2 Why Regime 0?

Europe needs new technology solutions as a source of productivity growth to address the demographic transition and the green transition, while maintaining social cohesion and containing the cost of geopolitical shocks. The gap between the EU’s research and innovation (R&I) system and those of the US and China is most striking for digital and artificial intelligence technologies, but is also found other areas, such as pharmaceuticals and automotive (eg Pinkus et al, 2024; Draghi, 2024).

The main source of the EU’s persistent lagging behind the US is the EU’s shortcomings in corporate R&I. The EU corporate R&I system has a much weaker Schumpeterian creative-destruction power. The US and, increasingly, China have more unicorns (startups valued at over $1 billion) and new corporate R&D leaders (Veugelers, 2024; Adilbish et al, 2025). In a world of winner-takes-all dynamics and fast technology development, the potential to achieve scale fast is crucial when investors, clients, suppliers and other partners consider their relationships with startups. Startups with great ideas need to operate in environments that can support – not block – rapid expansion. The US and China offer this.

To boost its Schumpeterian competitiveness (Schumpeter, 1942; Aghion and Howitt 1990), the EU should remove persistent structural barriers that prevent ambitious innovative firms from exploiting the scale offered by the EU as early as possible in their lives. This group of firms is small but pivotal. Most SMEs have no ambition for fast growth outside their home markets. Of SMEs in the EU, only 10 percent have plans for fast growth. Only 22 percent of SMEs plan to expand into other EU markets. Almost two thirds are satisfied with their current size and 70 percent of all SMEs operate only in their home markets (Eurobarometer, 2025). Very few young small companies are leading innovators in the sense that they are engaged in R&D as part of innovative projects that are completely new.

Although the group of ambitious innovative startups may be small, and although their projects will often fail, their successes can have a disproportionate impact on welfare and growth. The entrepreneurs that lead them are the most likely people to generate continuing growth with their skills and breakthrough ideas. If those entrepreneurs stay in Europe and grow both their current and future European firms, the significant shortfall in EU unicorns compared to the US and China could be made up significantly, driving much-needed growth in the EU.

These entrepreneurs face a combination of obstacles in the EU, but most prominent are “difficulties in understanding the different business environment, including due to language issues”, “access to information on rules and requirements”, “taxation issues” and “business authorisations” (Eurobarometer, 2025). Access to key talent and, especially, availability of finance are also frequently reported as barriers to investment by young innovative SMEs (Veugelers et al, 2019).

One Danish entrepreneur illustrated these specific barriers as part of the European Commission’s 28th regime consultation (see Box 1 and footnote 7):

“As a founder, I have experienced firsthand how fragmented EU rules slow down startups. Incorporation in one member state does not solve the problem of hiring or fundraising across borders. Investment processes often require different translations, notarisation and duplications of filings… For founders, this creates high legal fees, administrative delays and uncertainty… Employee share options are even more complex as each country has its own tax treatment, often taxing employees at grant or exercise instead of at sale, making shares unusable as a talent tool”.

Venture capital (VC) is critical to sustaining innovative startups; superstar firms and unicorns are likely to be VC-backed (Akcigit and Ates, 2023). Yet, the EU lags behind the US in VC deals, particularly late-stage deals (Draghi, 2024). If startups in the EU could grow as smoothly to scale as those in the US, the chance of large profits would increase significantly and more investors would be willing to chase opportunities. Thus, if opportunities in Europe improve thanks to a new Regime 0, EU entrepreneurs will be able to attract more risk capital. Regime 0 would also reduce the costs of funding EU scale-up projects for VC funders as would no longer need to navigate different incorporation, taxation and exit regulations in EU countries when assessing the profitability of their investments.

Overall, the evidence shows that young, ambitious, innovative entrepreneurs in the EU are hampered by lack of access to finance, differing business regulations and tax rules, and difficulty in attracting key talent. Regime 0 would focus on tackling these barriers. Meanwhile the push should continue to reinforce the European single market by eliminating fragmentation in product markets, capital markets and labour-market regulations. The success of Regime 0 will also rely on this.

