The purpose of the analysis is to map out conditions for founding a company in the EU by using its keystones “Free mobility of goods, services, persons and capital” in real life. In our analysis we shall put special emphasis on the sections concerning persons and capital.Registered capital, mobility of capital, VAT rate, insurance costs, minimum wage rate

Wagnerová, Eva

Šebestová, Jarmila

English

Research Papers in Economics

  1 
COMPARATIVE  ANALYSIS  OF  CONDITIONS  FOR  A 
COMPANY  FOUNDATION  BY  THE  CZECH  INVESTOR  IN 
INTEGRATED EUROPEAN UNION 
 
Jarmila Šebestová
1 
 
Key words 
Registered  capital,  mobility  of  capital,  VAT  rate,  insurance  costs,  minimum 
wage rate 
 
Introduction 
Entry conditions on integrated market brought many new structural impulses to 
Czech business subjects – protective duties have been abandoned, our farmers have been 
involved in integrated agricultural policy, changes in the tax system, growth of personal 
mobility, liberalization of capital flow, subventions for  economically backward regions 
or  bad structuralised regions. 
The  united  EU  market  offers  other  new  possibilities,  such  as  market  without 
frontiers with 500 million consumers. It is necessary to have a wide international view, 
higher  education  in  investment  and  management,  finally,  speaking  other  foreign 
languages, especially English to be successful on this market. If you do not understand 
their philosophy, you could suffer from severe competition on the market, and then you 
could have problems with international law, which protects the united market in the EU. 
It may not be forgotten that the “old” EU members have an advantage – time spent on 
the  European  market.  It  is  the  reason  why  Czech  investors  could  have  some  other 
problems  to  face.  These  were  the  fundamental  reasons  why  we  have  prepared  this 
analysis. 
   The purpose of the analysis is to map out conditions for founding a company in 
the EU by using its keystones “Free mobility of goods, services, persons and capital” in 
real  life.  In  our  analysis  we  shall  put  special  emphasis  on  the  sections  concerning 
persons and capital. 
                                                            
1 Silesian University, School of Business Administration, Department of management 
and enterprise. Karvina, Czech Republic. E-mail: sebestova@opf.slu.cz, phone +420 596 
398 262.   2 
1.  Methods of analysis 
To found a company in another country than the Czech Republic, it is critical to 
make a comparative analysis of future costs of carrying on business in our republic and 
the EU. We have divided these into the three following sections (see Table 1). 
 
Table 1 Methods of business costs analysis  
Section  Criterion 
Goods and services free mobility   ·  Basic  principles  in  the  integrated  
EU market  
Free mobility of persons 
·  Wages and salaries costs,  
·  Insurance costs paid by employer 
·  Long-term  residence  in  EU, 
permission  for  working  in  another 
country 
Free mobility of capital 
·  Amount  of  registered  capital  for 
foundation  of  common  company 
forms  such  as  limited  liability 
company,  joint  stock  company  or 
self proprietor  
·  administrative costs and barriers, 
·  VAT rate 
 
 
2.   Free mobility of capital 
2.1  Comparison of  requests on registered capital in the EU countries 
When we intend to carry on business in the Czech Republic, we are obliged to 
follow  the  Czech  Commercial  Code,  which  stipulates  the  amount  of  the  registered 
capital, which depends on the company legal form. In order to be permitted to establish a 
company with  limited  liability in  the Czech  Republic, you  will  need    CZK 200,000     
(€ 6,329) and for joint stock company you need CZK 2,000,000 (€ 63 291).  
In  our  business  law  exist  other  business  forms,  such  as  self  proprietor, 
partnerships, limited partnerships, where you do not need to have a registered capital 
except in the case of a co-operative, but on our market there are only two dominating 
forms - company with limited liability and joint stock company. Why are the other forms 
inessential for our analysis? In majority of countries their definition is not identical. This 
is the reason why we specialize on these two forms – limited liability company and joint 
stock company. This could be illustrated by the statistics in the selected EU countries as   3 
showed in the table below: 
 
