02
Thu, Feb
85 New Articles

In Search of a New Home: Business Relocation Trends in CEE

In Search of a New Home: Business Relocation Trends in CEE

Legal Markets
Tools
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

With the war in Ukraine raging for more than six months, law firms across the region have reported increased workloads in corporate and M&A, tax, employment, immigration law, and inquiries on the sanctions regimes in relevant jurisdictions, noting that companies from Ukraine, Russia, and Belarus are variously looking for a new home. Whether to avoid sanctions or escape the war, those companies consider a variety of factors in determining where to go.

The Popular Destinations

Among the Partners we spoke with, those in Poland, Serbia, and Slovakia reported having a large number of new arrivals. The origin of the relocated companies and their reasons for choosing a specific jurisdiction, however, vary from country to country.

In Poland, according to Penteris Partner Tomasz Kudelski, a high number of businesses have relocated recently, particularly from Ukraine and Belarus. “Ukrainian companies account for 23% of foreign companies in Poland,” he says, highlighting that they operate “mainly in the construction, trade, and transport sectors, but there are also many in administration and support services, such as employment agencies.” Meanwhile, he notes, “numerous Belarusian engineers, programmers, and IT companies are finding refuge in Poland, as are Belarusian doctors, nurses, and other healthcare workers.”

Dentons Partner Stanislav Durica also reports that many Ukrainian companies are moving to Slovakia: “these days, the relocation of entire businesses is quite usual.” In addition to those Ukrainian businesses, he highlights the trend of “international businesses looking to exit the Russian market.” Initially, “we saw knowledge-based businesses,” Durica says, “which could be operated from various locations, such as consultancy or IT. Now clients from other industries – some of which have production facilities – are thinking of or have already started moving to CEE or western EU countries.”

In Serbia, on the other hand, it’s predominantly Russian businesses that are moving, according to PR Legal Managing Partner Ivana Ruzicic. “From February until June 15, 2022, more than 1,000 business entities were founded and registered in Serbia by Russian natural or legal entities,” she points out. By contrast, only around “20 companies were registered in Serbia – mostly by Ukrainian natural persons” According to her, the relocated companies include those in wholesale trade, information technology consulting activities, advertising agencies, restaurants, and mobile catering facilities. “Certain large and international companies, well-known in the IT sector, such as Yandex, DataArt, and Luxoft, have opened offices in Serbia,” she adds.

More Perks than Drawbacks

Ruzicic, Durica, and Kudelski highlight several factors affecting a company’s choice of destination country. “There are incentives put in place by the Government of the Republic of Serbia to attract such businesses,” Ruzicic says, adding that “the country is a business-friendly environment for all investors, and especially for the ones that are coming from these particular countries.” Additionally, she notes that “Serbia is the only country in Europe that still has direct flights from its capital to Moscow and St. Petersburg.”

“Most of our clients are focused on the safety and wellbeing of their employees, as the most important driver of their decision,” Durica says. While “there are no specific incentives related to the relocation of entire businesses, at least for now,” he notes “some governments are implementing rules in order to attract specific professions, such as health care professionals in Slovakia’s case.”

Kudelski lists a few reasons that apply to both Belarusian and Ukrainian businesses when choosing Poland. “Despite Poland’s ever-changing tax system and Polish judicial system, the legal turmoil seems to have little effect on day-to-day business,” he notes, as “Polish commercial law has matured in the last 20 years,” and “company incorporation takes little time, is relatively easy, and can even be undertaken online.” Further, there are the advantages of Poland’s EU membership – “a huge economic market, the availability of a mostly young, educated, and highly skilled workforce, reasonable salaries and low living costs, aid programs such as government grants, as well as a developed services sector.” Finally, he points to Poland’s location, large population, and relative political stability as a factor making “the country an attractive place for foreign businesses and investors.”

