Starting a company in Europe automatically gives you access to one of the world’s biggest business hubs with a sophisticated infrastructure, strong legal protection, and a skilled workforce. The EU remains the second-largest economy in the world with $15.6 trillion nominal GDP and the largest trading block. In 2020, nine European countries appeared in the top-20 list of “Ease of doing business ranking” by the World Bank. Therefore, Europe remains one of the most attractive options for international investment and business formation.
While COVID-19 poses significant threats to business development, the EU is projected to almost fully recover from the hit over the next two years. According to The European Commission’s Autumn 2020 Economic Forecast, the EU’s economy will contract by 7.4% in 2020 before growing 4.1% in 2021 and 3% in 2022. On the contrary, the US economy is predicted to shrink by 6.5% in 2020 according to the Federal Reserve, but will only grow by 3.6% in 2021 according to the forecasts, slowing down the recovery and possibly not bringing the country to the pre-COVID levels in 2022.
EU will grow more than the USA in the next 2 years
COVID-19 also presented opportunities for many segments of businesses, including IT, construction, transportation, warehousing, and many others. With the vaccine just around the corner, it is time to prepare to launch a new business and expand in the post-COVID world.
A company in the EU will offer you access to a single market with no restrictions on import and export, a fairly priced skilled workforce, low trade costs, and a single currency. While all of the EU countries are special in their economic incentives and taxation rates for local and foreign business, here are the best EU countries in each category according to the World Bank.
Three European leaders in each category from the highest score to the lowest:
Easy for Doing Business: Denmark, Sweden and Lithuania.
Starting a Business: Greece, Estonia and Ireland.
Paying Taxes: Ireland, Denmark and Finland.
According to the Forbes List of countries best suited for doing business, Sweden confidently tops the list of the EU countries. Its large and competitive free-market economy with a smart combination of the sophisticated welfare system makes it a strong, thriving, and intriguing investment opportunity. It has a 2.71 average GDP growth and one of the highest account surpluses in Europe – now being at 4% of the country’s gross domestic product. The biggest boost to the economy comes from investment in the construction business, and foreign investment is more than welcome. In fact, Sweden remains one of the most significant recipients of foreign investment. Sweden can offer a unique opportunity to access the Northern European market while remaining the largest market in the Nordic zone… The country can also provide companies with some of the best research opportunities in the world and advanced infrastructure – over the next ten years, the government will spend €56 billion to advance it further.
Denmark is the country ranked first for ease of doing business by the World Bank in Europe – and very rightly so. Its economic system is similar to its neighbor Sweden – it has a market economy with a strong welfare program. Despite the emphasis put on welfare, it also ranks 7th in the world for being the most welcoming country for capital investment. Aside from being easy to enter by foreign investors, Denmark can also offer some unique points for the staff operation: first of all, it has a lot of multicultural professionals, most of whom speak English. Second of all, its flexible laws make the hiring and firing process extremely easy, allowing you to avoid most of the bureaucratic procedures famously practiced in some Western countries. Its infrastructure in no way yields to the Swedish one. When it comes to specific industries, Denmark is one of the world’s biggest hubs for biotech and life sciences, as well as food innovations. Aside from that, education, media, mass transit, and many other industries remain attractive investment options. Low-interest rates and stable economic growth invite businesses to grow, expand, and start in Denmark.
The Czech Republic is a rising star for start-ups, well-established businesses, and branches of the existing companies. As a member of the EU, it offers an exceptional location in the centre of Europe. Its sophisticated transportation system, which is one of the best in Central and Eastern Europe, makes it a key European hub for transitions, connections and links with Western, Eastern and Central Europe. It is also a jurisdiction with one of the lowest tax rates in the union – for business owners, the flat tax rate may be reduced by up to 60% using the lump sum, with the effective tax eventually being around 6-9%. The cost of renting an actual or a virtual office is also one of the lowest in the world – renting an office in Prague would be about 90% cheaper than doing so in Hong Kong. And finally, Czechia has the lowest unemployment rate in Europe (1.91%) – its skilled workforce with many English speakers would perfectly complement your business expansion. YeYe Agency has a long history of assisting international businesses with entering a new market, and even under the COVID-19 conditions, we are supporting five new companies expanding to Europe. Czechia is an extremely attractive investment opportunity because it has a lot to offer with more room for expansion than Denmark or Sweden.
