5 tips for doing business in Europe as an American

Last updated: 22 April 2024 Views: 1555

So you’re looking to do business in Europe. Whether you’re intending to expand there, set up a new business or just to build relationships, you may be taking a set of assumptions with you. Perhaps you figure that business is business, and it’s much the same everywhere; or that Europe is culturally much more similar to the US than, say, Asia or the Middle East.

While both of these points are true, it’s also important to realize that Europe is a place of enormous cultural diversity, and one that has certain preconceptions about Americans. For all the commonality between business cultures, there are some aspects of doing business in Europe as an American that may surprise you - something these simple tips should help with.

Prepare for different payment methods

While the US has come a long way from ‘cash or check’, it still lags behind many European nations in the uptake of newer payment methods. Having debuted in the UK in 2007, around 90% of all face-to-face payments are now thought to be contactless, while total card payments overtook cash back in 2017. Neighboring Ireland and France have both seen similar changes, albeit with differences in the contactless apps and cards being used.

This isn’t true everywhere, though. While contactless and mobile payments are undoubtedly the future, some countries have been slower on the uptake than others. This includes highly developed countries such as Germany, where cash remains a mainstay of many businesses. Other countries such as the Netherlands use unique payment methods such as bank transfer system iDEAL, while ‘pay later’ options such as Klarna are proving extremely popular. Adapting to these differences could make or break your business.

Sales tax is very different (and very important)

Sales tax isn’t exactly an unknown quantity in the US, but it’s one that not all businesses have to trouble themselves with. Not all states apply a sales tax, and sales tax generally isn’t factored into the ticket price on products. This is very different in Europe, where the price you see for an item will - with the exception of some websites - usually include the sales tax added on.

Known in Europe as value added tax (VAT), sales tax exists in every European country. While the EU places limits on precisely how high or low VAT can be, countries can decide their own rate, and what exactly it is applied to (with limits). Many countries have some VAT free items, while a few also have zero VAT items, which act similarly but must be reported differently.

While VAT is a consumer cost and not a business cost, businesses still need to pay VAT before being able to claim it back. In the EU, this is done using a system called MOSS VAT, or the mini one-stop shop. By registering for MOSS VAT in the country you’re based in, you can pay the local rate of tax for your customers to a single authority, rather than to the tax authorities in every country you have customers in.

Be mindful of residency requirements

Visas are an obvious issue when doing business in another country. While striking deals isn’t often an issue, starting or expanding a business may require you or someone else to have a more fixed presence in the country. This isn’t always a direct requirement of formation, but can be an indirect one, such as when bank accounts require you to be based in the country, and a bank account is required to deposit share capital.

Similarly, starting a business will often require physical business premises, the logistics of which might require you to be in the country for an extended period of time. Available visas will differ from country to country, with visas often available for innovative businesses or those pledging to invest above a certain amount of money. Of course, this process can also be expedited by a formation agent such as Euro Start Entreprises, who can provide serviced offices and represent you when speaking to local banks.

The UK is in Europe - just not the EU

It’s an obvious geographical point, but we wouldn’t blame you for switching off during the interminable years of Brexit. The bit you need to know is that while the UK (England, Scotland, Northern Ireland and Wales) is geographically in Europe - and still has access to a handful of EU systems and services - it is no longer a part of the European Union.

This denies it access to many schemes relevant to businesses, including things like EU R&D funding, access to certain financial services, and the free movement of European talent. It also means it retains its own currency, which has taken a bit of a beating as of late. The UK may be at an advantage by being able to make its own policies, unfettered by the EU, but it hasn’t shown signs of benefiting from this yet.

There’s no doubt the UK is still an attractive destination for American businesses and entrepreneurs. It remains a major center for global finance, and is still the largest fintech destination outside of the US, as well as having a large and highly developed consumer market. But it is also disadvantaged by not having free access to EU markets - and still has its own cultural differences that you’ll have to get used to.

The EU is a club, not a country

While we have stereotypes about different European countries - France or Germany, say - Europe is often seen as broadly homogenous. While it may seem small and quaint, Europe manages to cram in 44 separate countries, each with its own distinct culture, history, and often separate language. Each of these markets has different business etiquette, different demands, and different likes and dislikes.

When it comes to the 27 member states of the European Union - the EU for short - there are some parallels with the United States. While each country is much more culturally distinct than the states, the EU shares a similar relationship with countries as the federal government does with American states. While certain laws are voted on by the European Parliament, and the EU has the highest courts of appeal, each country also has a large amount of autonomy.

What all of this means is that while things like product standards are often consistent across the EU, things like taxes, visas and employment laws aren’t. Above all, don’t treat Europe or the EU like a homogenous mass. Businesses in Europe have dozens of wildly different markets right on their doorstep, something that represents both a challenge and an opportunity.

For more information on how to open a company in Europe, take a look at our Europe page, with a step-by-step guide on company formation, opening business bank accounts, tax advice and profiles of the top countries in Europe and their advantages. Or for more specific advice on France or Ireland, take a look at our free guides below.