Expanding your Australian startup overseas can propel your growth, increase your brand awareness and improve reputation. While new customers and markets might be interested in your products or services, reaching them might be tricky. While many Australian startups instinctively think of expanding to the United States, Europe may be just as viable.

In this article, we will outline some things to consider when expanding your startup to Europe, including:

  • what country to set up in;
  • whether you will operate your European arm in-country;
  • if a visa is required;
  • how to structure your startup in Europe; and
  • protecting your intellectual property.

Selecting a Country

Consider the best country for:

  • the future of your company;
  • old and new team members; and
  • your sales.

As part of your startup’s expansion, it is best for you to be in the country you are expanding to while operations are underway. Irrespective of the country you choose as your headquarters, you will need to ensure that you have an appropriate visa that allows you or your team members to work.

Visa Requirements

Each European country has their own:

  • visas;
  • associated requirements; and
  • governing body.

Over the last few years, several European countries – including France and Portugal – have developed startup-specific visas. These visas are designed to attract foreign startup founders by giving them temporary visas with work rights.

Though each country’s specific visas differ concerning time allowed in the country, typically these visas serve founders with an easy way to gain entry and get started.

Tax Considerations

Before undertaking any business expansion, it is essential to ensure that you receive advice about your tax requirements. From a tax perspective, it is important to consider the value of your startup’s assets before developing an expansion strategy.

Setting up a new entity in Europe and transferring your assets to that entity would likely be liable to pay capital gains tax. One common way of avoiding this is by:

  • incorporating a subsidiary;
  • keeping the assets in your Australian startup’s possession; and
  • licensing the assets to the European subsidiary.

Usually, in this instance, it is wise to consider a dual-company structure within Australia, so that all the assets sit in a holding company that does not:

  • trade; or
  • open itself up to liability.

Following this, you would have another Australian subsidiary operate within Australia, using the holding company’s assets on a licence.

Business Structuring

There are several ways that you may look to expand your startup to Europe, usually by either:

Incorporating a Subsidiary

The most common way to enter the European market is by setting up a European subsidiary that is wholly-owned by its Australian holding company. It is important to note that each European country has their own types of entities and registration requirements. Once you decide which country you will expand to, you should refer to that specific country’s requirements.

In most instances, as a startup founder, you will be looking to incorporate a private limited liability company as a subsidiary.

For example, in the United Kingdom (UK), to set up a private limited company, you will require a director. That director, however, does not necessarily need to reside in the UK.

In Germany, as another example, most subsidiaries take the form of a German Limited Liability Company which requires you to:

  • appoint at least one shareholder and director; and
  • contribute a particular value of minimum capital.

Opening a Branch Office

Instead of setting up a subsidiary, you may prefer to open a branch office. Though this may be more straightforward from an administrative perspective, there are also some disadvantages.

One of the key differences between a subsidiary and a branch office is that a branch office is not a separate legal entity, so any liabilities incurred are in connection with your Australian company. This may open your Australian company up to unnecessary added risks.

Once you have an entity set up in Europe, it is typically relatively easy to expand to other countries, especially those within the EU. When expanding across the EU, you will:

  • generally not need to set up another entity; and
  • can run a local office from any additional EU countries.

Intellectual Property (IP)

When expanding internationally, you will require IP protection in each country you expand to. For most startups, IP is a valuable asset and one that has taken time to develop. Your startup’s IP may include:

  • branding;
  • softwares; and
  • systems.

Regardless of the specifics, protecting your startup’s IP is crucial.

Brand Awareness

As a startup founder, it is likely that your brand is something that you have worked hard to create and have focused a lot of time and energy on promoting. Brand awareness becomes increasingly important when you are expanding overseas because your brand is your identity.

To protect your brand, you should ensure that you have a registered trade mark over your name and your logo, which gives you the exclusive rights to that brand. Once your Australian trade mark is registered, you can then focus on protecting your trade mark internationally as well.

Many European countries are members of the Madrid Protocol, which allows you to apply for a trade mark internationally. Where the European country you choose is not a party to the Madrid Protocol, or it is not appropriate, then you can apply directly to each country.

Employees

As a startup founder, you understand the importance of having a reliable team of employees. Often, attracting and retaining key talent can be difficult when expanding overseas. When hiring employees to operate your startup in Europe, it is vital to ensure that you comply with the employment standards in the countries you want to engage employees in.

Some countries provide higher levels of protection for workers, while others have different minimum entitlements afforded to employees. You will need to ensure that you fully understand your obligations as an employer in the countries you hire in. To do so, you should:

  • check the employment standards in each relevant country; and
  • consult with the local body to ensure that you are compliant.

GDPR Compliance

In May 2018, the General Data Protection Regulation (GDPR) came into force that also impacts Australian startups. If you establish a business in Europe, or offer goods or services to individuals in Europe you will likely need to comply with these regulations.

If you are collecting any personal data, there are many steps you will need to follow to be compliant with the GDPR. As an Australian startup, this means:

  • understanding what activities you can and cannot undertake; and
  • updating your current terms and conditions and privacy policy.

Key Takeaways

Each country within Europe has particular requirements and regulations that will be relevant for your expansion. Though many of the underlying principles are the same, you should carefully check each country’s specific conditions for operating within that country before undertaking any expansion plans. Key considerations before expanding to Europe include:

  • any tax implications;
  • visa requirements;
  • business structuring;
  • hiring employees;
  • protecting your IP; and
  • GDPR considerations.

Each country within Europe has their own requirements and regulations that will be relevant for your expansion. Though many of the underlying principles are the same, you should carefully check each country’s specific requirements for operating within that country prior to undertaking any expansion plans. If you have any questions about capital raising, contact LegalVision’s capital raising lawyers on 1300 544 755 or fill out the form on this page.

Maya Lash
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