Starting a Business in Europe: What You Need to Know
An Introduction for Non-European Entrepreneurs, Freelancers, and the Self-Employed
By Volker Poelzl
Resources updated 3/21/2019 by Transitions Abroad.
Under the current economic conditions in Europe, such as slow growth, political instability of all kinds, BREXIT fallout, etc., this is quite honestly not the ideal time to set up a business. But with most of Europe notorious for its slow growth even during good economic times, there are still opportunities to starts your business in Europe if you are aware of all the practical realities and barriers.
One of the most important things that should be foremost on your mind is that each European country has its own unique rules and laws regarding foreigners from outside the EU who want to set up a business. Although the European Union theoretically has a joint immigration policy, known as the Schengen agreement, there are as many different laws relating to immigrating, working, and setting up a business as there are member countries. Some countries make it fairly easy to immigrate, obtain a residency permit, open a business, while others make it virtually impossible for non-Europeans to establish residency and start a business.
Obviously, recent waves of immigration due to conflicts in the Middle East and North Africa, as well as other impoverished or unstable nations, have increased the political pressures for the preservation of jobs for permanent citizens. The global economy is progressively emphasizing automation and continues to take advantage of cheaper labor overseas. Unemployment remains high in most European countries. So you have to offer self-sustaining income and/or the creation of jobs for others to overcome barriers to get the go-ahead to start your own business in Europe..
Requirements for Setting up a Business in Europe
Despite the different laws regarding business permits for foreigners, there is one regulation most European countries share: foreigners intending to open a business do not need a work permit or any other type of visa. They simply need a residency permit in the country where they intend to establish their business. These residency permits are temporary at first, but after a few years, depending on the success of your business venture, you might be able to obtain a long-term residency permit. There are several types of businesses you can set up to qualify for a residency permit. You can set up your business as a sole trader, a partnership, a branch or office of a foreign company, or a company registered in your host country.
To determine if your application for residency is truly with the intent to start a business, each country’s national and economic interests are taken into consideration, in addition to other factors. Unless your self-employment or business activity is likely to make a significant contribution to the, economy, culture, and/or sciences of your chosen destination, there is only a slim chance that your business proposal will be approved and that you will be granted a residency permit. To be able to obtain a residency permit for the purpose of starting a business, some countries require a business plan, which is then examined by labor and immigration authorities to determine if it suits the economic needs of the country. In essence, your business plan needs to show that you will make investments and provide services for which there is a need in the country of your interest.
Some countries require that you prove a certain amount of money available to fund your start-up. If you want to set up a business in the UK (pre-Brexit), for example, you need to have at least 50,000 pounds to invest in your business, as well as additional funds (200,000 pounds) to support yourself and your family until your business is profitable. Laws in most European countries also require that you have a controlling or equal interest in your business (in the case of a partnership), that you have to be involved full-time, and that you cannot seek public assistance or take on employment while operating your business.
Some countries do not specify how many jobs your business needs to create to be allowed to operate, while others require a certain amount of jobs created. The UK, for example, requires that two new full-time jobs for UK residents or citizens be created by your business.
In addition to legal requirements to be able to set up a business as a foreigner from outside Europe, each country has its own regulations regarding business permits, registrations, etc. To operate your business, you must register your business with the local authorities (the jurisdictions and responsible government agencies vary from country to country), get a business tax identification number, and register with the respective social security administration. Some countries also require business owners to be registered members of a chamber of commerce or other governing business organization. In many countries, chambers of commerce are not just regulatory institutions but also provide useful information, business plan advice, training, support, and resources for business start-ups.
Obtaining a Residency Permit in Europe to Start a Business
With the ongoing expansion of the European Union (now up to 28 members), it is becoming increasingly difficult for citizens of countries outside Europe to obtain a residency permit to start a business. This is in part related to the fact that the EU requires that all citizens of member countries be treated the same way as nationals. This means that for example, a Greek entrepreneur starting a business in France is entitled to the same support, services, training, and loans, as a French citizen. Consequently, there is much less demand for entrepreneurs and business people from outside of Europe to introduce innovative ideas, services, and products. Although the overall business climate is not particularly friendly toward non-Europeans, each EU member country has its own laws governing residency permits for business purposes. Below I offer an overview of the residency requirements for Europe’s most popular destinations for expatriates.
