The European single market provides an ecosystem for member states to apply the principles of free movement, a single point of entry, and mutual recognition. Advantages of this trade and customs union are based on the fundamental freedoms of movement and establishment. As such, one can choose incorporation in any of the member states as well. However, incorporation and company formation triggers compliance with both the home state as well as the host states where activities take place. This requires detailed attention by the controlling persons to avoid omissions and exposure to corporate vulnerabilities.
A customs union or single market provides for economic integration, harmonization of laws and equality for its members. The internal market aims to stimulate a competitive area and safeguard the sovereignty of the member states. As such, physical, technical and fiscal barriers are removed whilst domestic regulation avoids discrimination in the broadest sense of the word, of other union members. The result of this approach is that entrepreneurs may choose the most appropriate location in the Union for company formation but have to consider local rules and procedures that apply to other locals.
European incorporation in any of the member states grants unrestricted access to the single market. However, when local codes require businesses and activities to apply for licenses, pay taxes, or become member of professional organizations, foreign businesses are subject to these same codes as well. International organizations should carefully study the rules for incorporation and establishment to avoid double charges and administrative duties. The abolition of customs duties (and charges having similar effect) is central to the idea of a customs union and a single market. Yet, registration with a registrar in a member state might be mandatory for all business working in a specific member state.
The member states of the European Union have their own procedures for businesses and their activities. Sole traders and self employed people register with social insurance offices and often the business registry, whilst official company formation has a distinct character. The registration as a sole trader in another country is obsolete because personal residence triggers a local tax liability in a home country while registration in another may lead to extra charges. Yet, companies with limited liability potentially experience administrative and tax benefits.
Incorporation results in a separation between the legal entity and its owners. As such, there is a limited liability for shareholders. In the European countries where the common law legal system prevails, personal liability and personal responsibility of shareholders, directors and other controlling persons is uncommon. Other advantages of choosing the most appropriate location for company formation allow access to alternative infrastructures, a distinct labor market and economic or regulatory arbitrage.
One of the challenges of international incorporation is access to the global financial system. Abuse disrupts society and potentially reduces confidence in the financial system. Therefore financial institutions use extensive know your customer (KYC) procedures and randomly ask for supporting evidence of transactions. Not just the opening of a bank account or IBAN facility, but also maintenance of the relationship requires detailed attention to avoid the termination of financial services, now and in the future.