In 2020, Ireland ranked best for doing taxes according to the World Bank. It has incredible tax incentives for entrepreneurs with one of the lowest corporate tax rates for business income in the EU: only 12.5%. Together, the corporate tax benefits add up to 37.5% and serve as a great stimulus for aspiring companies. Furthermore, start-ups may benefit from a wide range of available funding: Enterprise Ireland, an Irish state economic development agency, annually invests in as many as 200 new export-focused businesses! They also have connections with other Irish investors and can help you build a relationship with them, shall be needed. New companies in Ireland get access to experienced, high-tech staff, numerous investors, research opportunities, producers, and suppliers suitable for any business. The main industries in the country are the food and export sectors, life sciences, gaming, IT, and the financial sector. Ireland saw a stable growth up until the COVID-19 pandemic – in 2019, it enjoyed a 5,6% GDP growth while in 2020 the downfall was estimated at -2,3%. In 2021, the Irish economy is expected to recover with 2,9% GDP growth and then 2,6% in 2022.
Lithuania is a very business-oriented country that keeps on finding new ways to motivate foreign investors aiming to make itself more competitive in the Western market. After becoming a free-market economy following the collapse of the USSR, Lithuania – the largest Baltic state – saw an exceptional increase in export, wage growth, trade and investment. Lithuania’s top five trading partners as of 2019 are Russia, Latvia, Poland, Germany, and Estonia. The UK and the US also make it in the top 10 with the US making up for $1.23 billion of Lithuanian exports. In 2020, Lithuania was ranked the third-best country for the ease of doing business in the EU. In January of the same year, the Lithuanian government approved the proposal to exempt both local and foreign capital businesses from corporate taxation considering that they invest at least 30 million EUR and produce 200 jobs. One of the main reasons why Lithuania is so encouraging of foreign investment is because the government is dedicated to supporting companies that will provide more jobs for Lithuanians. Each foreign entity must hire at least three permanent residents or citizens of Lithuania – but the good news is that Lithuanians are highly skilled, usually multi-lingual, and exceptionally professional. Furthermore, labor is rather inexpensive with the minimum wage being at 607 EUR/month.
The data for the rankings below are taken from the World Bank’s ranks in “Ease of Doing Business Score”. The three categories for the countries chosen are “Easy for Doing Business”, “Starting a Business” and “Paying Taxes”. All the scores are out of a 100 where 100 is the highest possible score and 0 is the lowest.
|EU Countries||Easy for Doing Business||Starting a Business||Paying Taxes|
Data for the rankings are taken from The World Bank.
The data for the rankings below are taken from the “Tax Rates Europe” on Wikipedia. EU countries are placed in alphabetical order and divided into three categories: “corporate tax”, “maximum income tax rate” and “standard VAT rate”. Top five European countries for the lowest corporate tax rate (in order from lowest): Hungary, Bulgaria, Cyprus, Ireland, Lithuania.
|EU Country||Corporate tax||The maximum income tax rate||Standard VAT rate|
|Austria||25%||55%||20% (Reduced rates 10% + 13%)|
|Belgium||29% (25% from 2020. For SME’s 20% from 2018 on the first €100,000 profit)||50% (excluding 13.07% social security paid by the employee and also excluding 32% social security paid by the employer)||21% (Reduced rates of 6% and 12%)|
|Bulgaria||10%||10% (additional 12.9% by the employee for social security contributions, i.e. health insurance, pension and unemployment fund); and additional 17.9% by the employer for various social security contributions)||20% (Reduced rates 9%)|
|Croatia||18% (Reduced rate 12% for small business)||40% (excluding 35.2% total sum of insurances levied on income)||25% (Reduced rates 13% + 5%)(Reduced rates 9%)|
|Cyprus||12.5%||35%||19% (Reduced rates 5% + 9%)(Reduced rates 9%)|
|Czech Republic||19%||53.5% (15% income tax + 6.5% by employee + 25% by employer (2.3% healthcare + 21.5% social security + 1.2% state policy of employment) + 7% solidarity contribution (assuming income is above 1 277 328 CZK per year))||21% (reduced rates of 15% and 10%)|
|Denmark||22%||51.95% (including 8% social security paid by the employee but excluding 0.42–1.48% church tax imposed on members of the national Church of Denmark)||25% (reduced rate 0% on transportation of passengers and newspapers normally published at a rate of more than one issue per month)|