3 Introducing Regime 0

Regime 0 would create a straightforward path for ambitious, innovative entrepreneurs to found corporations in the EU. It would help them easily and quickly scale up their corporations by accessing finance, customers, suppliers, key talents and knowhow across the EU. Regime 0 corporate registration would automatically be recognised in all EU countries (see section 3.5 on the legal basis of Regime 0).

Regime 0 would not create a path to avoid existing member-state regulations or to generate unfair competition. Regime 0 startups will follow the regular rules in their member states when it comes to paying taxes, complying with product regulations, setting up production facilities and other issues. Regime 0 only addresses the specific barriers faced by startups when incorporating and scaling up

Admission to and operation of Regime 0 will be run through a fully digitalised EU-level online one-stop-shop: Hub0. This will serve as the competent authority and will be legally empowered to register

Regime 0 corporations. It will maintain a register of all approved Regime 0 companies and their owners. Hub0 will be highly transparent, making available all information that legally should be public knowledge. Section 3.4 describes the functioning of Hub0.

3.1 Scope: innovative, high-growth-potential, geographically expansive ventures

Growth and productivity will increase when more big, new breakthrough ideas come to the market. Regime 0 will target innovative startups with the ambition at the time of incorporation to scale up their risky, big new ideas and lead through innovation. The regime is designed to be attractive to this group of firms and not to others.

Regime 0 would be optional; it would neither replace the other 27 regimes nor harmonise them. Stakeholders should understand that Regime 0 is not about harmonising corporate, tax or labour law across member states, but will exist alongside. Startups may opt into it or may choose not to. Because it will be targeted and optional, Regime 0 will avoid the trap of harmonisation (still a problem after decades of integration) and the trap of seeking to cover too many types of companies.

Common examples of such startups may be found in, for example, pharmaceuticals and biotech, digital, defence and energy technology. Demand for these products is global, and the product often does not need modification, or only limited modification, to be sold in different markets. Innovation capacity is necessary for success in these deep-tech sectors and is typically achieved with substantial innovative investments, which in turn require the ability to attract risk capital and key talent. The speed of technological change requires these firms to be able to scale up very rapidly.

The idea is to avoid attracting two categories of corporations that differ in their policy needs: small businesses that want to stay local (eg a caterer in Berlin) and large, long-established corporations. Regime 0 will not be an attractive option for either of these. The vast majority of SMEs, which do not have plans to grow, do not need the cross-border advantages of Regime 0. Many thousands of them could clog a system that requires human oversight but must be quick and efficient. While it is clearly desirable for existing firms to more easily operate across EU borders, the unfinished single market has a number of problems, such as variation in labour regulations, that may arise in trying to design an EU-wide regime for all firms. This is a difficult topic, and its solution will only be found in developing the single market more generally. If the regime includes existing firms, it is likely never to get off the ground because of political opposition.

Regime 0 is targeted at innovative, ambitious entrepreneurs and will therefore be open only at the startup stage. However, companies that qualify for Regime 0 incorporation, but exist already in a standard national incorporation regime, would have the option to re-incorporate. To qualify for Regime 0 incorporation, they should have new ambitious, highly innovative ideas capable of fast growth. The process of dissolving one company and creating a new one – provided all the Regime 0 rules are followed – should not be hampered by member states.

3.2 Who? Incorporation and selection

A candidate Regime 0 company must be new and independent and not a subsidiary of another corporation or controlled by another corporation. This makes Regime 0 very different from programmes such as the SE (Box 1). As noted above, owners of existing small firms with new innovative growth projects can dissolve existing businesses and start something new within Regime 0. While an applicant may not be a subsidiary of another corporation, a corporation under Regime 0 may have subsidiaries.

