Insights into Europe's market potential and support to help you trade with the EU.
Europe remains a hugely important market for Scottish companies.
After the USA, Scotland’s top export markets are all in Europe. Just under half of Scotland's international exports are destined for countries within the European Union – estimated at £12.3 billion in 2015. Within the EU, the Netherlands (£2.3 billion) is again, the largest market, followed by France (£1.8 billion) and Germany (£1.8 billion).
The European Union’s population of 500 million provides many opportunities for Scottish companies looking to export to this marketplace.
Markets which offer the greatest potential for Scottish companies across sectors are France, Germany and the Netherlands – the ideal starter markets for Scottish companies new to exporting.
Legislation has made it easier, faster and more cost-effective to do business across the 27 other EU states.
In fact it’s now almost as easy to trade across Europe as it is to within UK borders. Your business can now operate freely in a market that includes some of the world’s wealthiest countries.
Ease of doing business
EU countries have introduced measures to make it easier to trade with each other, including:
- Reduced bureaucracy and paperwork - trade with the EU can be recorded on your VAT form in the same way as any of your sales and purchases in the UK, for example
- Harmonised standards - EU-wide technical and safety standards ensure that if you meet UK standards you'll also meet the standards of other EU countries
- Movement of people - UK citizens have the right to travel, live and work in any EU country. You can also employ EU citizens to work in the UK.
- The euro - has reduced the currency problems faced by businesses trading in euros between Eurozone countries
However, doing business abroad does bring with it cultural challenges. And we're here to help. You'll need to consider differences in etiquette, business practices, negotiation techniques and business protocol.
The financial framework
You should seek advice to clarify your tax status in your overseas markets.
Peter Gouw, a partner at tax specialists BDO
While doing business in Europe shouldn't present the same risks that can be seen in markets further afield, it's important to be aware of the financial implications of operating overseas – from payment terms to currency considerations and tax.
1. Getting paid
No matter where you're doing business, you need to ensure you are paid for your goods or services in a timely manner.
While the proximity of European markets removes many potential risks, there are considerations to be aware of, as Donald Rankine, a senior commercial banking manager at HSBC, explains.
“With most European markets, goods can be shipped from the UK and arrive with a customer or distributor the next day, so some of the more traditional forms of export funding such as Letters of Credit (LCs) are not likely to be relevant,” he says.
“However, given that the norm in Europe is likely to be open account trading, you need to be able to de-risk that. You should get as much credit information on potential customers as you can to ensure they will be able to pay, you may also consider taking out Trade Credit Insurance which can provide protection in the event of non-payment.”
2. Get to know your customer
This may appear obvious but it's important to identify who your real customer is, that is to say who will be paying you, says Donald.
“You may regard a large corporate as your customer as they are the end-user, but if you are reaching them through a distributor, then it may be you are invoicing a smaller company whose ability to pay is not so guaranteed.
“I had a customer who exported a technology product to India via a distributor. That distributor was paid by the end-user but when the distributor got into financial difficulties, it was not able to pay the Scottish supplier.
“You have to have a clear view of your distributor or agent’s financial standing.”
3. Currency risk
One almost unavoidable challenge when selling to Europe is the impact of exchange rates, but there are ways to mitigate that impact.
“You're likely to receive payment from customers in Euros and unless you have a use for those Euros, such as paying overheads, then you'll need to convert them to Sterling,” says Donald.
“While the Euro-Sterling is a relatively stable exchange rate you may wish to hedge your expected Euro receipts into the future, meaning you will receive a guaranteed rate.
“Of course, you may lose out slightly if the rate changes in your favour but, importantly, hedging makes future income more predictable.”
4. Tax considerations
When selling into any new market, it's important to be aware of the various tax considerations and make sure there are no unpleasant surprises awaiting you.
“There are, of course, significant tax variances depending on the country you’re operating in, your business model and product but there are some key issues to point out,” explains Peter Gouw, a partner at tax specialists BDO.
“In terms of corporation tax, if you're selling to a European market then you are only liable for tax in the UK. However, if you are trading in that country and have a presence there, then you'll be liable in that country as well.
"You should seek advice to clarify your tax status in your overseas markets,” says Peter.
“You also need to check your VAT liability as soon as you start trading abroad. You might be liable for VAT much sooner than corporation tax.”
Getting the right support
Our offices across Europe
We have a network of offices across Europe to help Scottish companies like yours take full advantage of these export opportunities, and to attract potential foreign direct investment into Scotland.
We also work with the Scottish Government Office in Ireland and partners such as Department for International Trade (DIT), Enterprise Europe Network, Scotland Europa,
our GlobalScot network and relevant industry organisations to help improve trade links with the EU.
Support for Scottish businesses in Europe is being extended with four Innovation and Investment Hubs in Dublin, London, Brussels and Berlin. While Dublin and Scotland House in London are fully operational, Brussels is currently transitioning into a Hub from being a Scottish Government/Scotland Europa operation, and plans for the Berlin Hub are well underway.
Our export advisers in Scotland could be your greatest asset. They'll introduce you to our wide-reaching practical support to help you grow your business in Europe and beyond.
Ask our EU market experts
Visit the Scotland House London website