European Union: Where Should You Set Up Your EU Entity?

Last Updated: 27 November 2018
Article by Kevin Butler

Establishing an entity in another country is the number one action businesses are taking to prepare for Brexit. Find out if these key European jurisdictions are right for your operations.

The overwhelming majority of international firms are yet to finalise their Brexit response plan, according to the latest report from TMF Group. But the number one action that proactive businesses are taking to be ready for the UK's final divorce deal from the EU, is to set up entities in other countries.

It's a common-sense move that is going to safeguard your operations from any disruption to 'business as usual.' So which European jurisdiction should you choose and why? Here are five key locations to consider.

If you need help with entity establishment in Europe and beyond, don't hesitate to get in touch or join our webinar with Brexit Partners to learn more.

1. Ireland

Long seen as a gateway to the European market and its more than 500 million people, Ireland has a low corporate tax rate (12.5 per cent) and a growing economy. The country is a favourite for global firms to use as their European headquarters (Apple, Google, Facebook, LinkedIn, among many others). It has the least complex regime among more than 80 countries for corporate compliance. The regulatory requirements for starting a business are straightforward; registering a firm only takes about a week. Businesses take on average, 82 hours a year to prepare, file and pay taxes, according to the World Bank – that's about half the time it takes in other high-income countries.

Key benefits

  • Strong educated workforce - and the youngest population in Europe under 35
  • Post-Brexit, will be the only native English-speaking member of the Eurozone
  • Easiest place in the world to do business in terms of corporate compliance
  • 12.5% corporate tax rate
  • Extensive double taxation agreements and R&D tax credits.

2. The Netherlands

The Netherlands boasts a competitive fiscal climate for businesses with real presence and a friendly business environment. Its central location allows for easy penetration into markets throughout Europe. The country has highly advanced transport infrastructure, including Amsterdam's Schiphol Airport and the Port of Rotterdam, which is Europe's largest, and set to play a key role post-Brexit.

The Dutch 'B.V.' is the most frequently-used legal entity for business in the Netherlands, while all foreign legal entities except sole proprietorships are recognised. Incorporation is swift, taking approximately one week. Corporate tax rates in the Netherlands are 20 per cent for taxable amounts under €200,000 and 25 per cent for amounts above that. Over the coming years, the corporate tax rate will be gradually reduced. Some legal entities, such as tax investment institutions, don't pay corporation tax. Others may be exempt if they make collective investments from corporation tax. A reduced rate is available for business activities covered by the 'innovation box.'

Key benefits

  • Gateway to Europe
  • Stable investment climate
  • Highly qualified and multilingual workforce
  • Extensive tax treaty network
  • Incentives for innovation (innovation box regime)
  • Certainty in advance (ruling) on Dutch tax law implications.

3. Luxembourg

Luxembourg is known for its excellent infrastructure, favourable tax environment and economic policy that encourages international business. Like the Netherlands, its location in the heart of Europe allows for the free movement of goods, services and people. Its public administration is flexible and responsive. Its corporate tax rate changes depending on taxable income levels, but broadly, the CIT rate is 18 per cent + a seven per cent unemployment surcharge. The most common company types in Luxembourg are the Limited Liability Company (SARL) and the Public Limited Company (SA). Minimum capital requirement is the key difference between the two, and SAs are obliged to appoint an auditor.

It also doesn't get much better than Luxembourg when it comes to setting up an investment fund. The country is a major centre to domicile PERE (private equity and real estate) types of funds, where the strategy is not local but cross-border across Europe and beyond. The flexibility of available vehicles with their different legal forms is a key attraction.

Key benefits:

  • Highly educated, multilingual workforce
  • Central European location.
  • Political and economic stability
  • Extensive double tax treaty network
  • 18% corporate tax rate
  • Tax incentives for foreign companies.

4. Malta

A hub for business particularly from European and North African countries, incorporated companies looking for a new EU domicile can change to Malta without needing to wind-up their existing business. This small island nation in the central Mediterranean is particularly attractive due to its favourable corporate tax regime, available to international trading companies. Double taxation relief is available through Malta's use of the full corporate tax imputation system.

The corporate tax rate in Malta is 35 per cent, chargeable on the net profit of a Maltese company. However, a number of allowable tax benefits can bring total tax exposure down to 0 – 10 per cent.

Key benefits

  • English-speaking workforce
  • Only EU jurisdiction to apply a full tax imputation
  • Double tax treaties with more than 70 countries
  • Adopts the Parent Subsidiary Directive
  • Capital gains and Stamp Duty on Documents derived by non-residents on transfers of shares and increases of share capital are not subject to tax in Malta, if the assets of the company do not include immovable property situated in Malta
  • No withholding tax on the payment of dividends, interest or royalties
  • No controlled foreign company legislation or transfer of pricing rules
  • No thin capitalisation rules
  • No exit taxes, wealth taxes, payroll-based tax or trade tax
  • Companies may opt to apply the Notional Interest Deduction Rules calculated on the Risk Capital portion
  • Maltese company can be formed with a minimum share capital of €1,165.

5. Jersey

Jersey is a self-governing dependency of the British Crown, with its own government, legal and tax systems. The island has a special relationship with the EU through the UK, which is responsible for representing its interests in Brexit negotiations. Jersey is making preparations for Brexit, and intends to continue trade and retain the EU rules it currently uses for legal and financial services.

A world-leading international finance centre that employs a quarter of the local workforce, Jersey is characterised by its independence, stability and tax neutrality. It has a robust legal system and high regulatory standards. It's a key hub for trust and corporate services,

The standard rate of corporate tax in Jersey is 0 per cent. There are exceptions however, with financial service companies taxed at 10 per cent and utility companies, 20 per cent.

Key benefits

  • Mature finance industry
  • High regulatory standards
  • Highly skilled workforce
  • Attractive location for doing business with both the EU and UK
  • Favourable tax regime – 0% CIT rate
  • No purchase, capital gains or capital transfer tax.

Talk to us

Being on the front foot with your Brexit contingency planning allows you to safeguard against operational disruptions, and be well placed when new business opportunities arise. Our international expansion experts help firms select, establish and operate in new countries, whether that be in the UK, across the EU-27 or further afield. Make an enquiry with us today.

Register for our 28 November webinar with Brexit Partners to learn about what company preparations should be made for Brexit.

Download your free Brexit Snapshot report here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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