|Estonia||20% CIT on distributed profit. 14% on regular distribution. 0% on undistributed profits.||20% (+ 2.4% of unemployment insurance tax, 0.8% paid by the employer, 1.6% paid by the employee and 33% social security which is paid before gross wage by employer) around 57,8% in total||20% (reduced rate of 9%)|
|Finland||20%||25% to 67% depending on the net income and municipality, including 7.8% social insurance fees, employee unemployment payment and employer unemployment payment, which is on average 18% (2018).||24% (reduced rate of 14% for groceries and restaurants, 10% for books, medicine, transport of passengers and some others)|
|France||30% (including social contributions) after 2018 (‘PFU’), before: 33.3% (36.6% above €3.5M, 15% below €38k)||49% (45% +4% for annual incomes above €250,000 for single taxpayers or above €500,000 for married couples) + social security and social contribution taxes at various rates, for example, 17,2 % for capital gains, interests and dividends.||20% (reduced rate of 10%, 5.5%, 2.1% and 0% for specific cases like some food, transportation, cultural goods, etc.)|
|Germany||22.825% (few small villages) to 32.925% (in Munich) depending on the municipality. This includes the 15% CIT, 5.5% solidarity surcharge plus the trade tax payable to the municipality.||47.475% which includes 45% income tax and 5.5% solidarity surcharge based on the total tax bill for incomes above €256,304. The entry tax rate is 14% for incomes exceeding the basic annual threshold of €9,000.||19% (reduced rate of 7% applies e.g. on sales of certain foods, books and magazines, flowers and transports)|
|Greece||28%||65.67% (45% for >€40,000+ 7.5% Solidarity Tax for >€40000)+(26.95% Social Security for employees or up to 47.95% for private professionals)||24% (Reduced rates 13% and 5%)|
|Hungary||9%||33.5% Employee expenses altogether of gross salary without children: 15% Income Tax (flat), Social Security: 10% Pension, 3% in cash + 4% in-kind Health Care, 1.5% Labor Market contributions
Employer: 17.5% Social Tax, 1.5% Labour Contribution of the monthly gross salary
|27% (Reduced rates 18% and 5%)|
|Ireland||12.5% for trading income
25% for non-trading income
|40% over €34,550 for single, €42,800 for married taxpayers.Plus USC(Universal Social Charge)4.5% on income up to €50,170 and 8% on balance. Social insurance 4%||23%|
|Italy||27.9% (24% plus 3.9% municipal)||45.83% (43% income tax + 2.03% regional income tax + 0.8% municipal income tax)||22% (Reduced rates 10%, 5%, 4%)|
|Latvia||20% CIT on distributed profit. 0% on undistributed profits. 15% on small businesses||20%(income tax) 35.09%(social insurance) Total up to 55.09%||21% (reduced rates 12% and 0%)|
|Lithuania||15% (5% for small businesses)||44.27% (effective tax rates: 34.27% social insurance (nominally it is 1.77% payable by employer + 19.5% payable by employee + from 1.8% to 3% optional accumulation of pence), 20% income||21% (Reduced rates 5%, 9%)|
|Luxembourg||24.94% (commercial activity); 5.718% on intellectual property income, royalties.||43.6% (40% income tax + 9% solidarity surcharge calculated on the income tax)||17% (Reduced rates 3%, 8%, 14%)|
|Malta||35% (6/7 or 5/7 tax refunds gives an effective rate of 5% or 10% for most companies)||35% (additional 10% by the employee for social security contributions, i.e. health insurance, pension and education); and an additional 10% by the employer for various social security contributions)||18% (Reduced rates 5%, 7% and 0% for life necessities – groceries, water, prescription medications, medical equipment and supplies, public transport, children’s education fees)|
|Netherlands||25% above €200,000 of profit and otherwise 16.5%||49.5%(excluding income dependent bracket discount for incomes up to €98.604)||21% (reduced rate of 9% and 0% for some goods and services)|
|Poland||19% (Reduced rate 9% for small business since 01.01.2019)||17% up to 85 528 zł (from 1.10.2019)
32% above 85 528 zł (~20 000 euro)
|23% (reduced rates of 5% and 8%)|
|Portugal||21% + 3 to 9% depending on profit||48% + 5% solidarity surcharge + 11% social security (paid by the employee) + 23,75% (social security paid by the company)||23% (reduced rates 13% and 6%)|
|Romania||Revenue <€1m: 1% of all sales
Revenue >€1m: 16% on profit
|Employee: 41.5% [10% income tax (out of gross minus pension & health deductions), 25% pension contribution (out of gross), 10% health contribution (out of gross)] – Gross incomes below RON 3,600 benefit from personal deductions of up to RON 1,310 from taxable income.
