All you need to know about startup relocation to the EU: when, where and how much

Year after year, Indian tech companies are getting more attention from foreign investors, both larger funds and the private sector: in 2021 they raised a record 62.7 billion USD over the course of 1,202 deals. This was made possible largely due to Indian startups’ active entry into the global market. Alex Pospekhov, the founder of ReloTech company, shares advice on how to understand that a startup is ready for relocation, which EU country is the most convenient for scaling up and how not to lose money and time in the process.

Chek-list: how to understand that a startup is ready for the global market

Firstly, make sure that a startup can stand on its own two feet, has stable traction in its market and is continuously developing (even if it’s not quickly), and that all of their hypotheses have been tested and confirmed. If the direction of growth is clear, a startup can try to scale up and enter the international market. Before that, it’s important to see if the chosen country’s audience is interested in their product. While still in India, test the waters as to whether people — say, from Latvia— would buy it or not.

I moved to Latvia in 2017-2018, and was the first person to receive a startup visa, as that was when startup and favorable tax laws were passed. I owned a FinTech marketplace. At the time, we paid  €25,000 in extra taxes as we had chosen the wrong legal and accounting partners. In addition, we focused on our product rather than sales. As a result, I came back home with €500 in my pocket. This was a very helpful experience, which gave an impetus to the project.

Secondly, a startup should offer technological innovation. It is especially relevant for deeptech, knowledge-intensive products. It’s easier and faster to develop a project in Europe because it has the most convenient business environment for scaling startups. Many EU countries prioritize technological projects, are ready to attract them, and offer them grants and other assistance.

The third point is the needs of the startup audience have changed, and now potential Indian customers do not want to buy your product or require it to be redeveloped. In addition, in other countries, they are ready to buy it for even double the price. Accordingly, it makes no sense to continue working with local clients when there is demand from foreign ones. Especially if there are more of the latter.

If the startup paradise exists it is in …

It is easiest for Indian startups to enter the European market through Latvia due to the low cost of all the moments associated with relocation, the high speed of obtaining a visa, residence permit, and the tax climate. Simultaneously, you can quickly test hypotheses there and move to other markets without even opening new representative offices there.

The main advantage of Latvia is its startup law, which came into force in 2017 and alleviated the financial burden on young tech companies. It is primarily made possible because of a favorable set of tax laws. The government offers startups a flat rate of social tax on employees of €302 versus €1,053, or 45% compensation on taxes on employees and their wages. In addition, startups have a personal income tax rate of 0%.

To receive these benefits, you must meet the conditions of the law: a startup must be under five years old, have an annual income of less than €200,000 in the first two years, and receive an investment of €15,000. Notably, this investment must come from an investor on the approved list. In addition, there are criterias for the innovativeness of a startup.

According to the rating by the international venture company Index Ventures, Latvia is in the top 5 countries with the most favorable climate for technology businesses. It is noteworthy that only the Baltic countries received the maximum number of points from the experts. In compiling the rating, the country’s tax and regulatory framework and the level of bureaucracy were given priority.

All procedures related to paperwork and interaction with government agencies in Latvia are carried out fairly quickly. The main thing, though, is that the speed of issuing startup visas (for up to three years) is the highest in Europe: they are issued in one and a half to two months. Before the pandemic, they would only take a month. At the same time, the conditions for these visas are standardized, without unnecessary requirements: you must prove the innovativeness and scalability of the project and an understandable and clear business plan. Work visas can be issued in three weeks versus two to six months in the rest of Europe.

Local venture capital in Latvia, as in other Baltic countries, is scarce. But this is offset by the active attention of European funds and investors to the startups developing here. The same applies to the market as a whole, including consumers: the local audience is small, but the project has access to the entire EU — about 450 million people.

As a startup grows and scales, it is easy to move from Latvia to the UK or the United States, for example. Some projects purposefully make Latvia a “transfer point”: for example, the Fixar team registered as a Latvian company in order to save money when issuing a certificate for their product in Canada. After that, the startup began to prepare for export to the United States (as Canadian licenses are valid in America).

First of all, it is worth moving to Latvia for startups in the DeepTech field, science-intensive production, SAAS services, and FinTech. For the latter, a “sandbox” was recently created under regulatory supervision. In addition, Latvia became a member of ESA, the European Space Agency, in 2020, which gives access to its grants and benefits: in particular, huge discounts on the rental of industrial premises. This is one of the main reasons why Mission Space is not only located in Riga “on paper”, but also has relocated its production here.

Relocation Hacks: How to Save Time and Money

The main rule for reducing risks is to understand the goals and objectives of the project at the current stage, not in the future. The choice of country and, more broadly, the need for relocation at a particular moment depends on this. Make a sober assessment of whether a startup is now ready to move to a place like Latvia, how quickly it will develop there, and whether it actually offers conditions specific to your project.

The second rule is to have money to last at least six to nine months for yourself, the project, and the team. The chances that a startup will attract investments and receive them before this time are close to zero. Moreover, if there is no third-party income now, there is no guarantee that the money will not run out in the first few months and that you will have to return. In this case, it is better to wait on relocation.

The third rule is not to open a business abroad in a purely formal sense. Europe is attractive to international venture funds, which will be much more willing to invest in local projects rather than in those located in India. However, this does not mean that they will invest in a startup that has merely received an address in Latvia but is not in fact located there. If you want to attract international investors, please relocate fully.

Another important factor concerns the various procedures associated with registering a company, opening business accounts, and so on. In Latvia, it’s really possible to do everything on your own, it will just take a little longer than with someone else’s help, and there are risks of spending more money than you intended. Therefore, set aside an additional amount for possible errors, like incorrectly completed paperwork that will have to be redone and re-certified. Don’t rely on contractors who will ultimately not do the work, or do it poorly, and yet have already received payment. You can’t get that money or time back.

The most important point of all? Don’t try to move in one day. This process needs to be done in stages. First, the team must be relocated, and then you take care of everything else. Ideally, even before you relocate, establish contacts: meet the right people in the industry and take an individual trip to the place where you plan to raise money. For meetings with investors, prepare a clear business plan with a comprehensive legal structure of the company and a detailed description of business processes and operations.In general, thorough preparation before relocation is the main requirement for reducing your risks. If you are not sure about the information you could find, about aspects in the legislation, or simply whether your startup meets all the criteria for a visa, contact a lawyer or an appropriate consultant for answers. This can save you from a lot of problems during the move and afterward.