Still, Poland is not quite the land of milk and honey, according to Kudelski. “Understanding Poland’s seemingly ever-changing tax regime can often be a burdensome task, making having a trusted tax and legal advisor of immense importance in Poland,” he notes. Further, he says that “other costs like growing social security contributions and health insurance payments increase the total expense for companies wishing to relocate to Poland.” And there are also immigration-related barriers, according to him, with “bureaucracy and a slow judicial system being further hurdles. Patience is certainly a virtue in Poland.”

Finally, Durica points to the complexity of the relocation process itself. “It is important to recognize the fact that if you build up your business activities over a period of many years, those can’t be relocated in just a few days. Finding the right place and attracting employees with the right skills is also quite time-consuming.” Still, “supply chains and customer routes – if well established – can often be adjusted pretty smoothly,” he says.

Frequent Inquiries, Few Confirmations

While they report a similarly high level of interest, experts from Albania and Romania say that, by contrast, relocations remain rather rare. “Relocations due to the war in Ukraine remain limited to date,” Kalo & Associates Executive Partner Aigest Milo says, despite “interest remaining high, and having received many inquiries from multinationals wishing to relocate their operations to the Western Balkans in general, and Albania in particular.” He says there is, specifically, increased interest from many Russian companies “aiming to avoid sanctions and operate freely in Europe.” While not necessarily a pattern, he notes that “several inquiries came from IT companies and those operating in the automotive industry,” with a focus on the “sanctions enacted by the Albanian Government.”

Bondoc si Asociatii Managing Partner Lucian Bondoc says that, for Romania, “any newcomers are predominantly companies located in Ukraine that are part of groups of companies with a pre-existing presence in our country.” Their industries vary “from software development, IT solutions, and video games, to automotive, mechanics, and textile processing,” he reports, with relocation mainly manifested “in terms of staff transfer and/or transfer of certain business operations.” Still, he says “the phenomenon has not taken on the scale anticipated in Romania earlier this year,” as “heavier capital investments would naturally require some more time to really start in any visible manner.”

Looking at the whys, Bondoc says that Romania’s membership in NATO and the EU makes the country potentially attractive for Ukrainian companies, on the one hand. In addition, “the geographical proximity to the markets served by the initial businesses also counts,” he says, with “Romania’s still relatively low labor force cost, compared to EU average, also being a factor.”

On the other hand, there are difficulties in actually relocating a business from Ukraine. According to Bondoc, they mainly stem from the fact that “Ukraine is not an EU member state and companies cannot take full advantage of the legal tools to facilitate relocation in all its dimensions,” for instance, “in terms of permitting, ownership rights, IP rights, etc. Then, there are also the EU regulatory production and operations standards and procedures to be considered.” More generally, he notes “the inherent drawbacks of any relocation may be a factor, in terms of potentially unfamiliar markets, new competitors, new regulatory framework, new or adapted logistics circuits needed, etc.”

Barely a Dent

Finally, there seems to be little to no interest in businesses relocating to Montenegro and Slovenia on account of the war. Senica & Partners Partner Ales Lunder and Vujacic Law Office Partner Sasa Vujacic report there are no visible changes in their countries’ business environment. “Apart from one inquiry from Belarus, which we redirected to Croatia, we haven’t seen any newcomers from Ukraine, Russia, or Belarus,” Lunder says. “However, we’ve had several inquiries, from US-based companies for example, for establishing subsidiaries in Slovenia.”

“In Montenegro, there are a number of legal entities from Russia, and much fewer from Ukraine, which have been registered and have been engaged in various activities for many years,” Vujacic reports, noting “this fact has nothing to do with the current unpleasant events.” The most common obstacles relocating companies would face “are related to the submission of documentation when establishing a company,” he says. “Also, considering the overall situation, the process of proving ownership of companies that would eventually like to start business activities in Montenegro is quite difficult,” he adds.

For Slovenia, Lunder highlights an “extremely unfriendly tax regime, making employee option schemes unattractive.” Additionally, “for investors from non-EU countries, the biggest hurdle would be obtaining work and residency permits,” he explains. “The main problem is that Slovenian public services perceive immigrants primarily as a potential security risk, rather than as an opportunity, with the process being extremely long and time-consuming, as three different ministries are involved.”

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Our Latest Issue