One of the natural persons that owns the firm, or a controlling interest in one of the limited liability companies that own the firm, must be an EU member-state resident. The Regime 0 firm must establish its registered office in an EU country. This office will serve as the legal address for correspondence and regulatory compliance. The administrative seat of a Regime 0 firm may be transferred to another EU country without resulting in the winding up of the company or the creation of a new legal entity.

Regime 0 firms will be registered as share-based limited liability companies. This status protects shareholders’ personal assets from the company’s liabilities, limiting their financial exposure to the amount invested in shares. Unlike the SE, no minimum share capital would be required. Shares can have a nominal value. Regime 0 firms can issue shares and grant different types of rights to different types of shares according to procedures set out in its contracts (see also EU-INC.org, 2025).

Applicants must document their innovation and growth plans when they apply for Regime 0 registration. Documents should demonstrate that success requires economic activity in several EU countries, the whole EU or beyond. Examples of useful documents include business plans, pitch decks or other documents describing financial forecasts or innovation and/or international growth milestones. Additional credible evidence for an ambitious growth plan can be applicants’ efforts to raise money from external sources. Other sources of proof can include recruited R&D personnel or R&D expenditures, European Patent Office Unitary Patents acquired or applied for, or acquired or applied for EU trademarks. Most ventures in high-tech industries such as biotech, defence, energy and digital can easily provide the required documents and qualify. But any venture based on some other original business idea that expands the ability of the firm to compete relative to existing businesses should also be able to qualify.

The nature of the proof required to show innovation and scope should be treated flexibly. Explicit criteria such as a minimum R&D per sales ratio, a patent application or a minimum (international) sales growth indicator will be unduly formal and counterproductive. A business that wants to retail high-tech garments across the Nordic region will be geographically broad, even if not EU-wide, and could be highly innovative because of its product offerings or business model, even if it has no R&D personnel employed or patents pending. If startups were omitted from Regime 0 simply because their innovative profile is not standard, or is more difficult to illustrate with typical documents, this would be suboptimal.

There would be some tolerance in terms of admitting applicants when the evidence has some uncertainty. False negatives are a much bigger problem in terms of missed opportunities than false positives. An applicant that feels it has been incorrectly denied Regime 0 status may appeal the decision to the Regime 0 court in its member state (section 3.3.7).

3.3 What? Removing barriers for EU scaling of innovative ideas

Regime 0 will have specific rules in relation to:

Corporate governance

Capital

Founders, key employees, labour

Tax

Courts and bankruptcy

Exit, whether by IPO or acquisition

Table 1 on the next page summarises the main features of Regime 0

Table 1: Main elements of Regime 0

Source: Bruegel.

3.3.1 Attracting (risk) capital

Regime 0 firms must be able to attract risk capital. Because Regime 0 would allow a startup to operate, grow quickly or exit in a simple clear regulatory environment, Regime 0 firms will be more attractive projects for VC funding. Regime 0 can also be used to legally transfer ownership rights in the firm and the funds that secure those rights to any investor anywhere else in the EU. Template contracts will be provided for risk-finance deals, particularly for finance deals commonly used by start and scaleups internationally.

Corporate governance in Regime 0 will follow simple best practices that create appropriate accountability for managers and board members. To minimise abuse of the regime and to protect against national security concerns, ownership must be transparent. Regime 0 firms may not have significant ownership – defined as five percent or more – or any controlling entity that is hidden or lacks transparency. A VC fund that invests in Regime 0 corporations, and that therefore qualifies as a significant owner, will need to reveal if the fund itself has concentrated investors.

3.3.2 Founders and key employees

The key employees that hold significant equity will negotiate bilateral labour contracts that can be as flexible as both parties desire. Regime 0 firms must be able to flexibly reward key founding talent. The regime must also allow entrepreneurs to hire key talent quickly and easily from anywhere in the EU or the world without barriers, and to provide incentive compensation.