Table 2 Comparison of the amount of registered capital 
Country  Common forms of  
company type  Currency  Request on capital   Capital in € 
Company with 
limited liability 
(CLL) 
  not requested   
Great Britain 
Joint Stock company 
(JSC)    not requested   
CLL  DKK      125,000   16,788 
Denmark 
JSC  DKK    500,000   67,152 
CLL  EEK         40,000   2,547 
Estonia 
JSC  EEK       400,000   25,467 
CLL    not requested   
Ireland 
JSC    not requested   
CLL  EUR         10,000   10,000 
Italy  
JSC  EUR       100,000   100,000 
CLL  HUF    3,000,000   12,173 
Hungary 
JSC  HUF  20,000,000   81,153 
CLL  EUR          25,000   25,000 
Germany 
JSC  EUR          50,000   50,000 
CLL  EUR          18,000   18,000 
The Netherlands 
JSC  EUR          45,000   45,000 
CLL    not requested   
Portugal 
JSC  EUR        25,000   25,000 
CLL  EUR          35,000   35,000 
Austria 
JSC  EUR        70,000   70,000 
CLL  EUR          18,000   18,000 
Greece 
JSC  EUR          60,000   60,000 
Slovenia  CLL  SIT       1,500,000  6,249 
CLL  SKK        200,000  4,998 
Slovak rep. 
JSC  SKK     1,000,000   24,989 
CLL  PLN          50,000   11,450 
Poland 
JSC  PLN       100,000   22,900 
Finland  CLL  EUR           8,000   8,000 
CLL    not requested   
France 
JSC  EUR        37,000   37,000 
CLL  LTL       10,000   2,895 
Lithuania 
JSC  LTL  100,000   28,951 
CLL    not requested   
Belgium 
JSC  BEF  2,500,000   61,982 
   4 
From the viewpoint of “minimum costs”, the cheapest company with limited 
liability can be established in Estonia, Lithuania and Slovakia, while the most expensive 
will be in Austria, The Netherlands and Greece. 
The cheapest joint stock company could be founded in Slovakia, Poland and 
Portugal, but the most expensive countries include Austria, Hungary, and Italy. 
 
2.2  Common administrative and other barriers 
Each country has a priority to protect their own market and their producers, 
because the EU countries have not fixed uniformity of business law. It is the reason, why 
they impose barriers and restrictions. A common restriction is in a form of tax from 
registered capital, ranging from 0.5% to 1% (e.g. Belgium, Greece, Poland) or in a form 
of  registration  fee,  ranging  from  €  30  (GB,  Ireland)  to  €  800  (Hungary),  banking 
guarantee amounting to  50 000 USD (Greece). 
Establishing of a company in other country is more complicated also due to the 
fact, that corporate statutes will have to be translated into the local language (which 
extends the process of registration and raises administrative costs), while it is customary 
to translate the articles of association into English. This barrier exists in Estonia, Finland, 
Latvia, Slovenia, or they require that a country resident be a manager or a lawyer in the 
particular  company  (e.g.  Denmark,  Estonia,  Ireland,  Lithuania,  Spain,  Portugal  and 
Slovenia). 
The best conditions and minimum administrative costs are offered by Malta, 
where registration process will be accomplished within 3-4 days, the same will take 1-2 
weeks in Portugal in the case of establishing a joint venture company with a Portuguese 
person;  on  the  other  hand,  this  process  will  take  approximately  3-4  months  in  The 
Netherlands and Austria (and, moreover, you will have to hand in the certificates of 
education, tax receipts, etc.). 
 
Table 3 Examples of administrative fees in EU 
Country  Administrative cost  Currency  Amount  Price 
in € 
Total 
in € 
Great Britain  registration fee  GBP  20   30  30 
registration fee  60   60 
France  fee for incorporation in Trade 
Register   
EUR 
  200  200 
260 
Ireland  registration fee  EUR  30  30  30   5 
Country  Administrative cost  Currency  Amount  Price 
in € 
Total 
in € 
registration fee  60,000   243 
Hungary  fee  for  notification  in  Trade 
Register   
HUF 
  250,000   1,015 
1,258 
registration fee  750   750 
Germany 
Fee for notification  
EUR 
250   250 
1,000 
tax  from  registered  capital 
1% CLL  180   180  180 
Greece 
Tax  from  registered  capital 
1% JSC 
EUR 
600   600  600 
fee  for  notification  in  Trade 
register  -  CLL  10,000  250  250 
Slovakia 
fee  for  notification  in  Trade 
register  - JSC 
SKK 
20,000   500  500 
notary  fee  –CLL  3%  from 
reg.capital  1,500   343  343 
notary  fee  –JSC  3%  from 
reg.capital  3,000   686  686 
fee  for  notification  in  Trade 
register    500  114 
registration fee  860  197 
Poland 
fee  for  notification  in  Trade 
register   
PLN 
1,000  228 
539 
tax  from  registered  capital 
1% CLL  28.95  28.95  28.95 
Lithuania 
tax from registered capital1% 
JSC 
EUR 
289.51  289.51  289.51 
Belgium  tax  from  registered  capital 
0,5% JSC  EUR  310   310  310 
 
 
2.3   Comparison of VAT rates 
One of the EU priorities is to reduce differences between the basic VAT rates, 
but at the present time these figures are considerable – about 10%. For a businessman, 
who intends to commence his production in the particular country, this factor is vital, of 
course. The VAT rate has an influence on the sales price of the product and its rate 
increases or reduces competitiveness on the foreign markets. 
 
