Where to start a business in Europe as a foreigner

We know from first-hand experience that deciding on where in Europe you should set up your business can be challenging.

With this analysis we try to help you making an educated decision. Our primary target are small and medium-sized businesses looking start up or expand into new markets.

Why Europe?

First of all, the EU's Single Market is the largest internal market in the world. Recently, the new EU one-stop-shop (OSS) rules have come into effect. Those have made it even easier to do business in Europe from one central location. In many cases you can have your business based in one country and sell throughout the EU without much paperwork.

Furthermore, Europe tops the rankings on many, many indicators from highest living standard and least corruption to the region with the lowest average corporate tax rate.

But which country in Europe is ideal to establish your business in as a foreigner?

This is first and foremost a very personal question, which depends on your type of business, industry and personal preferences. However, there are definitely a few objective measures to compare European countries when it comes to the ease of doing business. We will discuss those below.

The domestic market quality and size

It makes sense to start up in a country where you actually have a reasonable sized market for your product or service. Of course the EU (and some of its neighbouring countries) form one big single market with relatively few restraints on trade. However in many cases it is still much easier to sell to a county's domestic country than over borders.

So let's take a look at the largest populations in the EU (and some of its neighbours). Germany is by far the most populous country in the EU and also has the largest economy.

Besides the population figure, we display the total size of the market in GDP corrected by purchasing power parity. This means takes into account the relative price level of goods and services and inflation. In the second column you can see the total GDP adjusted for PPP and in the third column the per capita number.

CountryPopulation estimateGDP - PPP (billion $)GDP - PPP per capita (billion $)
EU445.000.00020,780,00046,888
Germany84.000.0004,74356,956
UK68.000.0003,17447,089
France67.000.0003,23149,492
Italy61.000.0002,61043,376
Spain48.000.0001,95941,546
Poland38.000.0001,36335,957
Romania19.000.00063632,950
The Netherlands18.000.0001,05560,461
Belgium12.000.00062353,973
Greece11.000.00032530,495
Czech Republic11.000.00046042,956
Sweden10.000.00058955,566
Portugal10.000.00037036,079
Hungary10.000.00034235,088
Austria9.000.00051757,891
Switzerland9.000.00066075,880
Bulgaria7.000.00017525,471
Serbia7.000.00012020,545
Denmark6.000.00035961,478
Finland5.500.00028651,867
Slovakia5.500.00019034,815
Norway5.500.00037469,171
Ireland5.000.00050099,239
Croatia4.000.00014229,777
Lithuania2.800.00011440,784
Slovenia2.100.0008640,820
Latvia1.900.0006417,620
Estonia1.350.0005339,729
Luxembourg632.00078122,740

Quality versus quantity

A large domestic market is important, especially if you product or service is focused on that particular population. On the other hand, a larger country and population often means more competition. Furthermore, a smaller country with high purchasing power could be more interesting than a larger population that has less to spend. For example, Romania has more inhabitants than the Netherlands, but its total output is 40 percent less than the Netherlands.

Therefore the total output per head of the population is a useful statistic. In the figure you see the European countries' GDP per capita in Purchasing Power Standards (PPS) expressed in relation to the European Union average set to equal 100. If the index of a country is higher than 100, this country's level of GDP per head is higher than the EU average and vice versa.

This map shows that North Western Europe clearly has the highest GDP per capital, adjusted for purchasing power. The top countries are Ireland, the Netherlands, Luxembourg and Norway, followed by the rest of Western Europe.

GDP per capita PPS EU EEA

As we have seen above, there are clear divides between and within European countries when it comes to economic prosperity.

But there are many other factors in play when determining the size and quality of a domestic market. These depend largely on your type of business and industry. For example, if you are selling a product or service online, you want to know the size of the online market in a specific country or region.

 

 

Largest online markets (search volume)

Largest online markets

As we have seen above, there are clear divides between and within European countries when it comes to economic prosperity.

But there are many other factors in play when determining the size and quality of a domestic market. These depend largely on your type of business and industry. For example, if you are selling a product or service online, you want to know the size of the online market in a specific country or region.