Key (founding) talent is typically compensated with equity. A common situation will involve founders who attract a handful of key employees by offering them, in bilateral negotiations, stakes in the firm. The venture is risky so the equity may in the end be worth zero. But if the venture succeeds, employees’ equity stakes will result in significant earnings – a major incentive to succeed. In other words, interpreted in the framework of the corporation’s own business plan, the equity given to founders and key hires is material.

A critical aspect of such founder compensation is at what point equity stakes are taxed. Although the high risks of startups focused on innovation and growth come with good prospects of high gain, there is also a high probability of failure. At startup, it still has to materialise its success trajectory, and it is therefore worth little at the point of launch. Furthermore, there is enormous uncertainty about whether the venture will ever be valuable. Therefore, any attempt to tax the equity in this type of firm at the moment of incorporation is counterproductive for two reasons. First, the tax bill creates an upfront payment that may take many years for the entrepreneur to recover, if ever, so the entrepreneur is less likely to begin. Early payment policies create a significant hurdle to launching anything risky, discourage it from happening at all and reduce tax revenue. In addition, such policies raise very little revenue because both the startups that go forward are fewer, and huge successes come after the moment of taxation.

In Regime 0, the funds received by founders or key employees via the sale of shares will be recognised as capital gains and thus taxed at the capital gains rate in the country in which the person lives. Regime 0 does not set a tax rate. However, founders and key employees of Regime 0 firms will only be faced with a tax event at the point of sale of an equity stake. A minimum holding period of two years is required before beneficial exercise. Whenever the holding period is not met for reasons such as an acquisition or death, the beneficial treatment will remain.

There is an ongoing discussion among policymakers about creating a new, unified EU framework, the EU-ESOP (Employee Share Option Pool), under which the tax event would happen at the point of sale of equity (see eg EU-INC.org, 2025). But for now, there is no single EU regulation or directive, rather a patchwork of different rules across EU countries. To be an attractive option for innovative startups, Regime 0 cannot move forward without offering this feature.

While retaining and remunerating key talent is important, attracting it is also instrumental to Europe’s competitiveness. In that regard, a fast-track visa procedure for foreign talent should be developed (similar to the French Tech Visa, for example). This would bring further clarity to entrepreneurs, who could plan recruitment without being surprised by the long timeframes for visa delivery.

Regime 0 would provide for special labour regulations only for employees who have material equity stakes in corporation. As the number of corporations qualifying for the regime is small, and as the numbers of employees who fall into the category of significant equity holders is also small, our proposal does not diminish the role of unions and labour law to any significant degree.

3.3.3 Labour

Regular employees of Regime 0 firms will be subject to the labour laws and regulations of the EU countries hosting these firms.

In general, Regime 0 should provide employees with the right to be informed and consulted, as outlined in Article 27 of the Charter of Fundamental Rights of the EU. It is important to clarify that this is not the same as board representation or voting rights, but rather focuses on ensuring employees are informed and consulted appropriately on key matters.

Each member state must supply Hub0 (section 3.4) with a standard labour contract that complies with all the labour laws in its jurisdiction. The member state must ensure that the contract is legal to use in that member state and is up to date. Hub0 will then host contracts for use by participating firms. Any Regime 0 firm can, in this way, download an approved contract for use in the relevant member state, reducing the need to hire a labour regulations specialist.

Each EU country would also be required to supply Hub0 with its labour regulations broken down by topic or category for easy comparison. Hub0 will maintain a comparison table by category so entrepreneurs can easily see the differences between the labour regulations of member states. This will allow entrepreneurs to become fully and easily informed, and to choose where they want to locate their employees and activities.

Regime 0 firms are highly exposed to the risk of failure. Therefore, the founders of startups will be motivated to locate their first labs, production facilities or design studios in countries that have rules that allow for responsive and quick hiring and firing of employees.

