Planning for European expansion: Four key decisions for US technology companies

Choosing your European entry market

Where companies have flexibility over where they establish their first European presence, this decision can have significant implications for entity setup, banking, hiring and future expansion. In other cases, the location may be driven by a customer requirement, acquisition or key hire opportunity, narrowing the available options.

The UK and Ireland are common starting points for US technology companies, particularly where English-language operations, access to talent and wider EMEA or EU ambitions are priorities.

Poland, France, and the Netherlands often follow as the footprint expands, or are chosen first where cost structure, EU regulatory standing, or specific operational requirements make them the strategic fit.

Each market offers a different combination of access, talent, cost and regulatory considerations:

Selecting the right legal structure

Once the target market has been identified, the next question is how that presence should be structured legally.

Broadly, there are four routes to consider: a local subsidiary, a branch, a payroll-only registration or an Employer of Record (EOR). Which is appropriate depends primarily on what the company and its employees will actually be doing in the market and how long that arrangement is likely to last.

In each of the five markets above, the standard structure for a wholly-owned US subsidiary is a local limited liability company: a Private Limited Company in the UK, a Besloten Vennootschap (BV) in the Netherlands, and equivalent structures in Ireland, Poland, and France.

Each provides legal separation from the US parent, files its own statutory accounts and tax returns, and is the structure that local banks, government authorities, and customers expect.

The subsidiary structure protects the US parent from local entity liabilities and provides the foundation for compliant tax and regulatory filings. Formation in most markets is administratively straightforward. The work that takes time, and creates operational risk when it goes wrong, is everything that follows.

A branch provides another route but does not create the same legal separation between the European operation and the US parent. For that reason, a wholly-owned subsidiary is the structure ZEDRA most commonly sees US companies adopt when establishing a committed European presence.

A payroll-only registration can be useful in more limited circumstances. It allows the US company to register locally as an employer and hire and pay an employee directly without establishing a separate subsidiary. This can work, for example, for a small initial presence where the employee’s activities remain below the threshold that would require a local entity.

That distinction depends heavily on what the employee is actually doing in the market. Exploratory or marketing activity, such as testing demand or developing early-stage sales opportunities, may present a different level of Permanent Establishment (PE) risk from delivering services or goods, negotiating or signing contracts, or carrying out substantive commercial activity on behalf of the US parent. The dividing line is jurisdiction- and fact-specific, so businesses need to understand when an exploratory presence begins to become an operational one.

On using an Employer of Record instead: EOR arrangements can serve a specific purpose where a company wants to employ someone before establishing an entity, particularly when the initial presence is expected to remain limited for a meaningful period.

An EOR does not give you a legal entity that local banks, customers, or institutional counterparties recognise or allow you to acquire fixed assets in-country. Nor does using an EOR or payroll-only registration remove the need to consider whether the activities being carried out in the country require an entity or create PE risk.

The important question is therefore not simply whether an EOR can be used, but how the business expects its presence to develop. If activities can remain below the threshold requiring an entity for an extended period, an EOR or payroll-only model can be a viable option. If the business expects the role or operation to expand quickly, establishing the appropriate entity from the outset may avoid having to replace the interim structure shortly afterwards.

As we discussed in our recent article, When does EOR stop being the right answer for global expansion?, the role an EOR plays in an expansion strategy often changes as a business establishes a more permanent presence in a market.

An advisor-led review can help determine which route makes sense now and whether it will still work as the European operation grows.

Planning for banking timelines

Opening a corporate bank account is often one of the most time-consuming and unexpectedly difficult parts of European expansion.

Banks across all five markets apply Know Your Customer (KYC) requirements that are both rigorous and slow for foreign-owned entities. Documentation requirements typically include beneficial ownership proof, group structure charts, corporate resolutions, business plans, and sometimes in-person meetings.