Table 4 VAT rates in EU 
Country  EU 15  Basic  VAT rate  
Luxembourg  15 % 
Germany  16 % 
Spain   16 % 
Great Britain  17,5 %   6 
Greece  18 % 
The Netherlands  19 % 
Portugal   19 % 
France  19,6 % 
Italy  20 % 
Austria  20 % 
Belgium  21 % 
Ireland  21 % 
Finland  22 % 
Denmark  25 % 
Sweden  25 % 
 
Basic  VAT rate  - new EU members  
Country  Basic VAT rate 
Cyprus  15 % 
Malta  15 % 
Estonia  18 % 
Lithuania  18 % 
Latvia  18 % 
Czech rep.  19 % 
Slovakia  19 % 
Slovenia   20 % 
Poland  22 % 
Hungary  25 % 
 
The minimum VAT rates are offered by Cyprus, Malta, Luxembourg, Germany 
and  Spain  –  15-16.5%,  the  maximum  VAT  rates  are  imposed  in  Hungary,  Poland, 
Denmark, Sweden and Finland. 
 
3.  Free  mobility of persons 
After  the  big  expansion  of  the  EU  in  May  2004,  many  EU  countries  have 
accepted a “transition period”, which restricts free mobility of persons - employees in the 
EU. This period will definitely expire in 2011. Only Ireland and Great Britain opened 
their  labour  markets  at  once.  We  have  illustrated  the  situation  in  Table  5.  These 
restrictions are affected by their own situation on the labour market and their concern of 
inexpensive, but qualified foreign labour force arriving from the new EU countries.  
 
Table 5 Focus on free mobility of people 
EU Country   Requirements  
Germany 
- residence permission,   
-  you  cannot  have  the  following  sectors  -building 
industry,  security  services,  health  services, 
accommodation services    7 
Austria  - residence permission,  
- abstract from the criminal register  
Luxembourg  - residence permission, 
Denmark  - application fee -  2800,- CZK (approx. € 89),  
- residence permission for 2 months 
Sweden  Employer  must  guarantee  a  minimum  wage  rate, 
accommodation, labour permission. 
Spain  Entry  visa,  abstract  from  the  criminal  register, 
administrative fee, translation to Spanish 
Italy  Quota of  8,000 permissions per year  
Finland  Labour permission, employment contract, abstract from 
the criminal register 
New Members from May 
2004  Without barriers 
 
3.1   Comparison of minimum wage rates 
Minimum  of  wage  cost  is  another  factor  playing  role  in  the  making  of  the 
decision as to where you intend to set up your business. We have made a comparison in 
Table 6. The cheapest labour force is offered by Estonia, Lithuania, Latvia, Slovakia, 
while the most expensive can be found in Luxembourg, Belgium and the Netherlands. 
 
Table 6 Comparison of minimum wage rate 
Country  currency  Rate per 
month 
Amount 
in  €  Commentary 
Belgium  EUR  1,233.54  1,233.54    
Czech rep.  CZK  6,700  212.23    
Denmark  DKK     Not 
defined 
Problem is solved by collective 
agreement 
Estonia  EEK  2,480  158.50   
Finland  EUR     Not 
defined 
Problem is solved by collective 
agreement, minimum  wage rate is 
different in concrete sectors 
France  EUR  1,090.48  1,090.48  35 hours per week  
      1,227.57  1,227.57  39 hours per week 
Ireland  EUR     1,092.00  39 hours per week 
Italy  EUR     Not 
defined   
Cyprus  CYP  345  598.20    
Lithuania  LIT  450  130   
Latvia  LVL  80  122   
Luxembourg  EUR  1,403  1,403  Rate is for unqualified staff   8 
Hungary  HUF  54,000  219.11  For the unqualified -  HUF 54,000;  
For qualified - HUF 100,000. 
Malta  Lira  230.23  542.40   
Germany  EUR     Not 
defined 
Problem is solved by the collective 
agreement, it depends on business 
sector 
the 
Netherlands  EUR  1,264.80  1,264.80  For people aged over 23  
Portugal  EUR  365.60  365.60    
Austria  EUR     Not 
defined 
Problem is solved by collective 
agreement 
Greece  EUR  504.83  504.83  Employees must receive 13
th and  
14
th  salary  
Slovakia  SVK  6,080  151.93    
Slovenia  Tolar  103.64  442.60   
Spain  EUR  460.50  460.50  Employees must receive 13
th and  
14
th  salary 
Sweden        Not 
defined 
Problem is solved by collective 
agreement 
Great Britain  GBP   702  1,028 
39 hours per week; GBP4,5 per 
hour 
For workers between 18-21 years- 
GBP 3,80 per hour,  
 
3.2  Insurance costs 
You can see that the minimum costs for insurance paid by the employer are in 
the Great Britain, where an employee pays it on his own, the list is followed by Slovenia 
and Poland. The maximum rate is in France because they guarantee a pension at 70% of 
your wage rate. 
 