When Regime 0 firms grow and begin to recruit more employees, they will be bound by the laws of the country where these employees are located. This gives the corporation time to take into account local labour laws in selecting the location for its factory or research facility. EU countries may offer attractive skill and regulatory packages if they want high-growth firms to locate in their jurisdictions. For example, a very risky venture will not want to locate in a jurisdiction that requires onerous separation conditions in the case that those employees are not needed because the venture fails entirely or must completely change course.

EU countries may want to offer Regime 0 corporations special labour regulations to attract them. This would be up to each country. The transparency generated by the Hub0 portal and the elasticity of many startups across locations will incentivise governments to offer attractive packages of regulations.

3.3.4 Tax

Regime 0 firm founders and employees will pay personal income taxes according to the country in which they live, as usual.

Because Regime 0 ventures are young and investing heavily for innovation and growth, it is unlikely they will earn revenues for some years after founding. The problem compounds if the corporation’s growth is so steep that it must continue investing at high rates. A successful high-growth company will not have net profits for years after it starts earning positive revenues. However, eventually it will have enough revenues and profits to pay corporate taxes in the member states where it operates.

To preserve the sovereignty of member states over tax rates, Regime 0 does not include specific corporate tax rates for its firms. Although the EU is working on a proposal for a new legislative framework for corporate taxation in the EU (BEFIT), introducing common rules for computing the taxable results of large groups that operate in the internal market, this is far from being agreed, leaving a complex patchwork of tax regulations. To help navigate this patchwork, member states would be required to provide Hub0 with standardised and current versions of their corporate tax rates and rules for Regime 0 firms to use in calculating their tax liabilities. Again, EU countries would be responsible for keeping this information updated, while Hub0 provides the information to participating firms.

Hub0 will create a comparison table of tax policies to allow Regime 0 firms to understand the tax consequences of their location decisions. Member states may want to offer Regime 0 corporations special tax breaks to attract them. This would be up to each member state to create and make available in the Hub. The transparency generated by the Hub portal and the elasticity of many startups across locations may incentivise governments to offer attractive tax packages to attract these high growth firms.

Sufficiently small Regime 0 firms would be able to ask Hub0 to help administer and collect its corporate taxes and distribute its payments to the relevant member states. This centralisation of collection will ensure simplicity and predictability, while ensuring efficient digital revenue collection across EU jurisdictions. Young firms with minimal or zero tax liabilities may be the most likely to choose to have Hub0 administer their tax payments.

3.3.5 Bankruptcy

Regime 0 would follow EU best practice on bankruptcy, with the following key principles (see also EU-INC.org, 2025). Voluntary liquidation can be initiated by the board and approved by shareholders, as specified in the incorporation agreement. Filings of liquidation resolutions can be carried out through Hub0, which would check compliance.

Involuntary liquidation can be initiated by creditors, regulators or minority shareholders, and would also be carried out through Hub0. The Hub will select a Regime 0 court (section 3.3.7) as needed, with the court then appointing a liquidator to manage and oversee the process.

Regime 0 firms are highly exposed to the risk of failure. However, their founders form a pool for serial entrepreneurship. Efficient payment of creditors is important because it allows for a swift exit. Perhaps even more important for Regime 0 firms will be the entrepreneur’s capacity to soon start new ventures after failure. A regime that condemns an entrepreneur to one try only because the bankruptcy process does permanent harm will exclude valuable talent from the economy. Regime 0 therefore comes with a rule on the impact of bankruptcy on founders. If an individual involved in the bankruptcy, whether a founder or manager, complies with the bankruptcy process and follows all the rules of the regime and instructions of the court, no member state is permitted to negatively affect that person’s credit records or limit their business activities because of the bankruptcy.

3.3.6 IPO/acquisitions

Regime 0 firms would be able to list shares on a recognised stock exchange just like any other entity and would thus be subject to compliance with applicable stock market and capital market laws, rules and requirements.