Foreigners wishing to set up a business or work as a freelancer or self-employed must obtain a professional card, which entitles them to carry out their economic activity in Belgium. You may have to prove your qualifications (relevant education, knowledge, and experience) and demonstrate success in your professional field to obtain the card. It will also be necessary to show that you have sufficient capital to fund your business start-up and support yourself. To set up a business or pursue self-employment in Belgium you have to register with the Banque-Carrefour des Entreprises (BCE), a government business registry for small enterprises and the self-employed. All across Belgium, there are numerous guichets d’entreprises (business centers), which are private government-approved consulting firms that will help you register your business with the BCE, obtain the necessary permits and tax numbers, and help you with any other needs you may have to open a business or start your self-employment activity.
Foreigners from outside Europe can open a business or pursue self-employment activities in Denmark, provided that they meet certain conditions. There must be particular Danish business interests related to the establishment of your business in Denmark, and you must present documentation that you have access to sufficient financial means to run your business. As a self-employed person you will normally be granted a residence permit for one year with a possibility for extension. After two years' residence, you may be granted a residence permit for a longer period of time.
To facilitate the residency permit process for foreign self-employed professionals, the French government has created the “Skills and Talents" permit (Compétences et Talents), a new program for people that can make a considerable cultural, scientific, artistic or economic contribution to the country. The “Skills and Talents Card” for the self-employed allows foreigners from outside Europe to open a business or work as a highly skilled self-employed professional. If you fall under this category, you don’t need a job offer. All you need is to demonstrate exceptional professional skills and enough funds to get started. Here are some examples of eligible applicants: University graduates, qualified professionals regardless of their academic level, investors in an economic project, independent professionals such as artists, authors, athletes, etc., senior managers, and high-level executives.
If you would like to open a business in Ireland, you need business permission from the Department of Justice, Equality and Law Reform. To be approved for the Entrepreneur program you need to invest at least 75,000 Euros with the potential to employ 10 people from the European Economic Area (EU countries plus Switzerland, Iceland, Norway, Liechtenstein). You also have to prove your skill level to run your business and submit a business plan that is endorsed by an accounting firm. As outlined in the conditions, your business also “must add to the commercial activity and competitiveness of the State” and provide you with sufficient income to support yourself and your family. There is also a 12-month program for those working in the STEM field that does not require an initial outlay.
Foreigners intending to open a business in Germany can obtain a residence permit if there is an overriding economic interest or a regional demand, if the activity can be expected to have a positive impact on the economy and if the funding is ensured. Foreign self-employed entrepreneurs may gain entry if their business is successful and their livelihood is assured and if over 45 proof can be offered that sufficient income is available to provide for "old age.".
The self-employed and entrepreneurs do not need a work permit for the Netherlands, but they need a residence permit to work as a self-employed person (verblijf voor het verrichten van arbeid als zelfstandige). To obtain this permit, you need to show that your business activity makes a positive contribution to Dutch society and/or the Dutch economy.
Instead of a work permit you need to apply for a residency permit and provide documentation that outlines your qualifications, business plan, start-up capital, and intended self-employed activity. To determine your eligibility for a residency permit as a self-employed person or entrepreneur, the Dutch immigration service uses a point system that takes into account the benefits of your activity to the Netherlands. As a self-employed person or entrepreneur, you are required to register as a business.
Citizens of countries outside the EU who want to pursue self-employment or establish a business need to obtain a residence card before being able to legally live and work in Spain. Your residency application may be approved if you can show that you have enough capital to get started and that the business will be able to support you. You also need to show that you have the qualifications required to operate your business.
