Europe is made up of 50 countries, most easily divided into the 27 that are members of the EU and the 23 that aren’t – from Monaco and Moldova to Serbia and Switzerland. And, following the conclusion of Brexit in 2020, this latter group can welcome a new member: the UK.
The EU remains the focal point for investment interest in Europe. It is renowned for the strength of its knowledge-based economy and for innovation. Investors are attracted by a large, skilled workforce, and the stable tax and regulatory environment that offers long-term consistency and few surprises.
The importance of this investment can’t be overstated. According to the European Commission, foreign direct investment totaled €7.2 trillion as of the end of 2018, accounting for 45% of the EU’s gross domestic product. Meanwhile, foreign-owned firms account for a quarter of business R&D in France, Germany and Spain; between 30% and 50% in Portugal and Sweden; and more than 50% in Austria, Belgium, and Ireland.1
Of all the investment possibilities in the regions featured in this article, the EU may feel like the safest bet. This is in part because 2021 marked the start of a seven-year structural fund period, with a budget of €1.8 trillion to fuel its recovery from the COVID-19 pandemic and meet its broader strategic goals.2
Key among these goals is the need to decouple supply chains from Asia. In the wake of COVID-19 disruption, this is now seen as imperative. Governments are actively trying to bring manufacturing plants, and their associated suppliers and R&D facilities, closer to home, with a specific focus on semiconductor technology, hydrogen, electric vehicles and batteries.
While the above trends apply to the UK as well as the EU, Brexit means investors may now be treating the two regions very differently.
“A lot of companies previously landed themselves in the UK when wanting a base for EU operations, because of its language and stable economy, and its currency, which offered a natural hedge against the euro,” says Simon Moger, Executive Director, Global Location Services & Incentives, Ernst & Young LLP. “Companies considering such a move now are casting their search more widely, including additional EU member states which offer greater certainty around trade agreements."
What the region offers
The EU is now offering blended funding – a combination of tax benefits, cash grants, guarantees and loans – to provide much-needed capital to support investment and innovation, and enable growth.
Member states are free to offer discretionary incentives to businesses moving or expanding into the EU – within limits governed by European State Aid rules, designed to prevent unfair competition and create a level playing field for all member states.
The permitted amounts vary from region to region. Incentives of up to 50% are permissible in the most disadvantaged areas of the EU, for example, such as certain parts of Hungary, Poland and Romania. For big capex investments in other areas, the incentive allowance may be more like 10%.
Meanwhile, any company seeking incentives for investments in the EU larger than €100 million needs approval from the European Commission, which can be a complex, long and arduous process.
“Companies seeking investment incentives for larger projects should consider them as early as possible in their decision-making process, particularly if a European Commission approval will be required,” says Moger, “Companies are likely to need to provide robust evidence as part of the process, in particular showing why they required the incentives, and also that only the minimum necessary had been requested.”