When expanding operations to Europe, most businesses have the same 4 key questions: In what European country should I set up my company? How do I set up my company in a tax efficient way? How do I hire, employ, and incentivize local teams? Are my existing company policies, procedures, and contracts sufficient for local requirements and customs?
1. In what European country should I establish my company?
If you have a key customer, vendor, or hire in a single country, then you may have a quick answer to this question. Many companies, however, are not tied to a specific European country. The question then often becomes one of “business friendly” environment and tax efficiency and depends on the goals, industry, size, ownership structure, employee base, and other complexities of your business. The simplest way to deal with this question is often to set up a “scoping” call with a qualified lawyer from (a) the specific European country you are interested in, or (b) a country that typically serves as a launching point for non-European based businesses, for example, Ireland, the United Kingdom, or Germany
2. How do I set up my company in a tax efficient way?
The two fundamental factors that affect tax are (a) the country in which you establish your legal entity, and (b) what type of entity you establish. There are several other factors to consider, for example: (a) tax year, (b) how you will finance the new business, (c) how best to offset startup costs against taxes, (d) strategy for getting profit out of the business, and (e) strategy for getting profit back to the United States. You will want to discuss these and other questions with an expert, which can be part of the “scoping” call mentioned above.
3. How do I hire, employ, and incentivize local teams?
On the legal and compliance side, you will likely need a two-part solution: a legal framework for (a) “expats”, those non-European employees you send to work in Europe on a short-term basis, and (b) true local hires. Your framework will include: (a) employment contracts, (b) compensation, (c) benefits, (d) cost of living adjustments, (e) termination policies, and (f) anti-discrimination and other policies. A clear understanding on when and how you can terminate an employee in Europe is essential to maintaining a healthy local team. It is much harder to fire an employee in Europe than it is in the United States. The attorney that advises you on these human resources matters, is typically a different person than the attorney who advises you on tax or corporate law in relation to establishing your entity.
4. Are my existing company policies, procedures, and contracts sufficient for local requirements and customs?
In several areas the answer will be no. For example, European data protection rules are stricter than those in the United States. As mentioned above, European rules around employment are generally also much stricter. You will need a comprehensive review of your data protection and human resource policies to ensure compliance with European standards. In addition, you will need to ensure proper book keeping especially for the payment of European taxes. There are different book keeping and payroll solutions available for the European market, which you will want to consider.
For a detailed list of legal and compliance tasks when expanding internationally, see Task List.
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