CountryReach (search population)
Germany73.200.000
France70.700.000
UK65.600.000
Italy49.300.000
Spain43.200.000
the Netherlands30.200.000
Poland28.500.000
Romania12.900.000
Belgium10.900.000
Austria9.760.000
Sweden9.360.000
Portugal9.150.000
Czech Republic9.040.000
Switzerland8.360.000
Greece8.990.000
Bulgaria5.400.000
Serbia5.220.000
Denmark5.060.000
Croatia5.020.000
Ireland4.680.000
Finland4.610.000
Norway4.570.000
Slovakia4.350.000

National rules and regulations

The EU has directly or indirectly unified many rules and regulations all over Europe. However, in many fields the individual member states still make their own rules. This means that a product or service can still be highly regulated in one country and much less in another. Good examples are CBD products such as CBD oil and other plant--based products. Those are relatively easy to sell in the Netherlands but much more regulated in for example Germany.

Residency and right to work for non-EU nationals

As a EU citizen you can freely live, work and set up a business in any of the EU countries (including Norway, Switzerland, Iceland and Liechtenstein). You would still need to apply for a residence permit in your country of stay, but this is usually just a formality. Individuals from outside the EU/EEA do not have this automatic right to work in their European country of choice.

For those non-EU/EEA citizens who want to move to Europe to start a business there should investigate the various visa programs that are offered by European countries.

For example an American needs to apply for a residence permit in the particular European country to be able to stay there. Do note that you are normally not required to have a residency permit to register a business in an EU/EEA country.

A good example is the Dutch-American-Friendship-Treaty (DAFT) that allows American entrepreneurs to set up their business, work and stay in the Netherlands.

Quality, availability and flexibility of the workforce

If you are planning on hiring staff, you want to have a pool of quality people available. An alternative is to have people move to your business' country. EU citizens can work all across the EU. Some EU countries offer tax benefits and/or visa opportunities to import personnel from abroad.

top countries based on digital skills

The EU Commisson's DESI Index tracks the status and progress of European countries' digital performance.

Education level

The quality of the workforce is tightly connected to the education level. We can look at the amount of top-level universities, but the overall level of the workforce's education is possible a better indicator to have a general idea of its quality. Below is a table with OECD data comparing European countries and the percentage of the population between 25 and 64 years old that has completed the highest level of education.

Population with tertiary education europe OECD

Physical and digital infrastructure

Many businesses are dependent on physical infrastructure to quickly and safely move goods an persons. For example to deliver goods to your customers across Europe and the world. An increasingly important indicator, is the state of a country's digital infrastructure.

The World Economic Forum publishes an annual report on countries competitiveness. Physical infrastructure is one of the things they rank. This is the average of several infrastructure subcategories. As we can see countries in the western and northern parts of the continent rank the highest.

wef ranking best quality general infrastructure

For businesses involved in importing and/or exporting goods into and throughout Europe, a relevant subcategory of the WEF report is the quality of a country's port infrastructure. Note that not all European countries have seaports, most prominently landlocked Switzerland. Those countries are therefore not included.

Countries are ranked based on the quality of their infrastructure, not the amount or value of goods that pass through them.

For a more in-depth analysis of the rankings we recommend you to look into the WEF's report.

wef ranking of best port infrastructure

Technology adoption

If you are developing or selling a new type of digital product or service, you are looking for a population that is able to adopt that new technology. The NRI Index is a ranking of countries that measures among other things a country's digital readiness. In other words: how likely is it that a country, its people, government and businesses makes use of the opportunities that technology hands them.

Country with most early adopters

It is a generally accepted notion that you should be reaching the the so-called "early adopters" when introducing a new product or service to a market. This group of customers forms the tipping point to get your product into mainstream. The figure below shows the so-called Diffusion of Innovation which describes a product's life-cycle.

 

Bell curve showing the different stages of product adoption

YouGov's data reveals that almost a fifth (18%) of consumers across 25 global markets are early adopters of technology - with 9% saying they're "actively on the lookout" for new devices and services, and 9% saying they're "always keen" to use new products as soon as they're available.

In the table below the "Dedicated followers" together with the "First wave" make up the "Early adopters". This report only includes a limited amount of European countries.