Table 7 Outline of insurance costs 
Country 
Employer’s 
costs in €  Commentary 
Great Britain  0 
 SI- GBP 2  per week is paid by employee, employer  
7% from profit above € 4,385  
Slovenia  79.5  SI-employee 22,1%, employer 15,9% 
Poland  104.1 
SI -  employee 18,71%, employer 18,29% 
-  contribution to labour fund 2,45% 
-  wage fund 0,08%,  
total 20,82% 
Portugal  118.75  SI-employee 11%, employer 23,75%   9 
Lithuania  155 
Employer HI- 3%, pension fund 27%,accident insurance 
1%, employee 3% 
Hungary  165  employer HI - 11%, pension fund 22%, employee 2-8% 
Estonia  165  employer pays all  - 33% - health + social insurance 
France  230  Employer 46%, employee 22% 
SI – social insurance, HI – health insurance, the Calculation was made from a monthly 
wage rate of 500 € 
 
Conclusion 
Considering the simplified analysis of the named factors the following results 
may be concluded: the best conditions for founding a limited liability company are in 
Estonia  or  Lithuania  (minimum  rate  of  registered  capital),  for  registration  in  Great 
Britain (minimum administrative costs), employing staff from Estonia (minimum wage 
rate), and considering insurance duty in again Great Britain (minimum insurance costs), 
VAT registration in Cyprus or Malta. 
If we are agree that the combination of the above is not good to implement in 
common life, we could recommend staying in Estonia, having to stand the disadvantage 
of a long administrative process. 
There is, of course, another possibility – not setting up “your own” company, 
but taking an opportunity to expand with an existing company abroad in the form of joint 
venture or strategic alliance – good conditions are in Portugal. Then, you could take the 
opportunity to get money from the EU funds, where good chances are offered at Cyprus 
and Malta by fast registration process and interest of the local government in supporting 
small and medium sized enterprise.   
To act as a self-proprietor is more difficult in the EU than in our country – it is 
more complicated to obtain a trade licence, because one must have a qualification in the 
particular  branch  of  business,  than  long-term  experience  and  also,  one  has  to  be  a 
member of the national professional institutions. 
 A business activity like commercial representation is not recommended, since 
many countries EU impose severe restrictions, which prohibit independent business - 
they view these as a mere representation. A clear reason – tax is paid to the country 
where the company has a registered place of business and it brings no benefits to the host 
country.   10
Benefits from the enterprise can be defined in two ways: firstly, a profit for the 
company’s  owner,  secondly,  state  revenue  from  the  settled  taxes.  Low  rate  of 
corporation tax are offered at Cyprus a Malta. Tax rate is about 10%. 
Business environment in the EU is very different, varying markedly country-to-
country. Advantage for the new EU member states is good rate of exchange for Euro and 
this  factor  decrease  costs  for  capital  and  wage  rate.  Disadvantage  is  that  economic 
system has not developed properly so far.  It may be the reason why they offer better 
conditions for foreign investors – they intend to facilitate their own development. 
Finally, I would like to add that this material has not been drawn up to seek 
solutions  for all the problems, but  we  would like to present a new  way    for Czech 
businessman  and  Czech  companies  in    the  EU  environment  and  make  up  a  simple 
analysis on possibilities and  opportunities for their expansion.  
 
Abstract 
Příspěvek si ve své první části klade za cíl teoreticky vymezit oblasti a kritéria 
hodnocení  nákladů  vznikajících  při  zakládání  podniků  v rámci  evropské  integrace 
v souladu  s jejími  základními  principy.  V druhé  části  se  zabývá  zhodnocením 
podnikatelského  prostředí  v rámci  členských  zemí  EU  z pohledu  potřeby  kapitálu, 
administrativních  nákladů  a  sazby  daně  z přidané  hodnoty.  Třetí  část  je  věnována 
kritériím z oblasti volného pohybu osob, a to z hlediska výše minimální mzdy, omezení 
pobytu a nákladů na sociální a zdravotní pojištění placeného zaměstnavatelem. Závěrem 
je provedena srovnávací analýza podle nejnižších nákladů s uvedením faktorů, které dále 
způsob a formu podnikání ovlivňují. 
 
Reference 
 
[1]  www.euroskop.cz 
[2]  www.czechinvest.cz 
[3]  www.cebre.cz 
[4]  www.euroinfocentrum.cz 
[5]  www.britain.cz 
[6]  www.investinspain.org 
[7]  www.investinfinland.fi 
[8]  www.investinfrance.org 
[9]  www.maltaenterprise.com 
[10] www.centralbank.gov.cy 
[11] www.europa.eu.int 

Comparative analysis of conditions for a company foundation by the czech investor in integrated european union

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics