Critical Elements of Doing Business in Europe

1. Critical Elements of Doing Business in Europe

2. Contents • Size, Growth and Benefits of EU Market • Drivers for EU Strategy • Sales and Distribution Channels • Country Selection for Operational Support in Europe • Legal Entity: Subsidiary, Branch or 3rd Party Partners • Advantages of VAT Management and “Arms Length Contracts” • Conclusions

3. Why Europe is Changing to Your Benefit? • One Currency • Flexible Regulatory Approach • Fast Pre-Market Approval • Lowering of Trade Barriers • More Accessible Markets • Increasingly Ageing Population • High level of Healthcare Spending as a Proportion of GDP • Diverse and Fragmented Medical Device Market • Considerable Market Opportunities for SME’s With Novel Medical Devices

4. Staggering Growth

5. Major European Medical Device Markets • France, Germany, Italy , Spain, UK • Market for Medical Devices in These Countries Estimated at $51bn • Value of Non Commodity Products $28bn (55% share of total device market) • Value of Commodity Products $23bn (45% device market share) • All Have Robust Economies with a Rapidly Growing Homecare Medical Device Product Sector and Ageing Population

6. Key Drivers for European Strategy • Stage of your Companies Development • Complexity of your Product • Financial Resources • Experience of Management Team • Reimbursement Potential • Understanding of Local Distributor Markets • Management of Sales Channels

7. Sales Channel and Distribution Options • Distributors • Direct Sales • Hybrid Combination • Joint Ventures • OEM Partners Major Routes to Market

8. Time to Market Learn the Market Regular Invoicing Customer Base Control of Pricing Customer Relationships Inflexible Contracts High Distributor Mark Up Suits Less Complex Products Pros and Cons of Distributor Relationships forMedical Companies Benefits: Drawbacks:

9. Control Customer Relationships Higher Revenues and Invoicing Higher Margins Control Pricing Brand Loyalty Expensive Management Time Market Knowledge Fiscal Knowledge Legal Challenges Pros and Cons of Direct Salesin Europe forMedical Companies Benefits: Drawbacks:

10. Control Customer Relationships Higher Margins from Strategic Markets Access to more Remote Markets Diversified Customer Base Local Management of All Sales Channels Revenues from Distributors can aid Cash Flow for Your Direct Sales This Combination will Require a More Established Presence in EU Hybrid Approach of Direct Sales and Distributors Optimal Strategy

11. What to Look for When Selecting a Country to support EU Operations • Low Corporate Tax Rates • VAT Deferment • Geographic Location • Economic Assistance • Access to Major Airports and Seaports Business Benefits

12. Which EU Countries best fit the Criteria? • The Netherlands • Belgium

13. What are the Options for a more Established Presence? • Set up Identity: Subsidiary, or Branch • Set up Offices and Logistic/Service Center • 3rd Party Partner to run your Identity • 3rd Party Partner for Back office Services • 3rd Party Partner for Logistics

14. Establish an Infrastructure Employ Personnel other than sales staff Signing Authority of Personnel Buy or Lease office and Warehousing Facilities Risk Management Size of Global Operations Why Set Up your own Legal Entity? EU Operations

15. Exposure to Liability Subsidiary has Limited Liability Share holder only Liable for Capital Contribution A Branch is not a separate Legal Entity Foreign Company that owns the Branch is fully liable for their EU Operation Branch Vs Subsidiary Major Difference

16. Control of European Operations Establish a European Office Platform for Rapid Growth Protection of USA Parent Expensive set up Expensive Operating Costs Corporate Tax 25% + if you have a Functional Office Set Up Branch Taxed on Domestic Income Subsidiary Taxed on Global Income Benefits and Drawbacks of Setting Up a Legal Entity Benefits Drawbacks

17. Set up Offices and Employ Local Staff Open up the Entity as a “Shell” and run from the USA Appoint a 3rd Party to Run Your Financial EU Operations How do you Run Your European Entity? Options

18. Customer Service Support Sales Staff Support Management of all office and logistic operations US Manufacturer has No Set Up Costs or Employees other than Sales Staff Tap into their Existing Infrastructure Low Cost European Office Variable Cost with Short Term Contracts VAT Management “Arms Length Contract” Set Up Advantages of 3rd Party Partner to Support your EU Operations European Services

19. VAT Deferment Exists in Certain Instances in the Netherlands and Belgium Goods can Enter the Country Without VAT Being Due at Port of Entry VAT Does not Have to be Added to Invoices Within EU countries Except in the Country of Entry Your 3rd Party Partner can Bring Goods in on their VAT Number and Invoice your Customers on Your Behalf Reporting to Local Authorities is Handled by 3rd Party Fiscal Representative VAT is typically 19%- 21% of a Commercial Invoice Critical Advantage One: “VAT Management” 3rd Party Fiscal Representation

20. Goods Shipped from USA to Europe by US Manufacturer EG: UK-Germany-France-Spain- Italy Value of Goods 100,000 VAT 19% to 21% 19,000 Amount Paid on Entry 19,000 6 Months to Claim Back the VAT Working Example of VAT Management US Manufacturer 3rd Party Fiscal Representative • Goods Shipped from USA to Europe through Fiscal Representative • EG: UK-Germany-France-Spain- Italy • Value of Goods 100,000 • VAT 19% to 21% 0,000 • Amount Paid on Entry 0,000 • VAT not Added to Invoice in Certain Instances for Outbound Invoices

21. Business Transactions can be Set Up so that Revenues Generated in the EU can be Recognized in the USA, with no Tax Implications in the EU USA Companies must be Considered not to have a Permanent Office with Support Staff in the EU All Contracts must be Signed by officers of the Company who are Based in the USA Sales Representatives and Non Clerical Employees who Work From their Homes are Considered to be Order Takers and “Field Staff” Invoices can be Generated and Paid into a Non- Resident Bank Account and then Transferred back to the USA The EU business can be Set Up as a Cost Center not a Profit Center Critical Advantage Two: “Arms Length Contract” Avoiding EU Corporate Taxes

22. Goods Sold by US Manufacturer in EG: UK-Germany-France-Spain- Italy Profit 1,000,000 EU Corporate Tax 250,000 Net Profit 750,000 Some tax incentives are available in certain cases Working Example “Arms Length Contract” Subsidiary 3rd Party Fiscal Partner • Goods Sold by US Manufacturer in • EG: UK-Germany-France-Spain- Italy • Profit 1,000,000 • EU Corporate Tax 000,000 • Net Profit 1,000,000 • Revenues recognized in USA • EU Business Set up as Cost Center

23. Considerations Drivers for an Increased European Presence • Market Share and Profit Potential • Long Term Strategy in Europe • Product Type and Complexity • Hybrid Sales and Distribution Approach • Financial Resources • Exit Strategy

24. Conclusions and Recommendations Is Your Company Suited for an Increased EU Presence? • (Each Company and Situation is Different) • Are you Planning Pan European Expansion with Multiple Regional Offices? • Are you Planning to run your Entity with no Support Staff, or by a Third Party? • If Yes, A Subsidiary or Branch Could be Appropriate • In Most Other Cases Outsourcing to a 3rd Party Provider until you Grow to a Size that Warrants your Own Facilities is More Beneficial to Your Company: • Huge Savings on Infrastructure Costs, EU Taxes, and VAT

25. HealthLink Europe Contact Information Contact our North American Office: Rick Hughes PresidentHealthLink EuropePHONE800.781.8926EMAIL info@healthlinkeurope.com Quoted Text: Effectively Selling Medical Devices & Equipment in Europe, Publisher; Espicom. Author; David Scott Doing Business in the Netherlands 2007, Author; Baker & Mckenzie