These create timelines that routinely run to two to three months or more. During this period, businesses may use alternative arrangements such as trust accounts or regulated payment providers to support payroll and other local payment obligations. While these solutions can help bridge the gap, most businesses will still want to establish a local banking relationship as part of their longer-term operating model.

Choosing a larger bank does not necessarily result in a faster process, even where the application is well prepared. Instead, this is a structural feature of the European banking environment for newly-formed foreign-owned entities.

There can be market-specific ways to shorten that timetable. In Poland, for example, the shelf company model described above can provide a ready-made entity with a bank account already established, avoiding the need to begin the entire process from zero.

While a local payroll may be processed before a functioning local bank account is ready, in some cases tax remittances and/or other statutory deductions require a workable local payment solution in place before the first payment date arrives.

Where a traditional bank relationship is strategically important, beginning the banking application in parallel with entity formation, not after it, removes a month or more from the overall timeline.

Preparing for day one employer obligations

The moment a European employment contract is signed, statutory obligations activate that US HR and payroll infrastructure is not built to manage.

For US businesses, the adjustment is not simply the number of local requirements. Policies and processes developed for US employees cannot automatically be carried across to a European workforce. Local requirements take precedence, and areas such as paid leave, benefits and reimbursable expenses can operate differently from one country to another.

That can require new processes even where the company already has mature US HR infrastructure. A US unlimited paid-time-off policy, for example, does not remove statutory annual leave entitlements in European markets. Employers still need a process for recording and managing the leave employees are legally entitled to take. Expense policies may also need to be adapted to reflect what can be treated as a reimbursable business expense locally.

United Kingdom

The UK provides a useful example of what needs to be in place before the first employee starts.

Payroll must run through Pay As You Earn (PAYE) before salary is paid. Employer National Insurance (NI) contributions are currently 15% on employee earnings above the applicable threshold. A UK employee on £80,000 per year costs the employer approximately £11,000 in employer NI alone, before any benefits or pension contributions.

Pension auto-enrolment is mandatory for all eligible employees from day one. Minimum contributions are 8% of qualifying earnings: 5% employee and 3% employer. Full-time employees are also entitled to a minimum of 5.6 weeks of paid annual leave.

The requirements and associated costs vary considerably across the other markets covered in this article:

Netherlands: Employer social security contributions run at approximately 20%-25% of gross salary, materially higher than the UK equivalent. Dutch sick pay obligations require employers to pay a minimum of 70% of last earned wages, and frequently 100% under collective labour agreements, for up to two years of employee illness.

France: Employer social charges are among the highest in Europe. Employment contracts must comply with the applicable convention collective for the sector. Termination procedures require documented cause, a regulated process, and typically result in severance.

Ireland: Employer PRSI rates vary by salary level and apply from day one. Auto-enrolment pension legislation is being phased in. Current requirements should be confirmed at the point of entity setup.

Poland: Labour costs are competitive relative to Western Europe. ZEDRA’s in-country payroll capability covers the full range of Polish employer obligations.

These differences affect the true cost of each hire, the systems that must be ready and the employment advice required before an offer is made.

How ZEDRA supports US technology companies expanding into Europe

The practical difficulty in European expansion is that none of these decisions sit in isolation. The market selected affects the structure available. The activities employees perform can determine whether an entity is required. The structure chosen affects banking, while local employment requirements determine the payroll, benefits and HR processes that need to be ready before the first hire.

For a US technology company working to a commercial deadline, managing those dependencies across several unfamiliar jurisdictions can quickly become a challenge in itself.

ZEDRA provides a single coordination point across the expansion process, helping US technology companies move from entity setup to first hire and ongoing compliance without fragmented advisors or disconnected timelines.

From formation and banking support through payroll, accounting, tax compliance, and year-end reporting, our team provides local expertise across each stage of European growth.

That means helping businesses choose an appropriate route into each market, put the necessary operational infrastructure in place and understand how decisions made for the immediate launch fit with the longer-term European operation.

If you’d like to discuss your European expansion plans, please reach out to Nathaniel Richards.