If exit is achieved by acquisition, the transaction would be reviewed by the European Commission’s Directorate-General for Competition (DG COMP) rather than by the competition authorities of member states. Successful Regime 0 startups by definition would have a ‘community dimension’ because they are growing quickly across borders with an innovative product. This type of entrant is particularly vulnerable to killer acquisitions that harm innovation within the EU. DG COMP is both familiar with this problem and has an EU-wide view of the competitive landscape, so it is the right regulator to carry out such merger reviews.

In addition, this aspect of Regime 0 nicely solves the current legal uncertainty surrounding how DG COMP obtains jurisdiction for killer acquisitions in Europe: the targets that are most likely to be part of this anticompetitive strategy will have voluntarily chosen to locate in Regime 0, where DG COMP has jurisdiction over their acquisitions. More legal certainty concerning standards and procedures for acquisitions will be beneficial for Regime 0 firms.

Regime 0 firms can file pre-merger notifications through Hub0 by identifying merger partners and supplying basic information about them. No legal professional will be needed to create this filing.

DG COMP should clearly communicate the framework it will use to assess such transactions as part of its Merger Guidelines. It must issue a statement of objections (SO) within six months of notification if it has concerns about a transaction. If an SO is not issued in time, the acquisition may legally proceed. This review process will apply whether the Regime 0 firm is the acquirer or the acquired party.

Most transactions will be harmless. To economise on resources, DG COMP is not required to issue any written explanation or analysis of transactions that raise no competitive concerns. Only when it has concerns should it produce an SO. A transaction value limit could also be established below which no filing is required. As a matter of efficient government, DG COMP should communicate to the parties as soon as it has decided to close a case. This will often take less than six months.

3.3.7 Adjudication

Disputes should first be resolved through alternative dispute resolution methods to ensure a cost-effective solution for all parties. Hub0 can serve as a mediator. Hub0 will also work as a one-stop-shop for receiving and dealing with cases brought forward by Regime 0 companies hampered by non-enforced or ill-designed regulations.

If a resolution cannot be reached through these means, the matter will proceed to the relevant court. A dedicated EU-wide fast-track court system specialised in Regime 0 should be established to enforce its rules. Courts in any member state may become certified to adjudicate in Regime 0 cases. There is a precedent for this in the Unitary Patent and the Unified Patent Court. Regime 0 court certification would be quality controlled by the EU Court of Justice. Regime 0 regulations and adjudication would be delivered in English.

A Regime 0 company will be recognised automatically in all EU countries and is guaranteed non-discrimination: treated in the same way as a national company. Regime 0 firms cannot be excluded from subsidies, tax advantages, procurement contracts or other forms of public support offered by member states (or the EU or European Investment Bank). This would remove the need to set up a subsidiary in another EU country to access public finance, procurement contracts or licenses. If a Regime 0 corporation is discriminated against it may complain to Hub0 for arbitration. Failing resolution, it may take its complaint to the courts.

Finally, it is important to note that each Regime 0 company will be governed by the law of the member state where it has its head office, either for areas on which the proposed Regime 0 is silent, or in areas for which member states remain competent, such as labour law, workers’ co-determination rights and tax law.

3.4 Operationalising Regime 0: Hub0

Admission to and operation of Regime 0 will be run through a fully digitalised EU-level online one-stop-shop: Hub0.

Hub0 will serve as the competent authority and will be legally empowered to register Regime 0 corporations. It will maintain a register of all approved Regime 0 companies and their owners. Hub0 will be highly transparent, making available all information that legally should be public knowledge.

Hub0 will run an online digital registry anddashboard (see also EU-INC.org, 2025). It will enable entrepreneurs to carry out the entire incorporation process digitally, remotely and inexpensively. If required, a Qualified Electronic Signature can be used. Hub0 will provide standardised documents as templates, including articles of incorporation, share transfer agreements, investment contracts and resolutions, allowing for swift processing.

