Regulatory Issues to Bear In Mind When Expanding Your European Digital Business Globally
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For many early stage founders in Europe, it's not uncommon to feel confined by borders. While U.S. entrepreneurs enjoy the luxury of having the world's largest consumer market at their doorsteps, European companies often need to start smaller. Just launched in Croatia? You might decide to target your home market first -- in this case, just 4 million people.
So, for many European companies to really thrive, it's crucial to expand internationally -- whether it be throughout the EU, or onto a totally different continent. This opens up the floodgates to engage with new customers, great talent and exciting funding opportunities -- but moving into new markets can also bring some pretty big headaches, too.
There are a number of regulatory issues to consider when growing a business -- even a digital one -- from a European base; think tax laws, labor laws and countrywide restrictions. It's enough to make anyone feel anxious. So, take a big breath, and check out an overview of what to expect:
There's no doubt about it: Accounting across borders is extremely challenging. Whether expanding within the EU or outside of it, companies are faced with various compliance requirements, tax systems and laws.
Let's delve into a few of them. While all EU countries have a standard rule to follow for VAT, each country can apply the rule differently -- in Austria the standard rate is 20 percent, while the standard rate in Ireland is 23 percent, for example. When it comes to country-specific personal income tax, Sweden hovers around 57 percent. In Switzerland, it's about 40 percent. And outside the EU in India -- where we have an office -- it ranges from 10-30 percent depending on income. Since taxes vary heavily among countries, it's virtually impossible for just one person to navigate them all.
So, how can companies tackle taxes head on? If you're going to move into a different market, it's incredibly important to set up a local office there -- and it doesn't have to be huge. Having one or two people in a coworking space overseas can still be considered an office. This not only helps to understand the market's cultural nuances, but having a local base helps to ensure all the regulatory rules are being followed.
Unless a CEO can teleport, she'll likely choose to leave the office in the hands of a senior manager -- to help with cultural transitions, it's ideal if this person is local. These managers can take care of hiring local lawyers, auditors and accountants. The professionals will have close knowledge of their own country's accounting practices, and will ensure the books are being run smoothly.
But, hey, at least for companies associated with the European Union, things might get easier in the next few years. Back in 2016 the Common Consolidated Corporate Tax Base was proposed, which would completely change the way companies are taxed in the EU and provide a more growth-friendly corporate tax system. It would also help to avoid double taxation obstacles for businesses -- i.e., when two countries subject the same item to taxing, and the taxpayer is expected to pay twice. This not only causes uncertainty for businesses, but also impacts their bottom lines. The proposed tax reform is something tax directors everywhere are keeping a close eye on in 2018.
Labor laws and local laws
Labor law framework in the EU regulates two areas: working conditions, and informing and consulting workers. The EU sees this as a minimum standard, on top of which individual countries can create more protective laws. For example, the EU's European Working Time Directive ensures all workers get 20 days of annual paid leave. But, Luxembourg and France both offer 25. It's a similar case with parental leave. The EU standard is 14 weeks, but other countries require more -- for example in Ireland, it can increase to 42 weeks.
So, evidently throughout the EU -- and of course, beyond -- labor laws range heavily. There are also things like working hours, sick pay and unemployment benefits to consider. While a company is likely to hear from employees pretty quickly if they're not getting the right benefits, it's important a business gets things right the first time, and has a strong grasp on what employees are entitled to in each place.
Companies can't forget local laws, either. Each country, region and city obviously has different environmental, tourism and zoning laws -- and if companies don't play by the rules, they could be in for a fine. Just take a look at Airbnb and HomeAway's ongoing battle with the city of Barcelona. While not oblivious to the laws, both companies were fined €600,000 ($740,500) back in 2016 for listing housing not included in the city's tourism registry.
Again, having local managers and lawyers available to employees in each office is an invaluable asset when in comes to following foreign laws. Because after all, it's best to make a great impression in the new place you call home.