Technology adoption per countryDedicated followersFirst waveSecond waveDiscerning customersLatecomers
Sweden11%10%19%29%31%
France7%11%18%26%37%
Italy9%9%30%18%34%
Spain5%12%19%23%41%
Norway8%7%23%28%34%
Denmark4%9%24%21%42%
Finland4%9%25%23%38%
Germany4%10%29%22%35%
Great Britain4%7%19%21%49%
Russia3%5%17%38%37%

Online shopping and services in Europe

The populations of Northern and Western Europe are substantially more used to ordering goods and services online, than those in Eastern and Southern Europe. If you are looking for a more matured online market, it is probably best to establish your business in one of those countries.

On the other hand, a large of the population of the population that is yet to start to shop online could also be seen as a business opportunity.

map of europe with percentage of people per country who order goods and services online

The ease of starting and running a business

To run the business you require a legal entity. Setting up any entity is still a national matter. Therefore, every country has their own types of legal entities and company formation processes.

In some countries, setting up business takes only a few days. In others it can take literally months. Many European countries are actively promoting themselves to attract foreign business. One of the tools they frequently use is to promise a quick company formation and registration, usually within a few days.

If you are in a rush it matter how long it takes to set up the business but try to think which country is best for your business long-term.

The figure above shows the time required to set up a business. However, in all European countries, setting up the business is just one part of a larger process. To have an actual idea of the time it takes to set up a business in a European country, you should look at:

    1. The company registration process
    2. Opening a bank account
    3. Obtaining a tax number

How long these processes take differ per country. In practice, we see that more developed countries generally have more efficient company registration services, but have longer waiting times to open a bank account and obtain a tax number due to stricter enforcement of anti-money laundering (AML) laws.

Banks are increasingly looking at the risk-profile of your business and industry. This can result in rejection or lengthy application at banks and tax authorities. These laws are being harmonized all over Europe, so it is hard for countries to have a competitive advantage here.

The tax level

The level of tax is a very common ground for businesses to pick one country over another. Like with establishing a company, every country in Europe has its own tax rules. This has created an environment where countries are competing in a race-to-the-bottom. This trend is best visible on the corporate tax level, the tax on a company's profits.

CountryCorporate Income Tax Rate
Germany30% on average. Combination of federal and municipal tax.
United Kingdom19 - 20%
France26.5%
Italy28% approximately, based on national and regional taxes
Spain25%
Portugal21%
Ireland15% (from 2022)
Netherlands15 - 25%
Belgium25%
Sweden20.6%
Norway22%
Denmark 22%

There are three nuances to this ranking.

National and local taxes

First of all, these rates are difficult to compare due to different taxation method per country. In most countries the corporate income tax is a flat tax that applies to every incorporated business. In others, the rate is a combination of a national and regional or municipal tax. A company in Berlin ends up paying less corporate income tax than one in Munich. Examples are Germany and Italy, where the federal corporate tax is relatively low. Once you add up all corporate taxes, these countries rank among the countries with highest corporate tax in Europe.

Industry-specific corporate tax

In many European countries, there are additional taxes for certain types of businesses. For example, many countries have a mechanism in place to tax shipping and oil companies extra. A more recent trend is that governments levy additional corporate tax on banks and financial institutions.

Tax advantages

Some countries offer tax cuts to the corporate tax rate for businesses that are very small or very innovative. For example, Romania applies a very low corporate tax rate to very small businesses. The Netherlands offers a reduced corporate tax for highly innovative businesses.

A fair comparison

Policymakers hope that a percent more or less can make a corporation shift headquarters from one country to another. It is important to remember that for small and medium-sized businesses, we need to look at the entire package of corporate taxes, personal taxes, vat, dividend tax and the various tax advantages a country offers.

If you want to make a fair comparison between tax levels in the various European countries, you should look at:

    1. Tax on your company's profits
    2. Tax on whatever you take out of the company, capital gains and dividends
    3. Taxes on your employee's wages and social security costs for employees
    4. Personal taxes (personal income tax, wealth tax)
    5. VAT
    6. Any industry-specific taxes and levies

In other words, while a country can easily have lowest corporate tax rate, that's only part of the story.

map of European countries based on personal income tax

Avoiding double taxation

Besides the tax burden on businesses, the international relations of a country can be just as relevant. If you are doing business across borders, you want to avoid paying double taxes. To do so, counties set up bilateral agreements called tax treaties. In these agreements they make sure that double taxation is avoided as much as possible. See an overview of the amount of treaties per country.

We have published an example case where this concept is described in more detail. Read it here.

map of Europe with tax treaties per country

The cost and standard of living

First, if you are physically moving to the country where you will establish your business you need to like living in that country. Second, now that you like it there, you should be able to afford it. Therefore this is a highly personal consideration.

Although a high cost of living is not necessarily what you are looking for, a high price level usually brings with it a high income level and a customer base with higher spending power.

When it comes to a country's standard of living, the OECD's Better Life Index is a good indicator.

OECD Better Life Index rankingCountry
1Norway
2Australia
3Iceland
4Canada
5Denmark
6Switzerland
7The Netherlands
8Sweden
9Finland
10United States
11Luxembourg
12New Zealand
13Belgium
14United Kingdom
15Germany
16Ireland
17Austria
18France
19Spain
20Slovenia

Another very influential ranking is the UN's Human Development Index (HDI). The idea behind this annually published index is to provide a better alternative to measure how prosperous and developed countries actually are. A simple GDP growth statistic does not give you enough data to determine whether or not a country is doing well or not. The HDI compare populations based on lifespan, education and purchasing power.

human development index 2020

If you are physically moving to the country your business is based in, few things are as important as a well-functioning, high-quality and affordable healthcare system. Most European countries have a healthcare system that is, partially or fully, financed by the state.

There are numerous research projects that compare the quality of healthcare in the world. The ranking below reflects what most of them do. Namely that Scandinavia and western Europe has world-class healthcare and the rest of the world follows at considerable distance.

Amount of bureaucracy

Nothing kills entrepreneurship quite like red-tape. Regulations and rules are generally a positive thing, but some European countries have a tendency to regulate even the regulations themselves. Here as well, do not let this put you off immediately. If the market and country are sufficiently appealing in other respects, it is probably worth working your way through some extra frustrating paperwork. For some businesses it can be a real deal breaker and reason enough to establish themselves elsewhere.

Bureaucracy covers all paperwork your business will be dealing with. From registering employees, applying for permits to submitting annual financials and getting an unwilling debtor to pay an invoice. It also matters whether a country has modern and online processes instead of paper forms.

Stability and predictability

The more resilient a country's business environment, the less risk you run as an entrepreneur. It concerns, among other things, how well a country is able to deal with a crisis such as a pandemic.

One period of relative stability and pro-business government policies does not secure a long-term of peace and quiet for your business.

Below you will find the top 10 of most resilient countries as ranked by FM Global.

ranking of most resilient countries in Europe

To have a stabile and predictable business environment it is crucial to leave no room for corruption. That is Transparency International's Corruption Perception Index is a relevant indicator. This index ranks countries from lowest to highest on public sector corruption as perceived by business people.

Corruption Perception Index Score
Denmark88
New Zealand88
Finland85
Switzerland85
Singapore85
Sweden85
Norway84
Netherlands82
Luxembourg80
Germany80
Canada77
UK77

Business culture

Whether a country is business-friendly is not solely determined by government policy and tax level. It is in fact the entrepreneurial spirit that some countries and regions seem to have more of than others. Again, this is very much dependent on the specific industry, but is possible to get a rough idea of the regions that are more entrepreneurial and open to innovation and change.

A very simple way of finding out something about the level of entrepreneurship in a country is to look at the percentage of self-employed persons as a total of the workforce.

Self employed percentage of workforce EU

As we can see the Scandinavian/Nordic countries have a relatively low percentage of self-employed people. Traditionally these countries have large public sectors which employ a relatively large part of the population.

Many southern and eastern Europe countries have a relatively large amount of self-employed workers. Note that many of these workers are one-man companies.

Perhaps a more relevant indicator of entrepreneurship in a country is to look so-called "high-growth enterprises". The figure below shows the percentage of businesses per country with at least 10 employees with employment growth of 10 percent or more over a 3 year period.

density of high growth enterprises in EU map

You can find a lot more information, including factsheets per country, on this page.

International reputation

This has everything to do with the above, albeit an entirely different factor. A country's reputation is how the outside world looks at it. As a reliable provider of goods and services of whom we like to buy goods and services or as the complete opposite.

