Starting a new business in Europe has become a relatively straightforward and quick process, thanks to the accessibility of information and a multitude of opportunities, particularly for foreign entrepreneurs. The first step, in any case, is the inception of an idea or vision, for which it is essential to choose the location and country where establishing the business can proceed as smoothly and efficiently as possible. Given that each country has its own legal regulations and tax policies, it is crucial to carefully select the most suitable country for setting up our company. It is always important to clarify the specific legal requirements, the process of company formation, and any potential risks associated with the chosen country. Additionally, conducting preliminary market research is highly recommended, as the success of the business will heavily depend on the market capacity of the country in question. Let’s take a look at a list of European countries that may offer advantages for foreign entrepreneurs looking to establish a business.
Estonia – A paradise for digital nomads and IT entrepreneurs
100% Online Company Formation (e-Residency)
Efficient and Streamlined Administration
0% Corporate Tax on Reinvested Profits
Innovative, Startup-Friendly Environment
EU-Based Company, Ensuring No Customs Borders
Target Audience: Digital Service Providers, SaaS Companies, IT Developers, Freelancers with an International Clientele
Ireland – Attractive Tax Rates and English-Speaking Environment
12.5% Corporate Tax (among the lowest in the EU)
Favorable Regulations for large corporations and tech companies
Stable, Business-Friendly Environment
English-Speaking Legal and Administrative Framework
Target Audience: Tech Companies, Startups, Export-Oriented Businesses
Netherlands – Robust Infrastructure and Excellent Logistics
International Business Hub with an excellent reputation
Favorable Holding Structures
Professional Financial and Legal Services
Stable Economy, strategically positioned for EU expansion
Target Audience: Wholesalers, Logistics Companies, E-Commerce Businesses
Cyprus – Competitive Taxation and EU Membership
12.5% Corporate Tax
Double Taxation Treaties with many countries
Attractive Dividend Tax Rates (often 0%)
Low Administrative Costs
Target Audience: International Service Companies, Consultants, Holding Companies
Slovenia – EU Member State with Favorable Business Conditions
Stable Economic and Political Environment
Favorable Taxation and Labor Conditions
Easy Access to Both Balkan and Western European Markets
Last but not least, Hungary should be highlighted as one of the most likely options to be selected.
Hungary – Low Corporate Tax and Cost-Effective Operations
Efficient and Streamlined Administration with low costs
9% Corporate Tax (the lowest in the EU)
Double Taxation Treaties with many countries
Relatively Low Labor Costs
Well-Developed Transport and Logistics Infrastructure
EU-Based Company, Ensuring No Customs Borders, well positioned for EU expansion
Easy Access to Both Balkan and Western European Markets (Hungary borders Austria, Slovakia, Romania, Serbia, Croatia, Slovenia, making it ideally located for regional operations.)
EU Membership with stable economy, providing access to the Single Market
Target Audience: Manufacturing Companies, IT Firms, Service Providers in Central Europe, Digital Service Providers, SaaS Companies, IT Developers, Freelancers with an International Clientele
What are the associated risks, if any?
Based on the aforementioned statistics, we gain an overview of the opportunities for establishing a business in a specific country, as well as the potential challenges and disadvantages that may arise. While starting a new business within Europe offers numerous opportunities, every entrepreneur should be aware of the risks and pay special attention to the finer details. The following statistics outline the countries where businesses may face significant difficulties or where risks should be carefully considered, especially when evaluating factors such as taxation, administrative burdens, labor costs, or the legal environment.
France
High Tax Burden: Corporate tax, which was previously over 33%, has decreased to around 25%, but it still remains relatively high.
Bureaucracy: The approval process is cumbersome, with long administrative timelines.
Labor Market Constraints: Employee protection is strong, making it difficult to terminate employees.
High Minimum Wage and Social Contributions.
Italy
Complex Tax System: The tax structure is complicated, with various taxes that are difficult to navigate.
Slow Legal System: Legal proceedings can take years to resolve.
Corruption and Regional Disparities: Business risks are more prevalent in Southern Italy.
High Bureaucracy.
Greece
Instability in the Economy: Recent crises have eroded investor confidence
Complicated Tax System and Administration.
High Employer Social Contributions.
Belgium
Very High Taxes: Corporate and personal income taxes can exceed 30%.
Complex Regulatory Environment: Especially challenging due to the multilingual nature of the country (French, Dutch, German).
High Labor Costs and Strict Labor Laws.
Spain
Labor Market Rigidity: Difficult to lay off employees.
Bureaucracy: Slow approval processes and legal procedures.
Local and Regional Regulations: These can complicate operations at the national level.
It can be observed, that there are underlying differences within the unity of Europe when it comes to starting a new business. Therefore, if we value not only efficient and rapid administration but also the long-term success and transparency of our business, we must carefully consider the risk factors associated with each country.
Why Choose Hungary for Your Business
Hungary presents an attractive destination for entrepreneurs and investors looking to establish or expand their business in Europe. One of the most compelling advantages is its favorable tax environment. With a corporate income tax rate of just 9%, Hungary offers the lowest such rate in the European Union. Dividends are generally subject to a 15% personal income tax, though this can vary depending on the tax treaties Hungary maintains with other countries. The VAT system, while featuring a standard rate of 27%—one of the highest in Europe—also includes reduced rates of 5% and 18% for specific goods and services, and is fully digitalized with online invoicing and other electronic compliance tools in place.
