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 8/2023 by Transitions Abroad.
Under the current economic conditions in Europe, such as slow growth, political instability of all kinds, BREXIT fallout, etc., there have been better times 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 start your business in Europe if you know 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 unique rules and laws regarding foreigners 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 reasonably easy to immigrate, obtain a residency permit, and open a business. In contrast, others make it virtually impossible for non-Europeans to establish residency and start a business.
Recent waves of immigration due to conflicts in the Middle East, North Africa, and other impoverished or unstable nations have increased political pressures to preserve jobs for permanent citizens. The global economy is progressively emphasizing automation and continues taking advantage of cheaper overseas labor. Unemployment remains high in most European countries. So you have to offer self-sustaining income and create 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 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 can 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.
First, local administrators need to determine if your residency application is genuine. Do you intend to start a business such that each country's national and economic interests are considered? Unless your self-employment or business activity is likely to significantly contribute to your chosen destination's economy, culture, and sciences, there is only a slim chance that your business proposal will be approved and you will be granted a residency permit. Some countries require a business plan to obtain a residency permit to start a business. Your project is then examined by labor and immigration authorities to determine if it suits the country's economic needs. 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 provide a certain amount of money available to fund your start-up. Suppose you want to set up a business in the UK. In that case, you need at least 50,000 pounds to invest in your business and additional funds to support yourself and your family until your business is profitable, among other conditions. Laws in most European countries also require that you have a controlling or equal interest in your business (in the case of a partnership), must be involved full-time, and 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 employment generated. The UK, for example, requires that your business create two new full-time jobs for UK residents or citizens.
In addition to legal requirements to set up a business as a foreigner from outside Europe, each country has regulations regarding business permits, registrations, etc. To operate your business, you must register 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 institutions that provide helpful 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 27 members), it is becoming increasingly more difficult for citizens of countries outside Europe to obtain a residency permit to start a business. The hindrance is partly related to the fact that the EU requires the treatment of all citizens of member countries is the same as nationals. 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 outside 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 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. To acquire the card, you must prove your qualifications (relevant education, knowledge, and experience) and demonstrate success in your professional field. 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 must 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 outside Europe can open a business or pursue self-employment activities in Denmark, provided they meet certain conditions. There must be particular Danish business interests related to establishing 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 typically be granted a one-year residence permit with the possibility of an extension. After two years of residence, the government may provide you with a residence permit for a more extended period.
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 outside Europe to open a business or work as a highly skilled professionals. You don't need a job offer if you fall under this category. You must only 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 want to open a business in Ireland, you need business permission from the Department of Justice, Equality and Law Reform. To be approved for the The Start-up Entrepreneur Programme (STEP) program, you must invest at least 50,000 Euros, potentially employing ten people from the European Economic Area (EU countries plus Switzerland, Iceland, Norway, and Liechtenstein). You must also prove your skill level to run your business and submit a business plan 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 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 will likely impact the economy positively, and if you can ensure the funding. Foreign self-employed entrepreneurs may gain entry if their business is successful and their livelihood is assured. You must also prove that sufficient income is available for "old age."
The self-employed and entrepreneurs do not need a work permit in the Netherlands. Still, 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 must show that your business activity positively contributes to Dutch society and economy.
Instead of a work permit, you must apply for a residency permit and provide documentation outlining 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 considers the benefits of your activity to the Netherlands. As a self-employed person or entrepreneur, you are required to register as a business.
All 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 live and work in Spain legally. Your residency application may be approved if you show that you have enough capital to get started and that the business can support you. It would be best to indicate your qualifications to operate your business.
Foreigners outside the EU/EEA who want to establish a business or a business partnership in Sweden must first get a residency permit to stay in Sweden legally. As with all other EU countries, a work permit is not required. To have your residency permit approved, you need to own at least 50% of the business and show that the company will be profitable and will support you and your family. It would be best to indicate that you are experienced, qualified to run your business, and have enough capital to get started. You need to submit a detailed business plan to be reviewed by the Migration Board. You will be granted a probationary residency permit for two years if approved.
The United Kingdom
Suppose you want to set up a business in the UK, as previously described. In that case, you need at least 50,000 pounds to invest in your business and 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), you have to be involved full-time, and you cannot seek public assistance or take on employment while operating your business. The UK also requires that your company create two new full-time jobs for UK residents or citizens.
How Easy is it to Set Up a Business?
The World Bank's former Ease of Doing Business report by country worldwide was the foremost ranking to evaluate the business-friendly economic environment of countries worldwide regularly. The World Bank has recently ceased updating the index due to some controversies as it conducts an internal audit and comes up with a replacement, but it was widely followed for many years. The report by the World Bank offered its views on business regulations and enforcement across 190 economies and selected cities worldwide. The report included 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 last published), 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 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 can maintain their positions from one year to the next. The report’s Country Profile Highlights summarize the vital qualities of each country’s economy. For example, Sweden, Finland, and Denmark are ranked among the top 17 countries regarding macroeconomic stability, with healthy budget surpluses and low levels of public indebtedness. On the other hand, Germany is ranked 1st for the quality of its infrastructure, especially transportation and communications. France is also lauded for its excellent infrastructure, especially transportation, communications, and energy. Like all reports in the past few years, ESG and other factors figure more prominently, and data is broken down at a far more granular level.
The 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 primary 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 (#2), Ireland (#3), Netherlands (#8), Denmark (#9), and Sweden (#10)— among countries in their top ten (interestingly, Canada is ranked as #16, while the US is ranked #25).
Corruption, Cronyism, Organized Crime, and other Woes
Corruption is an inherent part of doing business in several European countries. But most European countries have very low or moderate corruption relative to countries around the world, which only somewhat interferes with conducting a successful business.
Transparency International’s Corruption Perceptions Index (CPI), an annually published survey of corruption worldwide is a valuable tool to determine how much corruption affects daily life, politics, and the 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 2022 ranking shows that generally, Scandinavian and Central European countries have meager corruption ratings according to the non-partisan CPI:
- Denmark (#1)
- Netherlands (#8)
In 2022, in some southern European countries, on the other hand, according to the report, corruption is a bit more widespread, including:
Many Eastern and Southeastern European countries also rank relatively low according to the report's corruption index:
It is also interesting to note that a few of the former Soviet Republics in Eastern Europe have been given some of the higher corruption indices in the world, according to the independent report:
North Macedonia (#85)
Bosnia and Herzegovina (#110-tie)
Europe’s Leading Business Cities
Now that Cushman & Wakefield no longer publishes its annual survey, and as business opportunities have become progressively more entrepreneurial, we cite a list of top European business cities from StartupBlink, which is often in sync, even while it uses crowdsourced data.
Here are their top 20 leading European business cities:
- London (#1)
- Paris (#2)
Small Businesses vs. Startup Businesses in Europe
But keep in mind that what makes London, Paris, Brussels, Madrid, and Milan attractive for Europe’s leading businesses may not necessarily be as crucial for small businesses or start-ups. It is essential to determine your business or start-up's needs 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 and 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 Economist Intelligence Unit (EIU) website. The EIU is a research and advisory company providing worldwide country, industry, and management analysis. It offers monthly country reports, 5-year country economic forecasts, country risk service reports, and industry reports. EIU also provides in-depth research for businesses requiring analysis of particular markets or sectors.
He has traveled in over 40 countries worldwide and has lived in ten of them for study, research and work.