The international position of a country is based on its relationships with other countries. For example, trust among countries establishes better trading relationships that lead to elimination of physical borders and import duties.

The best example is the EU's single market where member states allow citizens from another member state to freely live, work and establish businesses on their territory.

Ranking of countries with the best reputation

European organizations

Being based in a country with an open economy that is internationally well-connected is good for business. Arguably the most important collaboration for businesses to be a part of is the European Single Market.

The European Single Market

This "largest internal market in the world" guarantees free passing of goods, capital, services and people.

If your business is dependent on either goods, capital, services or workers from another country within the Single Market, it is wise to set up your business in that same single market. Currently the Single Market consists of the EU 27 member states together with, under a few small conditions, Iceland, Liechtenstein, Norway and Switzerland. This means that the UK is not a member of the European Single Market.

Whenever you are buying goods from a non-EU country, you are liable to pay import duties and VAT payments. Therefore it can be beneficial to be based in an EU country. There are several countries that have a deal with the EU, which means that they adopt many of the same EU-rules, but are strictly not EU member states. Those countries are Norway, Switzerland, Iceland and Liechtenstein. This means that in effect there will still be import duties and VAT payments when importing to those countries.

Map of Europe with EU member states

Having a shared currency can be an advantage to a business trading across borders. Besides the international collaboration in an supranational state, the EU, the majority of the EU countries have also established a common currency: the Euro. The countries who use the Euro currency are called the Eurozone.

The map below shows which countries have the Euro as their currency.

Map of Eurozone countries

Proficiency in English

A very pragmatic and very important factor for most cross-border entrepreneurs is how well people in a country or region speak English. Most EU citizens have a reasonable understanding of English. However, many government applications in EU countries are still being presented in the country's native language only.

For obvious reasons, Ireland and the UK have a large advantage here. Since English is their native language, they are not included in the list below.

You should be aware that proficiency in English can differ from region to region. A country as a whole might score relatively high. The differences between urban and more rural areas can be very large in many parts of Europe. We can see well this in high-scoring countries like the Scandinavian countries and countries like Austria and Belgium.

ranking of European countries based on proficiency in English

Business opportunities

What is an exciting business opportunity is not what it is to someone else. Also, some country might be the right pick for your type of business while another country does not have that particular industry at all (which could very well be a reason to start in that country!).

Timing is of essence here. What might be the right time for your product or service in country A, could very well be too early or too late in country B.

Many industries are closely linked to certain regions in Europe. In today's fast-pace, tech-driven entrepreneurial environment, things can change quickly. This is why looking over borders and seeing opportunities all over Europe sometimes is the best thing you can do.

Access to financing

The European Investment Fund (EIF) publishes an annual ranking of access to capital for small and medium-sized businesses. As you can see in the ranking below, northern and western European countries generally have better access to funding than eastern and southern European countries.

EIF access to funding ranking

You can read much more about the access to capital for SME's in the EU on this page about the EU's SAFE project - the Annual survey on the Access to finance of Enterprises.

the number and stage of VC-backed companies after the year 2000,
Regional distribution of VC investments across different stages of financing

A regional perspective

The idea of the EU's single market is to create a border-less community where there is a seamless flow of people, labour, capital and goods. And although many issues (such as tax and healthcare) are still debated and decided on a national level, it is naive to not have a slightly larger perspective when choosing a country within Europe.

First of all, it can make sense to establish your business in an European location where you have access to a larger market of similar customers. By that we mean countries that have similar features and are often referred to as one "market" from a business perspective. Often these are groupings of several countries where people speak a similar language, have a similar culture, politics and similar living standard. The ones below are the most frequently used.

 

DACH

DACH is an acronym used for Germany (D), Austria (A) and Switzerland (CH). This country grouping has almost 100 million inhabitants with a similar living standard and culture. Most of all, this is the largest German-speaking country block in the world. If your business is interested in conquering a market of around 100 million German speaking people, this is the place to be.

