Entity Setup
Entity Setup Essentials for EU Startups Amid New Tax Simplification Rules
With the EU’s recent proposals under the Taxation Omnibus and DAC recast, startups face both opportunities and obligations—knowing how to structure from the start pays off.
By NomadicTax Research Team • 5-8 min read • August 31, 2026
## What Changed: Simplification under the Omnibus & DAC Recast
On **24 June 2026**, the European Commission introduced two major proposals: the **Taxation Omnibus Directive** and the **Recast of the Directive on Administrative Cooperation (DAC)**. These aim to modernize EU direct tax, remove withholding taxes on cross-border payments among EU companies, and cut reporting obligations—the goal: reduce costs by roughly **€7.9 billion per year**, with **€3.3 billion in administrative savings**. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?prefLang=fi&utm_source=openai))
## Why It Matters for Entity Setup
If you're forming a company in the EU (or planning cross-border expansion), these changes can reshape your choices around:
- **Corporate domicile** — withholding taxes edges toward zero across EU member companies.
- **Holding structures & royalty flows** — with less tax drag when moving funds or IP between related companies in different member states.
- **Reporting burden** — especially for groups already subject to Pillar Two global minimum tax rules: MDCs may now avoid redundant cross-border tax reporting under DAC. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?prefLang=fi&utm_source=openai))
## Practical Steps for Startups Setting Up EU Entities
1. **Choose your member state wisely** – withholding elimination means selecting one with favorable corporate tax and treaty networks becomes more strategic than worrying about payment withholds. Consider Ireland, Netherlands, Luxembourg, or Estonia, depending on your sector and future funding flows.
2. **Design intra-group financing and royalty agreements** – now easier to move royalties/dividends without preliminary withholding friction when transacting across EU-owned entities. But ensure substance and genuine business purpose to avoid anti-abuse challenges under ATAD (Anti-Tax Avoidance Directive).
3. **Assess compliance and reporting costs** – if you own or will be part of a multinational group with entities subject to Pillar Two / global minimum tax (GMT) rules, the updated DAC rules may reduce your reporting load. Evaluate whether your group might now be exempted from certain cross-border arrangement disclosures.
4. **Legal form & establishment choice** – with more streamlined EU-wide rules, you’ll want legal advice comparing corporate forms (e.g. GmbH vs. SL vs. SARL) for liability, governance, tax incentives, and how each interacts with EU directives like Omnibus, DAC, and ATAD.
## Example Scenarios
- **A tech startup in Spain wanting to serve EU and non-EU clients** can incorporate a holding entity in Ireland to receive EU royalties without withholdings. Under the new proposals, inter-EU royalty flows would no longer trigger withholding.
- **A mid-sized manufacturing group in France and Germany** can simplify its transfer pricing or internal financing documentation: cross-border obligations decrease, especially for disclosures already covered by Pillar Two filings.
## Key Caveats
- These proposals are **not enacted yet**—they’re legislative proposals. Timeframes for adoption and national implementation will stretch over months or years.
- **Anti-abuse rules** (including ATAD) still apply: mere form without economic substance can still trigger adjustments or penalties.
- **Pillar Two / GMT compliance** is mandatory for groups above thresholds: these rules interact with DAC exemptions but do *not* remove obligations under GMT itself.
With the EU work in tax simplification underway, now is a strategic moment for startups to prepare their entity structures—with an eye toward efficiency, compliance, and long-term scalability.