We propose a two-tier process for incorporation. In the first stage, all the documents, including the venture’s innovation and growth plans, will be screened. All straightforward cases will receive Regime 0 status at this stage, which should not require an overly heavy bureaucratic process. Given that the required documents are very standardised for innovative ventures, most genuine applications would pass already in this first stage. For only a few outliers with less obvious cases would pass to a second stage of more in-depth analysis of the material.

For genuine cases in which proof of innovation and scale is straightforward, the process should take only a few days, at most thirty, similar to, for example, the process in Estonia. The second stage for outlier cases may take longer, perhaps one to three months, similar to Germany.

Hub0 will charge a fee but there will be no additional legal charges, such as notary costs. To avoid arbitrage, the fee should be within the range of fees charged for incorporation in EU countries. These fees vary significantly, from zero in Greece and Slovenia to more than €2000 in Italy. An approximate average of these national fees would suggest a fee of around €500.

The official language of Regime 0 would be English. The European Commission will translate on request into languages needed by the entrepreneur. Entrepreneurs would not bear the translation costs.

Hub0 would incur some set-up costs for people and infrastructure, but because the functions would be primarily approving applicants and hosting documents – in a digital environment – this upfront investment should not be large. The hosting, technology, processing of applications and associated administration can likely be carried out with a limited number of high quality staff (fewer than ten at EU level). A digital Regime 0 would reduce the need for professionals that oversee the creation and movement of paper documents. Many layers of official paper permissions will no longer be needed. Professions that provide services helping businesses navigate these regulations will need to adapt. These professionals can pivot to providing higher-value consulting services to the larger number of startups in Europe.

Options for locations for Hub0 include the Commission itself or an institution already officially designated as an EU registrar, such as the European Patent Office or the EU Intellectual Property Office.

3.5 Legally establishing Regime 0

As we have detailed, Regime 0 would be voluntary and would establish rules only in areas critical for the targeted group of entrepreneurs. Furthermore, each firm incorporated under the scheme would be a national company, not supranational. The scheme leaves all other issues to the incorporation regime of the member state of the firm (its ‘seat’) using ‘conflict of law’ resolution.

The features of our proposal would allow it to be executed on the legal basis of Article 114 of the Treaty on the Functioning of European Union (Single Market), meaning that it can be adopted based on a qualified majority of EU countries.

The next critical legalistic issue is whether to introduce the Regime 0 via an EU regulation (a single EU law with uniform application) or directive (minimum common standard, binding on all EU countries). A large part of EU company law is codified in directives (Box 1). Being directives, they allow EU countries flexibility in how to reach the result. In addition, for directive to take effect, national authorities must transpose them into national law. This typically takes time and results in variation across member states.

It is critical to stress that a successful solution to the problem of attracting valuable startups to Europe will require uniformity across EU countries. Every country must have laws that allow startups to incorporate once in Regime 0 and then to operate across the EU. National variation would defeat the purpose of the scheme.

A regulation would ensure that the regime is the same in each EU country and that it is immediately legally binding in its entirety across the EU. The costs, variation, uncertainty and delay involved in creating a similar regime through a directive would make it unlikely to provide the uniform environment that attracts successful entrepreneurs. Variation in the rules will create the very barriers for applicants that Regime 0 is designed to avoid. Regime 0 should thus be introduced via an EU Regulation.

In addition to uniform implementation via a regulation, Regime 0 would only make sense when all the crucial issues are included. A compromise that leaves out components of our proposal, or leaves openings for variation in implemention, would doom the proposal to failure. We believe that adoption of Regime 0 proposal only by ‘coalition of willing’ countries would be superior to a half-baked, half-implemented EU-wide outcome.

Regime 0 should be open to startups beyond the EU – the United Kingdom or Switzerland, for example. Before their firms could apply, however, those nations would have to pass laws that are fully consistent with the EU Regime 0. Automatic recognition of corporations established under the startup regimes in those countries should only occur if their systems are truly consistent with the EU regime.

