Firms seek EU registration

A European company registration, officially known as Societas Europaea (SE), was created in 2001 and became law in 2004, allowing companies greater flexibility in establishing headquarters throughout the EU. The designation helps firms that want to do business across borders negotiate 27 different commercial legal systems. While the option grew slowly initially, it has since picked up speed, especially in the Czech Republic, which has the greatest number of registered SEs. Milan Čermoch, who established his bookkeeping company Česká účetní kancelář 15 years ago, expanded his services to create shell SE companies to sell to clients at the end of last year, and has since sold six such companies. Čermoch sat down with The Prague Post to explain the advantages of the SE designation and why companies are making the switch to SEs.

The Prague Post: The Czech Republic passed legislation in late 2004 to allow the courts to register SE companies. How has the SE designation grown here since then?

Milan Čermoch: The Czech Republic has registered nearly 40 percent of SE companies in Europe. It's the country with the biggest number of SEs, with 166.  It's because the country already had a system of ready-made companies, shells created solely to sell to clients who didn't want to navigate the bureaucracy associated with registering a company. With SE, it can also be a difficult process. It's complicated; there are only four ways to do it, and there must be some cross-border elements involved. So, for smaller companies, it's pretty difficult, and they need the help of advisory companies.

TPP: Why is there such an established presence of companies that create these ready-made companies? Is it only the bureaucracy?

MČ: I believe the main reason is the strategic position of the Czech Republic. This type of company is ideal for doing international business, or companies that are planning on merging with other companies in Europe. The Czech Republic is in the center of Europe. There is a good market here, and it's well placed for doing business with international companies. On the other hand, it's not so great because the taxes [here] are high compared with other EU countries, so Czech businesses are often interested in establishing headquarters in countries that have more lenient taxes on business.

TPP: Would you therefore say the biggest advantage of an SE company is being able to move to these tax havens?

MČ: Yes, taxes are the main reason people would want the SE designation. For example, you can put your company seat in Cyprus, where the country's taxes are very low for businesses. So you can set up your SE company in the Czech Republic and, after one year, decide, OK, now we're going to Cyprus. It's not always Cyprus, though. It really changes from year to year as tax legislation changes. Last week, I just read some new information about Malta. It seems like they've changed their tax laws to be more favorable, as well. With the SE, you can move the company's seat very easily to adapt to changing conditions. Before, that wasn't possible. You had to [close] your company in its country and establish it all over again in another if you wanted to move.

TPP: Theoretically, if tax laws were to ever become harmonized throughout the EU, what advantages would the SE registration still offer?

MČ: What's important about this product - and, yes, it's a company, but for us it's a product - is that, for entrepreneurs who want to expand beyond their country, it is much easier. You become a European businessperson. So, instead of operating a Czech s.r.o. or British Ltd., it's truly European; it's a supranational company. You're getting the European identity - not just image, but identity. It's also prestigious, in part because it takes so much capital to start one. They currently cost 120,000 euros. It really is the perfect model for a mother company that wants to have subsidiaries because you can move with ease and buy companies in many different countries.

TPP: Of 27 member states, only 17 have registered SE's. This year has seen the biggest growth, for example, in the Czech Republic, which has doubled its number to 166 in the first half of 2009. Why was the growth so slow to begin with?

MČ: This has been the case in Germany, too - the country with the second highest number of SEs. They had around 20 to begin with this year; now, it's more than 100. I think the biggest barrier to even bigger growth is that not many people know about the possibility to register this way. When we were working with the courts, we had problems finding people who knew about it. Because it's not Czech law, it's European, the legislation is all in English. Notaries and courts are learning about it because it's all relatively new. I don't think the European Commission has done much to market SEs. If you look at our Web site, we designed it to look more like an informational server about SEs -  what it is and how to find more information about it. Now that it's taking off, we're going to redesign our site to promote our business and services more. But our biggest struggle in starting up was getting the information out there.

TPP: For such an expensive registration, it would seem counterintuitive that the biggest growth would come during a recession. How do you explain this?

MČ: A lot of our clients are trying to make more money by going east. The West is already saturated, but, in the East, it can be difficult sometimes if you're a foreign company. In Russia, for example, or other countries, it can be hard if you're not domestic to enter a market. So a lot of clients try to move into a market by becoming an SE, which allows companies to register without disclosing who the owner is. It's very useful for globalization because markets are more receptive to European companies, or SEs, rather than firms from specific countries. Also, if companies want to cut costs, SEs are very useful because you can move your seat to a more tax-friendly country.

Claire Compton can be reached at
ccompton@praguepost.com