Employer: 2.25% (compulsory work insurance)
|19% (reduced rates of 9% and 5%)|
|Slovakia||21%||50% (income tax 19% + 25% for the part of annual income greater than €35,022.31; additional contributions at 4% mandatory health insurance by the employee and 10% by employer, 9.4% Social Security by the employee and 25.2% by employer)||20% (10% reduced rate)|
|Slovenia||19%||50%||22% (reduced rate 9.5%) – from 1 July 2013|
4% in the Canary Islands
|45% maximum Income tax rate. Not including employee contributions of 6.35% Social Security tax, 4.7% pension contribution tax, 1.55% unemployment tax, 0.1% worker training tax. Not including employer contribution of 23.6% Social security tax, 5.5% unemployment tax, 3.5% (or more) workers comp tax, worker training tax .06%, 0.2% FOGASA tax (employment tax in case of company bankruptcy).||21% (reduced rates 10% and 4%)|
|Sweden||22% (21.4% 2019, 20.6% 2021)||55.5% including social security paid by the employer||25% (reduced rates 12% and 6%)|
Credit for the information provided in the table: Tax rates in Europe
YeYe Agency has extensive experience helping international businesses establish companies and expanding to Europe. Here is a list of entities you may wish to consider when starting a company in the EU. Thanks to our large area of expertise, we can assist you with all of them. Now more than ever, you might be interested in doing so remotely. After the establishment, you will be able to manage all local business procedures from any place in the world with the help of our online platform.
Limited Liability Company is preferred for small and medium-sized businesses. The required minimum capital is symbolic – 1 CZK. The owner must have at least one partner and at least one authorized manager, who can be a foreign citizen.
The European Company/Societas Europaea (SE) is a category of a limited liability company, which is also suitable for medium/small size businesses. The advantage it gives you is that you’ll be able to operate the company in different European countries through the same guidelines. This way, you’ll also be able to transfer your business to another European country in a simple way.
Joint Stock Company is a perfect choice for large businesses. In this case, the minimum capital should be two million CZK. During the incorporation, the owner is required to pay at least 30% of that. However, the investors will be liable only for the amount they contribute to the formation of the company.
Representative offices (liaison offices) allow you for a limited functioning of the office in the new country. As such, they do not permit you to carry direct business activities as representative offices do not have the status of legal entities. You will be required to appoint a local manager who will represent the parent company’s interests and perform duties accordingly.
Branch offices are convenient options for those who wish to expand the existing business into the new market. However, bear in mind that branch offices will not provide the company with legal status in most European countries. With a branch office, you can continue conducting business activities in the same way as in the parent company after appointing a local manager.
The European Union provides many economic development incentives, most of which depend on a specific region. As such, Poland created “Special Economic Zones” to attract foreign investors with a grand corporate tax reduction. The Research Tax Credit adopted in several European countries offers large tax relief for a big range of research-related expenditures. Similarly, in the Czech Republic, as an investor, you can get a 5-year property tax exemption and a 10-year corporate income tax reduction.
However, the EU is strict about the type of regional aid a country can provide: the EU State Aid laws forbid any grants given to private parties in such amounts that would limit free competition. During COVID, all member states increased their welfare packages to support businesses with large subsidies for covering employee’s compensations, tax deductions, and more. For example, the Czech Republic also introduced an interest-free loan of up to 15 million CZK for small and medium-sized businesses that lost their contracts.
The EU has an accommodating labour market, which ensures the most efficient functioning and allocation of the workers. Compared to the US, it has a more stable positive growth of the number of new jobs and incorporates more young professionals between the ages of 15-25 (15.3% in the EU and 14.1% in the US respectively.)
When hiring someone on the territory of the EU, you are required to oblige with the minimum requirements for staff regulations of the EU. You can offer the staff full-time, part-time, fixed-term, or temporary agency work agreements. During hiring, you must provide the employees with the terms of employment in writing between the day before and up to two months after the beginning of the employment (depending on the country). Your hiring process should adhere to the non-discriminatory regulations set out by the EU. All workers should be over the age of 15 (the age limit depends on the country) – those between the ages of 15-18, are allowed to work up to 8 hours a day and 40 hours a week. You also have obligations when laying-off a high number of staff (depending on the business size), which counts as a collective redundancy. YeYe Agency can help you throughout the process of finding and hiring the right professionals for your business.
In the EU, each country sets up its own social security regulations but the EU ensures that every citizens’ security cover applies in any country of the union (all EU member states including Iceland, Liechtenstein, Norway, Switzerland, and the United Kingdom). Some of the general rules are:
The European market is a secure, promising, and attractive option for starting a new business. With many countries to choose from and access to a single European market, you cannot go wrong when choosing Europe as your investment option. Contact YeYe Agency to find out more about your future steps and discuss the opportunities.