European economies levy some of the world’s highest property purchase taxes on prime real estate – UHY’s global study reveals

European economies levy some of the highest property purchase taxes in the world on prime real estate, charging on average 4%, or USD 38,356, in tax on a property purchase of USD 1 million, reveals a new study by UHY, a leading international accounting and consultancy network.

UHY says that major European economies including France, Germany, and Spain levy among the highest property purchase taxes in the world (see table below).

UHY says that although high property taxes are an attractive source of revenue for governments, they could risk discouraging labour market mobility and valuable overseas investment from High Net Worth individuals.

UHY’s findings show that Belgium has the highest average property taxes for real estate worth USD 1 million of any country in the study at 11.3%* – a charge of USD 113,131.

Other western European economies at the top of the table include France and Germany, charging USD 50,901 and USD 50,000 respectively on residential property transactions worth USD 1 million.

This is far higher than the global average of 3.3% (USD 33,038) for properties in this price bracket.

By contrast, many other advanced economies have far lower property purchase tax rates on prime real estate. For instance although the rate can vary across states, the US levies just 0.6% on average (USD 5,970) and Canada charges an average of 1.8% (USD 17,833).

Ireland also charges significantly lower taxes than its Western European neighbours at just 1% (USD 10,000).

UHY tax professionals studied tax data for individuals purchasing a house worth USD1 million in 26 countries across its international network, including all members of the G7, as well as key emerging economies.

UHY says that while the G7 economies charge on average 3%, (USD 29,720) – broadly in line with the global average – tax charges in the BRIC economies are around a third lower at 2.3% (USD 22,720).

New Zealand and Russia have the lowest taxes in the table, effectively charging 0% on prime property purchases.

New Zealand has no central or local government transaction taxes on real estate and residential property deals between home owners, as they are exempt from the government’s Goods and Services tax. Similarly Russia imposes no transfer taxes on the buyer, who only pays a minor fixed amount of State Duty of around USD 30.

Comments Bernard Fay, Chairman of UHY: “European economies continue to see property purchase taxes as a rich seam and a good way to bolster public finances which remain under intense strain. However, governments should be careful not to over-exploit it.”

“Higher property purchase taxes can also put a strain on domestic buyers, who may not actually be particularly wealthy, given house price inflation in some locations over the last decade or two.”

UHY points out that in the Netherlands the government reduced the Real Estate Transfer Tax in 2011 from 6% to its current 2% to help stimulate the housing sector for buyers. The lower rate is only applicable to residential property, with the higher 6% remaining for non-residential property.

Bernard Fay continues: “Levying significant taxes on the cost of a new property could constrain labour market mobility. If businesses have to offer much greater incentives for employees to relocate, this could have a serious impact on job creation and business investment in that country, and ultimately on its wider economy.”

UHY adds that in many countries, including Italy, Spain, and Uruguay, property purchase taxes are calculated using the value of the property in government registries, but these prices can often differ from the market value.

Comments Andrea D’Amico of UHY Advisor Srl in Italy: “Prime properties, especially in capitals, such as Paris or Berlin, are particularly desirable for wealthy investors from overseas, but excessively high taxes could make these markets less attractive. There’s a risk that they could lose out to locations such as New York where purchase taxes are seen as more reasonable.”

“These wealthy overseas investors contribute to the local economy in many other ways, through discretionary spending while they are staying in the property, as well as maintenance costs, for instance by refurbishing extensively, or employing staff.”

RESIDENTIAL PROPERTY TRANSFER TAXES FOR THE PURCHASER OF A PROPERTY WORTH USD$1,000,000

* This figure represents an average of the rates in Brussels, Flanders, and Wallonia which can vary from 9.8% to as high as 12.5%.

**Rates rounded to nearest tenth

***Rate paid on cadastral value of property, not market price; for Italy (based on 2015 data), it includes the law with the provision that the rate applies on the cadastral value of the property, which is largely lower than the market price

****Average of local variations

Top earners in Western Europe hit with bigger tax bills than their global peers

Eastern Europe and emerging economies offer most generous tax regimes for higher earners

Western European economies* hit their highest earners with 25% more in tax than the global average,  amounting to just over US$152,406 extra in tax on an income of US$1.5million, according to a new study by UHY, the international accountancy network.