Foreigners from outside the EU/EEA who would like to establish a business or a business partnership in Sweden first must get a residency permit to be able to legally stay in Sweden. As with all other EU countries, a work permit is not required in this case. To have your residency permit approved you need to own at least 50% of the business, and you need to show that the business will be profitable and that it will support you and your family. You also need to show that you are experienced, that you are qualified to run your business, and that you have enough capital to get started. You need to submit a detailed business plan to be reviewed by the Migration Board. If approved you will be granted a probationary residency permit for two years.
The United Kingdom
If you want to set up a business in the UK, you need to have at least 200,000 pounds to invest in your business, as well as additional funds to support yourself and your family until your business is profitable. Furthermore, you have to have a controlling or equal interest in your business (in the case of a partnership), that you have to be involved full-time and that you cannot seek public assistance or take on employment while operating your business. The UK also requires that two new full-time jobs for UK residents or citizens be created by your business.
For links to embassy/consulate websites and other resources that provide visa information, please visit our Living Abroad in Europe section and go to the “Embassies, Consulates, and Immigration” sections on the pages of the country of your interest.
How Easy is it to Set Up a Business?
There are a number of surveys by large international organizations such as the World Bank that regularly evaluate the business-friendly economic environment of countries worldwide. The World Bank’s Ease of Doing Business Index project provides objective measures of business regulations and their enforcement across 190 economies and selected cities around the world. The report includes several criteria important for doing business, such as starting a business, dealing with construction, employing workers, registering property, getting credit, paying taxes, trading across borders, enforcing contracts, etc.
According to the 2018 World Bank report, the highest ranked European countries are:
- Denmark (#3)
- Norway (#7)
- UK (#9)
- Sweden (#12)
- Finland (#17)
Europe’s other large economies are ranked quite a bit lower:
- Ireland (#23)
- Germany (#24)
- Austria (#26)
- Spain (#30)
- France (#32)
- Poland (#33)
- Czech Republic(#34)
- Portugal (#36)
- Switzerland (#38)
- Switzerland (#45)
- Italy (#51)
How Competitive is the Business Environment?
Another frequently used indicator is the Global Competitiveness Report, published annually by the World Economic Forum. According to its own definition, the Global Competitiveness Report “identifies impediments to growth and thereby helps stimulate the development of relevant strategies to achieve sustained economic progress…It is the most comprehensive and authoritative assessment of the comparative strengths and weaknesses of national economies, used by governments, academics and business leaders.” Although European countries generally rank high in this report, not all countries are able to maintain their positions from one year to the next. The report’s Country Profile Highlights provides a summary of the strong qualities of each country’s economy. Sweden, Finland, and Denmark, for example, are all ranked among the top 17 countries with regard to macroeconomic stability with healthy budget surpluses and low levels of public indebtedness. Germany, on the other hand, is ranked 1st for the quality of its infrastructure, especially transportation and communications. France is also lauded for its excellent infrastructure especially in regard to transportation, communications, and energy.
The very politically conservative Index of Economic Freedom is a series of 10 economic measurements published annually by the Heritage Foundation. The index states, “Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please. In economically free societies, governments allow labor, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.” Based on this definition, from which it derives its ten major criteria (i.e. business freedom, trade freedom, monetary freedom, property rights, etc.), the report ranks 186 countries worldwide. Surprisingly, the highest ranked European country is Switzerland (#4), Ireland (#6), followed by the UK (#7)— the only European countries among their top ten (interestingly, Canada is ranked as #8 while the U.S. is ranked #12).
Corruption, Cronyism, Organized Crime, and other Woes
Corruption is an inherent part of doing business
in a number of European countries. But most
European countries have either a very low or moderate level of
corruption, which does not significantly interfere with conducting
a successful business.
Transparency International’s Corruption Perceptions Index (CPI), an annually published survey of corruption worldwide, is a useful tool to determine how much corruption affects the daily life, politics, and economy in 180 countries worldwide. The Corruption Perceptions Index (CPI) is a "survey of surveys", based on 13 different expert assessments and business surveys.
