Entity Setup
Entity Setup Strategies for EU Startups under the New Tax Simplification Package
With the EU’s June 2026 tax simplification proposals, startup founders gain new tools—abolished withholding taxes, harmonised R&D expensing, and streamlined CFC rules—to optimise structure and access benefits across Member States.
By NomadicTax Research Team • 5-8 min read • August 29, 2026
## Understanding the New Building Blocks
In June 2026, the European Commission introduced a **Tax Simplification Package** including the *Direct Taxation Omnibus* and a *Recast of the Directive on Administrative Cooperation (DAC)*. Key proposals affecting entity setup include:
- **Abolition of withholding taxes** on cross-border payments of dividends, interest and royalties between EU companies.
- Extension of the **Parent-Subsidiary Directive** benefits to pension institutions.
- Full and immediate expensing for investment in R&D-related tangible assets.
- Streamlined CFC (Controlled Foreign Corporation) rules to reduce overlap with Pillar Two’s global minimum tax. ([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?utm_source=openai))
These measures are **proposals**, not yet enacted. They must pass via the European Parliament and the Council. Timing will vary by Member State once adopted. ([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?utm_source=openai))
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## How to Structure Entities for Maximum Benefit
Here are actionable strategies for companies—and especially startups—planning EU entity setups:
### 1. Choose a Holding Company Location Wisely
Since withholding taxes on dividends will be abolished between EU companies under the Omnibus proposal, connecting your operating and holding entities across different Member States becomes more attractive. Ex., setting up a holding company in the Netherlands or Luxembourg could facilitate smoother flow of profits without domestic source-country withholding hurdles.
### 2. Use R&D Assets Efficiently
If you’re acquiring tangible R&D assets—think lab equipment, prototypes, certain machinery—look to jurisdictions likely to adopt **full expensing** quickly. For instance, if you invest €200,000 in machinery, you may be able to deduct the full cost immediately rather than depreciate over years, dramatically improving early-stage cash flow.
### 3. Review Your CFC Exposure
The simplification package aims to harmonise CFC regimes and reduce unnecessary burdens for low-risk financing. If you have foreign subsidiaries or passive income entities, evaluate whether your current CFC regime already interacts with Pillar Two or whether you should anticipate changes in how low-tax jurisdictions are treated.
### 4. Pension Institutions as Shareholders
Once the Parent-Subsidiary Directive scope is extended to pension funds, structures where pension funds hold subsidiary shares may receive withholding tax exemptions. If your venture involves institutional backers, structuring ownership via pension institutions could yield tax cost savings.
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## Practical Examples: Before & After
| Scenario | Today’s Arrangement | Under Proposed Rules | Implications |
|---|---|---|---|
| Cross-border dividend from Subsidiary in Spain to Parent in Germany | Spanish withholding tax applies; relief claims needed in Germany | No withholding tax at source; clean flow of dividends | Simplified cash distributions and planning |
| Buying lab equipment for R&D in Poland | Depreciation over multiple years; slower tax deductions | Full immediate expensing allowed | Improved early stage capital efficiency |
| Holding dormant low-profit offshore subsidiary | Heavy CFC and Pillar Two overlap enforced; compliance burden | Harmonised CFC rules; possible carve-outs for low risk | Lower compliance costs, simpler reporting |
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## Risks and Uncertainties to Manage
- **Timing and Transposition**: These proposals are not yet law. Member States will adopt legislative transpositions which may diverge.
- **Pillar Two Interface**: Even with harmonisation, minimum tax obligations will still apply. Global effective tax rate (ETR) rules under Pillar Two must be maintained.
- **Policy Reversal Risks**: Any future directives could modify or reverse parts of these proposals, particularly those with fiscal revenue implications.
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## Key Takeaways for Founders & Planners
1. Map the proposed reforms against your structure now—not later. Identify where investment in R&D assets, holding structures, and Shareholding via pension-type entities can change your tax profile.
2. Choose jurisdictions with favorable corporate income tax, clarity on Pillar Two, and responsiveness to transposition of EU directives.
3. Engage tax advisors early: pending laws create windows for planning.
In sum, the June 2026 package offers a major shift for entity structures in the EU: missing out on these changes through delay could cost both revenue and competitiveness as an emerging company.