company statues drawn up by a local lawyer. To sign it some legislations require your physical presence at a notary’s office, others will accept a simple power of attorney  (i.e. a written authorisation) for your foreign lawyer. The last step of the founding process is normally the entry in the companies register, which could be run by institutions like the local court or the chamber of commerce. Check if this can be done by your lawyer or if you have to do it personally.

To summarise: You would need a local lawyer for corporate law, possibly a notary (your lawyer would most likely have a cooperation with one), and you would have to make sure your Legal Entity is entered into the company roll.

Permanent Establishment

3. Find the right Permanent Establishment (PE): In general, the minimum requirement for a PE is a postal address with an authorised recipient present during business hours. In other words, you need an office and someone who is authorised to sign for your mail weekdays from nine to five. To avoid the cost of a staffed office check if there are any virtual offices with a reception offering this kind of service.

Important: Check with the local (tax) authorities if they accept a.) this virtual office as your business address and b.) a non-resident managing director (i.e. you living in the UK).

Service providers for your EU enterprise

4. Find a network of professional service providers: You will need a chartered accountant /tax advisor for your annual tax return, VAT return (only if you are VAT registered) and, unless you do it yourselves, the accountancy. You might also need lawyers for corporate and IP law, advisors, marketing people, suppliers, manufacturers etc. – all depending on the nature of your business.

Especially with regards to accountants and lawyers make sure you stick to reputable, local people and organisations even if they might seem more expensive at first; they know the local business environment and public sector and might be able to resolve issues via personal contacts before they might evolve to substantial problems. Being able to sleep well has a price tag.

Workable solution for SMEs to establish a EU company and run it from the UK

There is a good chance you might find all of this complicated and way above your possibilities. This is where modern business solutions come in. There are companies supplying a range of services for you; from establishing Legal Entities worldwide to providing lawyers or accountants and even supplying PEs.

Whenever choosing a provider make sure they offer a worry-free package. The more comprehensive their services and networks are, the more personal and trustworthy the relationship with them is, the more they take you by the hand, the better.

Another invaluable advantage of obtaining services from a single source is a routine and smooth transition of processes. Also, if things should go wrong you would only deal with a single partner, thus avoiding a number of parties being able to shift any blame onto each other. In short, take your time and pick your service partner very carefully!

If you are looking for further advice and support, contact us at Trade with Europe, we would be happy to help and offer affordable solutions for SMEs. The first consultation is free.

Marcus Broix, Trade with Europe Ltd

Marcus Broix | Trade with Europe