The 2019 ranking shows that generally Scandinavian
and Central European countries have very low corruption ratings
according to the non-partisan CPI:
- Denmark (#1)
- Finland (#3)
- Sweden (#4-tie)
- Switzerland (#4-tie)
- Norway (#7)
- Netherlands (#8)
- Luxemburg (#9-tie)
- Germany (#9-tie)
- Iceland (#11)
- UK (#12-tie)
- Austria (#12-tie)
- Belgium (#17)
- Ireland (#18)
- France (#23)
In 2019, some southern European countries,
on the other hand, according to the report, corruption is a bit
more wide-spread, including:
- Portugal (#30)
- Spain (#30)
- Cyprus (#41)
- Malta (#50)
- Italy (#51)
Many Eastern and Southeastern European countries
also rank fairly low according to the report's corruption index:
- Estonia (#18)
- Poland (#41)
- Slovenia (#35-tie)
- Lithuania (#35-tie)
- Latvia (#44-tie)
- Czech Republic (#44)
- Slovakia (#59)
- Greece (#60)
- Croatia (#63)
- Montenegro (#66-tie)
- Romania (#70-tie)
- Hungary (#70-tie)
- Armenia (#76)
- Turkey (#91)
- Serbia (#91)
It is also interesting to note that a few of the former Soviet
Republics in Eastern Europe have been given the some of the higher
corruption indices in the world according to the independent report:
- Belarus (#70)
- Bulgaria (#74)
- Kosova (#101-tie)
- Bosnia and Herzegovina (#101-tie)
- North Macedonia (#104)
- Albania (#106)
- Ukraine (#126-tie)
- Kyrgyzstan (#126-tie)
- Russia (#137)
Europe’s Leading Business Cities
Cushman & Wakefield, a privately held commercial real estate services firm, publishes the European Cities Monitor, an annual survey of Europe’s major business centers, based on data and assessments from 500 leading European companies. The survey focuses on the main topics of "best for business” and the “best city in which to locate a business today,” but the survey also includes a number of other criteria such as quality of life, telecommunications, access to markets, availability and quality of staff, cost of office space and transportation. London has maintained its first position ever since the beginning of the survey in 1990. Here are the top ten European leading business cities cited:
- London (#1)
- Paris (#2)
- Amsterdam (#3)
- Berlin (#4)
- Frankfurt (#5)
- Copenhagen (#6)
- Munich (#7)
- Dublin (#8)
- Milan (#9)
- Vienna (#10)
It is notable that Prague and Warsaw have consistently climbed the ranking since joining the EU and in the last survey they reached 21st and 23rd places respectively. According to Cushman & Wakefield, Warsaw can expect the biggest influx of companies in the next five years, replacing Moscow in popularity. But it is not only the overall ranking that is important but also the individual categories that are part of it. Warsaw ranks high among European capitals in terms of cost of qualified staff, low cost and availability of office space, and a positive business climate created by the government. London, on the other hand, although still ranked as Europe’s number one business city by the European Cities Monitor, ranks low on the cost of staff, the cost of office space and levels of pollution.
Small Businesses vs. Startup Businesses in Europe
But keep in mind that what makes London, Paris, and Frankfurt attractive for Europe’s leading businesses may not necessarily be as important for small businesses or start-ups. It is very important to determine the needs of your business or business start-up before putting your faith in any of the surveys and studies mentioned in this article.
For more information about individual countries, visit the website of the U.S. Department of Commerce (Export.gov), where you will find individual country sections that also offer Country Commercial Guides, with detailed information about the business and investment climate in each European country. These guides are an invaluable resource for anyone interested in opening a business abroad and include a detailed market overview, as well as detailed information about market challenges, market opportunities, and market entry strategies.
If you need further country analysis and information and don’t mind paying for it, check out the website of the Economist Intelligence Unit (EIU). The EIU is a research and advisory company providing country, industry, and management analysis worldwide. It provides monthly country reports, 5-year country economic forecasts, country risk service reports, and industry reports. EIU also provides in-depth research for businesses that require analysis of particular markets or business sectors.
He has traveled in over 40 countries worldwide and has lived in ten of them for study, research and work.