4 The potential impact of Regime 0

Regime 0 would offer a tailored legal and regulatory framework for ambitious entrepreneurs and startups with the potential to grow rapidly. By focusing on the barriers these entrepreneurs and start-ups face, Regime 0 deliberately avoids calling for the harmonisation of corporate, labour and tax regulations in the EU – which are also the aspects that are most likely to induce regulatory arbitrage. Because it would target the specific barriers that hold up innovative scalers, Regime 0 would not be an option for long-established small or large firms.

Though our Regime 0 design should minimise the risk of arbitrage, it cannot be excluded that that the swift digital low cost system might become ‘clogged’, particularly at the start when the system is still in its infancy and when there is uncertainty about the demand for Regime 0 and required Hub0 capacity. A clogged system would be particularly harmful for the targeted group of companies if it undermines a fluid incorporation process. A clear, well-designed and narrow gateway to Regime 0, together with the two-step application procedure, should keep the system open and attractive for the target group of companies.

Although the targeted group of innovative startups is small in number and their projects will often fail, their successes, even if few, will have a disproportionately positive impact on welfare and growth. Workers and all of society will benefit from a thriving startup sector that fuels Schumpeterian growth dynamics in the EU. Currently, many potential European startups incorporate instead in the US. Therefore, insofar that there might be a loser from Regime 0, it will be the US economy, because some European startups will no longer choose to incorporate there.

Regime 0 would cause firms that do not exist today to come into being. These startups would represent new economic activity and an increase in GDP and income for Europeans. European workers will have access to more jobs and consumers will have access to more innovation and competition. Investors can expect higher returns on their capital.

So, what might the economic impacts of Regime 0 be? Below are two back-of-the-envelope estimates of increased employment and increased growth that could arise from Regime 0. Under the assumptions detailed below, a budget of a few million euros per year would generate benefits in the hundreds of billions of euros while creating substantial employment – clearly a good investment. This favourable trade-off highlights why so many European leaders and policymakers want to solve the startup problem.

Our first estimate (employment) shifts the composition of corporations to a younger profile, while increasing the rate of employment in younger firms. We use US data to benchmark the shift in Europe. The share of young firms in the EU with 10+ employees (ie stripping out micro-enterprises to focus on the ‘scaling entrants’), would increase by 25 percent if Regime 0 enabled the EU to match US numbers (7.5 percent of all firms in the US versus 5.5 percent in the EU). If Regime 0 firms matched the employment performance of the top-performing young firms in the US (those aged five years or less and in the top decile in terms of sales growth), their share of EU employment would be about six times higher (five percent in the US versus 0.8 percent in the EU). EU employment in 2024 amounted to about 200 million, meaning that top-performing young firms would account for 10 million jobs rather than 1.6 million currently (Bruegel calculations based on IMF).

Our second estimate (GDP) counts the number of unicorns outside Europe with a European founder by citizenship, close family link or education. Over the last 25 years, between 241 and 426 US-based unicorns have formed with a European founder (depending on whether Crunchbase or Dealroom data is used). We assume that these firms incorporate in Europe under Regime 0 instead of the US, and that they stay in the EU. We also assume that they average €200 million in annual revenues and generate spillovers of the same magnitude to suppliers and surrounding businesses. We then apply this incremental revenue gain to EU GDP. Applied to a base of €18 trillion, this would generate 0.8 percentage points of additional GDP, or €144 billion.

References

Adilbish, O., D. Cerdeiro, R. Duval, G.H. Hong, L. Mazzone, L. Rotunno and M. Vaziri (2025) ‘Europe’s Productivity Weakness: Firm-Level Roots and Remedies’, IMF Working Paper No. 2025/040, International Monetary Fund, available at https://doi.org/10.5089/9798229001441.001

Aghion, P. and P. Howitt (1990) ‘A model of growth through creative destruction’, NBER Working Paper 3223, National Bureau of Economic Research, available at https://www.nber.org/papers/w3223

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