Nordics

With the Nordics we usually refer to the countries Denmark, Norway, Sweden, Finland and Iceland. Additionally, the Faroe Islands, Greenland (both autonomous areas of Denmark) and Åland (autonomous area of Finland) are seen as part of the Nordics. Most of the Nordic countries have similar languages and are able to understand each other. English proficiency is also very high across the entire region. Furthermore, the Nordic region is culturally more connected than other parts of Europe. This all adds up to a high amount of trade within the Nordic region.

  • Total population: 20 million
  • GDP/PPP (adjusted for purchasing power):

Reasons to start a business or expand to in a country in the Nordics:

  • Region with highest spending power in the world.
  • Most digitally adapted region in the world

Potential downsides of the Nordics:

  • Relatively low number of inhabitants.

For international companies, the Nordics are also drawn together with various other neighbouring countries. First of all, Estonia has a close connection to Finland and many Estonians identify themselves as Nordic. Secondly, the Netherlands is culturally somewhat similar to the Nordic countries and there is a relatively high number of foreign investment from the Netherlands in the Nordics and vice versa.

Benelux

The Benelux consists of Belgium, the Netherlands and Luxembourg.

 

The British Isles - The UK and Ireland

This "business region" includes the entire English-speaking part of Europe: England, Scotland, Wales, Ireland and Northern-Ireland. Also included are a few smaller affiliated islands such as the Channel Islands and the Isle of Man.

Reasons to start a business on the British Isles:

  • Large potential market with relatively high purchasing power
  • English speaking
  • Favourable tax conditions

Potential downsides:

  • The UK is not a member of the EU nor the single market. This hinders cross-border trade and attracting talent to the UK.

 

Best country per industry

Most entrepreneurs will look at settling in a place of business where most like-minded businesses and people are based. Businesses tend to stick together in so-called clusters or hubs. The most well-known example in the world is probably Silicon Valley, where the world's largest tech firms cluster together. Albeit that Europe's hubs are less known and more spread out over the continent, they do exist.

E-commerce and retail

The best country to start a e-commerce business is first-and-foremost where you main market is based. If you are planning on selling all across Europe, you want to base the business in a country with an excellent digital and physical infrastructure. Many reports are published on the e-commerce on Europe and which countries are the top performers.  Furthermore,

Manufacturing business

Manufacturing seems to be making a revival in Europe. The problems with depending on Chinese manufacturing have become increasingly clear. A few European regions are traditionally seen as the manufacturing heartland of Europe.

Technology and highly-innovative businesses

The presence of highly-skilled labour is most important. For many such businesses, an entrepreneurial climate with good private and public facilities is also of large importance.

Many European countries try to lure tech and innovative companies. For example by giving them tax breaks and favourable visa conditions for workers.

'Green' business

Headquarters and holding companies

For internationally operating companies, a holding structure is common. This means that that there is a mother company in one European country as well as one or more daughter companies in other European countries.

Important is access to English speaking highly-qualified people. Since this office will handle most of the bureaucracy, you want to have as little red tape as possible. A headquarters typically means that there are other office or entities across a country or internationally. In the case of an international concern with headquarters in one country and one or more subsidiaries in other countries, you should have a good look at the potential tax implications.

Another common use of European companies is as a purely 'financial holding'. In that case, the company acts as an umbrella over one or several national or foreign daughter entities, without undertaking any real activity itself. This can be a useful way to structure several entities and centralize profits (and for example protect intellectual property). Probably the most well-known example of this kind of structure is the Dutch Holding BV structure.

Do note that basically all European countries have additional requirements for companies without any 'real activity'. For example, the company should have a management activity in the form of a local director present.

holding company with two subsidiaries Europe

Given that all companies are within the EU/EEA, profits from the Operating companies in country B and C, can normally be distributed tax-free to the Holding company in country A. This is because of EU Parent-Subsidiary Directive.

Financial services and insurance

percentage of people working in finance per EU region

Logistics / transport company

Important factors are availability of staff, a good infrastructure, affordable energy prices and easy access to entire Europe.

How to set up a company in Europe

Find a list of countries in alphabetic order with more information on the procedure.

Austria

Belgium

Croatia

Denmark

Estonia

Finland

Hungary

Ireland

Italy

Latvia

Lithuania

Luxembourg

Malta

Netherlands

Norway

Poland

Romania

Slovakia

Slovenia

Spain

Sweden

 

Sources