Tax - The One Pager: EU Inc.

Tax classification

For tax purposes, the EU Inc. does not create a harmonised special regime. For an EU Inc. that is resident in Germany or managed from Germany, German law continues to apply in particular with respect to corporate income tax, trade tax and VAT. The key factors therefore remain, in particular, the place of management and the existence of permanent establishments. If these diverge from the registered seat, questions regarding tax residence, the creation of permanent establishments and dual residence may arise already at the incorporation stage.

Public Country-by-Country Reporting

An EU Inc. will be included in public country-by-country reporting if it itself or its corporate group meets the statutory size and nexus requirements.

An EU Inc. may fall within the scope of Public CbCR in particular as the ultimate parent entity of a multinational enterprise group or as a standalone enterprise, provided that the relevant revenue thresholds are exceeded. In case of third-country groups, an EU Inc. may also be relevant as a domestic subsidiary, provided that the statutory requirements are met.

In this respect, the EU Inc. does not create a separate disclosure or reporting regime. Public CbCR obligations must instead be assessed across all legal forms on the basis of the general statutory requirements.

Global Minimum Tax (Pillar Two)

The rules on global minimum taxation (Pillar Two), which are largely harmonised within the EU, also apply regardless of legal form and are linked to the corporate group, not to the legal form of the individual company.

What matters is not the Member State in which an EU Inc. is incorporated, but whether it is part of an in-scope corporate group and what effective tax burden exists in the relevant tax jurisdictions. Where that tax burden is too low, top-up taxes may arise. The creation of the EU Inc. does not change this; in particular, it does not create a separate Pillar Two regime.

Tax number, VAT ID and “Once Only”

The Commission proposal provides that the EU Inc. should receive its TIN and VAT ID, which are essential for its economic operability, digitally and without a separate application. In practice, however, this depends on national implementation. Delays in tax registration and in registrations with the commercial register and transparency register may effectively restrict the use of the EU Inc. despite rapid incorporation. In Germany, it is by no means unusual for the allocation of a tax number/VAT ID to take several weeks. It remains to be seen whether the German tax authorities will create accelerated procedures for this.

Share Transfers

The new rules on the EU Inc. are intended to allow share transfers without special formal requirements. In particular, notarisation would become entirely unnecessary. At the same time, however, all notarial notification obligations vis-à-vis the tax authorities would also cease, for example in relation to the acquisition of real estate or shares. It is therefore to be expected that the shareholders will have to fulfil all notification and disclosure obligations vis-à-vis the tax authorities and will therefore additionally be exposed to a significant personal liability and sanctions risks.

Key Takeaways:

• The EU Inc. does not harmonise tax law; the tax rules of the country of residence continue to apply.
• The registered seat and administrative seat must be managed carefully from a tax perspective in order to avoid residence and permanent establishment risks.
• Like any other corporate form, an EU Inc. is subject to the rules on public Country-by-Country Reporting and global minimum tax rules (Pillar Two).
• A fast incorporation only helps if tax registration and bank account opening keep pace in practice.
• Share transfers without a notary reduce transaction hurdles, but increase the need for independent tax compliance.