Expand your business across Europe

In the current conditions of the global economic environment combined with a massive expansion of e-commerce business turns out to be more attractive than ever before. There is no need to carry on commercial shops or to support foreign business groups once you are able to sell any kind of product in any market available. A lot of companies are eager to grasp the opportunity immediately and to ” the whole world just as soon as possible. However, the rule says it does not make sense to be hasty and that it is wise to expand towards foreign markets slowly.

In the following lines we be will try to go over the basic conditions of entering foreign markets which are demographically, geographically and traditionally the closest to us. Considering the free movement of goods, capital and labor, we have chosen the neighboring countries V4 and the EU.

Tax and legal aspects of doing business on foreign trades

As the first step in deciding on entering the market we can mention familiarity with local tax and legal aspects. We can wonder whether it is necessary to establish a company in a given state or to obtain all the important registrations. If we want to establish a company, which legal form to decide for? What are the basic tax rates? Is it necessary to travel or can we arrange everything at distance?

Answers to the sub-questions will help us do so: Who our clients are and to what extent we are about to sell in foreign trades.

Single or regular trading abroad

If you plan to only irregular activity respectively one-time foreign trade and your customer is an entrepreneur – a VAT payer, then you will not have registration obligations in the target country. We recommend only to check whether your business partner is really registered for VAT.

In case the entrepreneur plans to focus mainly on mail order sales through e-shop, aimed primarily at final consumers – persons who are not VAT payers, then it is sufficient to monitor the turnover indicators and its limits, which may not exceed 35 000 per calendar year. Consequently, it is incumbent upon all VAT payers to register for VAT in the given state. The upper turnover limit is recommended by the EU directives, however, each state determines it individually.

In case we consider establishing more strategically than once, hence we are determined that we are entering a certain state with a long-term vision, even having the possibility of an employment, assets owned or rented office spaces, we choose the setting up of a body corporate. It is also important to provide for all registrations and formalities necessary for smooth running.

The Czech Republic

In terms of Slovak entrepreneurs we traditionally choose the Czech Republic as the first option for our mutual historical ties, bilateral relations, geographical proximity and linguistic similarity. The first step is to choose a legal form in a country where we want to start.

The commercial law operates in the Czech Republic very much alike as in Slovakia. Enterprises can be through trade authorization, limited liability limited or joint stock company. From the perspective of risks of limited liability, and also from the perspective of management, we recommend starting as a Ltd. A Ltd. can be set up in just about 14 working days. It is also possible to open a bank account, with a capital worth at least 1 CZK.

The number of the partners in the Czech Republic is not limited. The registration for value added tax may be done within a month. The rate of the value added tax is fixed to 21%, the turnover threshold at which you should be registered is the value of 1,000,000 CZK. The income tax rate is 19%. In the Czech Republic there is no obligation of tax license payment.

Hungary

Hungary is a really interesting market spot at the moment. Despite of its population of about 10 million inhabitants and its relatively well developed surroundings around the capital city, Hungary is still a little behind the other western states. It is a promising opportunity for many companies. The language, which is relatively difficult, can be a barrier. The Hungarian equivalent for the Slovak s.r.o. is a Kft., for the Slovak a. s. is Zrt., and it is recommended to start with a simpler legal form, in this case a Kft.

Setting up a company in Hungary is possible within 2-3 business days, exclusively in a Hungarian territory, with a lawyers assistance. To set up a company is possible for an unlimited number of physical or legal entities. The need to put in the basic capital in form of money is required to be done within the two years, and the amounts is 3 000 000 HUF.

Capital does not need to be inserted or otherwise attached in a bank account. However, the account has to be opened in Hungary, not later than 31 days from the date of incorporation. VAT registration in Hungary is very fast and flexible – realizable practically in one day without any collateral or other costs.

Entrepreneurs need to be registered in the first years as a monthly VAT payers, whereby paying the is 27% VAT rate. The income tax of 9% is a European rarity. Tax license doesn’t need to be paid.

Germany

A country with more than 80 million of population with a strong purchasing power – Germany. In terms of potential sales, this market is undoubtedly the biggest bargain.

The simplest is the legal form of the UG, which, in order to make business offers with a basic capital of one euro. The most complicated form of is a joint-stock known as “Ag.”. An equivalent of an s.r. o. is the legal form of GmbH. The basic capital is fixed at 25 000 EUR, with repayment on an active bank account with at least 12 500 EUR. It is the bank account which can be a problem for a foreign statutory company. Banks insist on the importance of creditworthiness of companies to prevent the legalization of earnings due to criminal actions.

This trend is slowly emerging in other EU countries. Setting up a company in Germany is subject to ” at the notary and working on a notarial act. To complete all the formal issues it is therefore necessary to travel abroad at least once. Responsibilities related to the establishment of any legal form take about two weeks. A rather complex process is the voluntary VAT registration.

To obtain detailed registration it is necessary to demonstrate economic activity over a period of about 30 days. The standard VAT rate in Germany is 19%. Turnover threshold for mandatory registration is legally made up to 17 500 EUR for the previous calendar year. The estimated limit for the current calendar year is about 50 000 EUR. The income tax rate is 15%, though, it is necessary to calculate with the urban self-governing tax that depends on the particular region. Tax license in Germany doesn’t need to be paid.

Austria

Conservative Austria belongs to the countries which are highly appreciated and business-favored The purchasing power of its residents, the significant capital and the high standard of living ranks Austria among the top destinations with potential for expansion.

The most common legal form is the GmbH which is an equivalent to a Slovak s. r. o., and then the Ag., an equivalent to a joint stock company. The base capital of a GmbH is set to 35 000 EUR. At least 17 500 EUR is needed to pay before opening a bank account. Both in Germany and Austria you can start a company after the notarial record is prepared. Starting a company takes about two weeks.

Personal attendance is required at least once. The process of voluntary registration for VAT is quite complicated in Austria, and it usually takes 30 days. Standard VAT rate in Austria is set to 20%. The threshold for achieving legal registration is 30 000 per calendar year.

The rate of income tax is progressive in Austria, what means that it is proportionally dependent on the profits. The minimum tax is set to 1750 EUR.

Poland

Its market size can be attractive for trading. When asking about the number of potential customers ended in revenues, however, many experienced entrepreneurs have to stop for a while. Poland is, in fact, known for its tireless entrepreneurial spirit and flexibility.

This country should be present on the list of priorities with those entrepreneurs who have sufficient experience with company adaptations on foreign markets. Besides, joint stock companies marked as S.A., the clear favorite is a Limited Sp. Zoo. It requires the payment of the base capital up to 5 000 PLN and it can be founded by an unlimited number of shareholders within 7 days.

The notary´s presence is also required. VAT registration, can be done equally quickly, the legal limit for VAT registration is 150000 PLN. The basic rate of VAT is 23%, the income tax rate is 19%. Tax license in Poland is not paid for.

When entering foreign markets it is very important to be thoroughly familiar with all the local business aspects, however, they need not be crucial when deciding. Entrepreneurs should rather focus on the growth and demographic indicators of the countries since correct review can bring much more benefits than potential tax savings or the rapidity of the foundation. After all, it can be stated that regardless a few facts trends in the business environment in the states of the EU can get closer to each other.