When looking for locations to set up business up in or expand an existing business into, or considering the direct investment, CEE is an attractive destination for business opportunities within Europe.
Whether you are a typical business enterprise or private equity/investment fund doing cross border business operations/investments, you have to cope with an exceptionally complex regulatory environment. You have to be certain to set up and run your business operations as fully compliant, moreover when the business is on a global scale. What do you need to know (checklist), and what are the further factors to consider?
A Business Enterprise:
Location, location, location!
Choosing a business location is not something that can be done on a whim—it's a crucial step in starting a business. First things first, the business location you choose will depend on the type of business you operate. Think about vendors and suppliers; go where is demand.
Data, data, mining, data …. “Economic condition and market/growth opportunities.”
Look for areas where the economic situation is stable and economic factors could help to boost your business operations, your product or service is in high demand, or your competition is relatively low. If possible, you'll want to expand to a location where the other businesses are complementary to ensure your business fits into the local market.
Fundamentals of legal and taxation system
Keeping your business compliant with the law and taxation is crucial! You need to make sure that you have all of the legal formalities in place. This includes choosing the proper legal structure to suit your particular circumstances and ambitions, as well as registering with HM Revenue and Customs. You will have to pay taxes of some kind. The taxes you pay will depend on several factors, such as your business's legal status, annual turnover, whether you employ staff, and taxable profits. Whatever kind of business you run, you are required by law to keep financial records relating to it.
Global talent competitiveness
The labor market in CEE faced a fast convergence process in both wages and productivity after EU accession. The CEE region offers a relative labor cost advantage vs. Western Europe, with companies benefiting from a similar regulatory environment. At the same time, accelerated know-how and technologies transfer within the single market has resulted in much faster productivity convergence in CEE relative to income convergence.
(Further) budgeting and projection for your business/expansion
Your expansion plans should consider the economies of scale relevant to your situation – sweet spots in the output where profit becomes optimal. Crucially, they should also consider the limits of these economies of scale. For instance, are you limited by the ability of your suppliers to increase their supply while maintaining quality? Depending on the scale of your expansion your fixed and variable costs are likely to be higher. Ensure you're getting the balance right to cover these higher costs, and don't forget to forecast staff costs and overheads.
A Private Equity / Investment Funds
Investment strategy
Strategy and documents of fund's goals, with a clear fund strategy on attracting and retaining investors. A funds strategy will consider all aspects such as fundraising, fund structure, fund types, asset locations, acquisition types, financial distribution, etc.
Suitable fund structure and domicile
European domiciles confirmed strong growth, fuelled by the introduction of AIFMD. Despite the initial fear of high compliance costs and additional complexity, the industry adapted quite well to the changes. Across all asset classes, attractive tax systems (low tax rate, double-taxation treaties) play an important role when deciding where to domicile a fund structure.
Regulatory reporting & Investment Compliance (and Audit)
The fund industry has to cope with an exceptionally complex regulatory environment on a global scale. Within the cross-border distribution world, mutual funds are confronted with several regulations at the level of the EU, domicile jurisdiction, and targeted directories. Hence, global investment funds need to be well informed with changes and directives in EU regulations, particularly in varied areas (AIFMD, ESMA, MiFID, AML, CRS, CMU, EMIR, CRD).
Fund management and governance budgeting
Since both risk and returns are highly connected, investment strategy and style are fundamental. You should optimize a blend of styles for diversification, balancing reward, and look at risk management. The fund managers ensure that the investors' goals are achieved through appropriate investment. Strategies and to do that keep track of the investors' assets/ investments and liabilities/ obligations.
Capital flow budgeting
Capital budgeting involves identifying the cash in flows and cash out flows rather than accounting revenues and expenses flowing from the investment. For example, non-expense items like principal debt payments are included in capital budgeting because they are cash flow transactions. Conversely, non-cash expenses like depreciation are not included in capital budgeting (except to the extent they impact tax calculations for "after-tax" cash flows) because they are not cash transactions. Instead, the cash flow expenditures associated with the actual purchase and financing of a capital asset are included in the analysis.
Cross border acquisition risks and portfolio compliance
There are many laws and regulations that companies need to comply with during mergers and acquisitions, primarily within cross-border transactions. Mergers and acquisitions pose great scope for the growth of companies through expansion and diversification. The company can mitigate the risks associated with it by prudent planning and compliance management. M&A typically involves a significant amount of due diligence by the buyer. Before committing to the transaction, the buyer will want to ensure that it knows what it is buying, what obligations it is assuming, the nature and extent of the seller's contingent liabilities, problematic contracts, litigation risks, intellectual property issues, and much more (tax, financial, legal, technical due diligence).
Deliver fund services/importance of Investor Relations
A thoughtful investor relations strategy is vital for any company aiming for growth and success. The right strategy can help raise your company's profile, tell your story and enhance your credibility. A well-designed program is also critical for targeting and building a relationship with the investors. Thus, you should develop a service strategy that accounts for local and global investor needs, costs, compliance risks, administrative burdens, and other factors.
Should you require any further information, don't hesitate to get in touch with us!
