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Quick Tips on Business Expansion Into the EU

Posted by Jessica Hoyt on Jan 31, 2017
Jessica Hoyt
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Screen Shot 2017-01-30 at 9.25.10 PM.pngThere are many good reasons to expand your business abroad, particularly to the European Union, which is one of the world’s largest consumer markets. Companies choose to expand into the EU for a number of different reasons, including remaining competitive, growing market share, increasing revenue, and of course the growing issue of global talent scarcity. No matter what your reason(s), how you expand into new markets depends on why your company is expanding and your ultimate goal(s).

Globig recently spoke with Ragu Bhargava, the CEO of Global Upside, about business expansion into the European Union. Ragu offered advice on top EU countries for business expansion, taxes, employment law, and the difference between doing business in Eastern and Western European countries. This article will lay out some of Ragu’s quick tips on business expansion in the EU.

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Know the legal requirements to do business in each country.

There are many ways to do business in the EU, including ecommerce, hiring an in-country sales representative, creating a partnership or distributorship relationship, or setting up a business entity abroad. It is important to understand the business requirements for the type of business model you intend to use in a new country. Even within the EU, there are significant differences in business requirements.

The most apparent difference is that all countries have different types of business entities available. The business entity you have in your home country may be very different than the business entity that is available (or that makes sense for your company) in another country. Even if a similar business entity is available, each country will have different registration and business structure requirements, as well as different capital contribution or equity minimums. It is best to work with a local expert to determine what type of business model you should employ and the specific requirements in setting up the entity or model.

European data protection and privacy requirements are more strict than many other countries.

Data and privacy protection is of utmost importance to EU member states and citizens, so data protection is highly regulated to protect EU citizens. If you do business in the EU, your company will be subject to data protection laws. Whether you store data within the EU or intend to transfer it out of the EU, you are obligated to comply with data protection laws.

The EU has comprehensive data protection laws and regulations that each member state must incorporate into their national law. This means you must comply with the regulations applicable in each country in which you do business. The consequences of noncompliance are high and can be financial and nonfinancial. Fines and penalties are often assessed per violation or breach (on the individual data basis), the cost of remedying a data breach are ever increasing, and a data breach can have a ruinous effect on your business reputation. Again, you should work with a local expert who can help you to set up a data protection strategy that includes processes and procedures.

European tax and financial reports requirements are often more strict.

Every Country handles taxes in a unique way, but the one thing all tax systems have in common is their complexity. Tax is one of the most complex aspects of business, which is why almost every company hires an expert to handle its tax matters. Annual tax audits are required by statute in many European countries. This makes tax obligations and work more complex and onerous. Furthermore, most European countries have annual financial report requirements. These reports often become public information, even those reports of private companies. Because many private companies wish to keep their financials private, it is important to understand and consider tax reporting requirements rather than rush your business expansion plans.

European employment law is a big minefield that must be navigated with a thorough plan.

Employment law in EU countries is much different than many other countries, particularly the United States, and employment laws differ among EU countries. You cannot expect to move into the EU and bring your current employment practices and processes with you.

Employment contracts with very specific job details are really important, if not required, in most European countries. Unlike the US, EU countries tend to favor employees over employers. In some countries, such as France, it is very difficult to terminate an employee.

Furthermore, employees expectations and employer-employee relationships differ significantly from other countries, particularly the US. Most Europeans place a high value on work-life balance, which plays a major role in employee expectations in the EU.  France recently enacted legislation that banned (in some cases just limited) emailing employees after hours. Many Europeans enjoy much more holiday and family leave than employees in other countries.

There are still significant differences between Western and Eastern European countries.

Doing business in Eastern European countries still involves more red tape and often takes much longer than in Western European countries. For example, in some Eastern European countries it still take 3-4 months just to open a bank account. This should not be taken as a deterrent if there are reasons why you want to do business in Eastern Europe, but you should be aware of the additional complexities and the importance of working with local experts.

Expanding into the EU is often a great business decision because of the market opportunities that make it a no-brainer. The biggest challenge, sometimes even deterrent, is the highly regulated business environment throughout the EU. However, most companies see that the market opportunity greatly outweighs the regulation risks and costs. The foregoing tips should be used to your advantage in creating a carefully considered business expansion strategy and motivation to seek the local expertise your strategy requires.

Globig is here to help you with your business expansion needs around the world, even the U.S. Join Globig today for free business resources and expertise, and, through our Marketplace, access to vetted experts around the world. To learn more about how Global Upside can help you expand your business, visit their website.

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Topics: EU business expansion, EU data protection, EU employment law, EU business, EU taxes, PODCASt, Doing Business in Europe, Europe, employment law, Int'l HR