Company formation in Hungary is simple and efficient. The process can typically be completed within one to three business days, provided all documentation is properly prepared. Many steps, such as company registration and obtaining a tax number, can be handled electronically.
Operating costs in Hungary are significantly lower than in Western Europe. Wages and rental fees are generally more affordable, and infrastructure-related expenses—such as internet, utilities, and logistics—are also competitively priced
As a member of the European Union, Hungary provides access to the EU’s single market, allowing businesses to trade freely across borders with minimal regulatory barriers. Hungarian companies are also eligible for various EU grants, subsidies, and funding programs, providing further financial support for innovation and development. The country’s central European location enhances its appeal even further, serving as a strategic hub with excellent transport connections throughout the continent. This positioning enables easy access to both Western and Eastern European markets, making Hungary a valuable gateway for regional and international trade.
Hungary’s business environment is dynamic and increasingly open to foreign investment. Key sectors such as automotive, IT, logistics, and services have seen substantial inflows of international capital. The country’s legal and regulatory framework is fully harmonized with EU standards, ensuring transparency, predictability, and a high level of legal certainty for foreign investors.
When it comes to business structures, Hungary offers a variety of company forms to suit different needs. The most popular is the limited liability company (Kft.), which requires a minimum share capital of HUF 3 million (approximately €7,800). This form limits shareholders’ liability to the amount of their investment and offers flexibility suitable for a wide range of business activities.
In summary, Hungary combines low taxes, fast and easy company formation, affordable operational costs, EU membership benefits, and a central location in Europe with a welcoming business climate. These strengths make it an ideal choice for entrepreneurs and companies seeking long-term, cost-effective, and strategically positioned operations within the European Union.
Choosing the most suitable company structure
The next inevitable decision is determining the type of company you wish to establish. Given that there are several options available, it is important to evaluate which company structure offers the most suitable solution in terms of operational efficiency. The most commonly established company types in Europe are as follows:
Private limited company (Ltd.): One of the most popular business structures, where the owners are only liable for the company’s debts to the extent of their invested capital.
Public Limited Company (PLC): This structure is advantageous for larger companies, where ownership is divided through shares.
Sole Proprietorship: Ideal for smaller businesses, where one individual manages the company and assumes full responsibility for its operations.
General Partnership (GP) and Limited Partnership (LP): These legal forms are suitable for smaller, family-owned, or partnership-based businesses.
The strategic advantages of selecting an Ltd
Among these, the Private limited company (Ltd.) is particularly favored by small entrepreneurs due to its numerous advantages, ease of management, transparency, and tax benefits. In Hungary, establishing an Ltd. offers the following advantages:
1. Limited Liability
One of the major advantages of a Private limited company (Ltd.) is that the liability of its members (owners) is limited. This means they are not personally responsible for the company’s debts. Members are only liable up to the amount of their capital investment in the company. This offers significant protection for personal assets.
2. Low Capital Requirements
The minimum share capital required for an Ltd. is only 3 million forints, which is relatively low compared to other company structures, such as a Public Limited Company (PLC), where higher capital is typically required. An Ltd. offers the opportunity to start a business with a smaller initial investment.
3. Flexible Management Structure
Ltd. has a relatively simple and transparent management structure. Ownership and management rights can be clearly separated, making it easy to form a management team that does not necessarily align with the owners. Furthermore, operational decisions can be made more quickly, as there is no need for extensive shareholder involvement, unlike in public limited companies.
4. Tax Advantages
Ltds benefit from more favorable tax rules compared to sole proprietorships or other business structures. Ltds are subject to corporate tax (currently 9%), which is relatively low, and profits can be further optimized by the members, especially after distribution in the form of dividends.
5. Versatility
Ltds are suitable for all types of business activities, whether in services, production, or trade. Additionally, they can be easily expanded if needed, such as by involving new members or diversifying business operations.
6. Less Administration
Managing an Ltd generally involves fewer administrative tasks compared to a public limited company. While bookkeeping and the preparation of annual reports remain mandatory, Ltds offer much simpler management of the business overall.
7. Ease of capital Increase or Decrease
The share capital stated in the articles of association of an Ltd is the amount set at the time of establishment but can be easily modified based on internal company decisions. In contrast, modifying the share capital in other company structures can be more complicated and time-consuming.
8. Legal Security
The legal framework governing Ltds is stable and well-established, providing a secure legal environment for the business and creating a more predictable operating environment for owners.
9. Business Transferability
An Ltd is easier to transfer, sell, or inherit. The transfer of business shares is simpler and quicker compared to a public limited company, where share transfers may involve a more complex and lengthy process.
The mandatory part
Now that we are aware of the advantages of establishing an Ltd, let’s list some potential disadvantages that should not be overlooked, though they are not necessarily a cause for concern:
Mandatory Bookkeeping: Ltds are required to maintain proper accounting records and publish annual financial reports, which may represent an administrative burden for some.
Investment Opportunities: While an Ltd offers many benefits, it may not be as attractive to large investors as a Public Limited Company (PLC)
Mandatory Legal Assistance for Formation: The establishment of an Ltd requires the involvement of a lawyer, which can incur additional costs.
Therefore, an Ltd is an extremely flexible, secure, and easy-to-manage company structure, especially if you are looking to set up a business in Europe or directly in Hungary. It can be an ideal choice for small and medium-sized enterprises. Limited liability, low capital requirements, and favorable taxation make it particularly attractive to entrepreneurs.