The research reveals that the global average take home pay on earnings of US$1.5million is US$897,970 with tax at 40%. Taxpayers in Western European economies with the same earnings however, are allowed to take home only an average of US$745,563, paying 50% of their income in tax.

UHY points out that the highest earning taxpayers in Western Europe also face a far bigger tax bill than peers in other developed nations. In Western Europe, taxpayers with a gross income of US$1.5million would keep an average of 50% of earnings, compared to an average of 57% in Canada, the USA, Japan, New Zealand and Australia.  

At a slightly more modest income of US$250,000 the gap is even wider, with taxpayers in Western Europe allowed to take home only 56% of earnings, compared to 65% in other major developed economies.

A middle-income taxpayer earning US$50,000 in a Western European economy would receive close to the global average net income at that salary – US$35,935 in Western Europe compared to US$37,695 globally.  However, the 28% they would pay in tax compares unfavourably with the 23% they would pay in the USA.

UHY adds that Eastern European and emerging economies continue to offer the most generous tax regimes to higher earners.  In Dubai and Russia flat rate, or no, taxation means that all taxpayers take home 100% and 87% of their pay respectively, while taxpayers earning US$1.5million in Slovakia, the Czech Republic, Jamaica all keep more than 70% of pay.

UHY observes that some Eastern European economies may be gradually eroding this advantage as they increase the tax burden on top earners.  For instance those earning US$1.5m in the Czech Republic have seen the amount of tax they pay increase by US$183,409 since 2012, thanks to a ‘solidarity surcharge’, against a global average tax rise for this group of US$6,531.

Western countries move to reduce taxes for top earners

UHY notes that while top earning Western European taxpayers are still losing by comparison with peers globally, several countries (Italy and the UK) have dramatically reduced or withdrawn top rate tax bands imposed following the financial crisis.

For example, in 2014, a taxpayer earning US$1.5m in the UK was US$63,601 better off than two years ago, following the abolition of the 50p tax rate last year.

The USA also substantially reduced the amount of tax it took from top earners, lowering the tax take from an income of US$1.5 million to 42.57% of earnings from 43.28% – saving high earners US$10,656. 

In contrast, a taxpayer earning US$1.5m in France would be US$44,646 worse off after tax than in 2012, after President Hollande introduced a new tax bracket of 45% for people earning more than €150,000. However, President Hollande’s plans to impose a 75% supertax on incomes of over EUR1 million were met with resistance and were instead replaced with a temporary additional tax to be paid by employers on salaries above EUR 1 million.

Ladislav Hornan, Chairman of UHY, comments: “The message that high taxes on top earners are uncompetitive has made some impact in Western Europe, and governments have taken steps to reduce the rates on top earners.” 

“However, the gap between how heavily you are taxed in Western Europe compared to other developed economies remains striking, especially at the US$250,000 level.  That’s a typical income for a successful engineer, marketeer or head of IT.”

“As the global economy improves and new job opportunities open up, Western European governments need to be aware of the risk of a brain drain of skilled professionals.”  

UHY studied tax data in 25 countries across its international network. The study captured the ‘take home pay’ for low, middle and high income workers, taking into account personal taxes and social security contributions. High earners were defined as workers earning US$1,500,000 per annum. The calculations are based on a single, unmarried taxpayer with no children.

*Western European economies in the study are; France, UK, Italy, Austria, Spain, Ireland, the Netherlands, Denmark and Belgium.

table 1

*Minus figures indicate a decrease in tax home pay.

**Denotes countries where the change in tax home pay in USD is a result of exchange rate fluctuations and not due to a change in tax.

table 2

Europe on the road to recovery

Some economic pundits have been questioning whether it’s for real. After all, they’ve witnessed European Union (EU) stagnation, become tired of the EU showdown with Greece, and noted how governments, trying to heal their sovereign debt crises, put on an ambitiously brave face as they seek re-election.

So, when policymakers at the International Monetary Fund (IMF) and the EU herald economic revival and upgrade their forecasts for EU growth into 2016, commentators cast doubt.

But, the truth is, the EU is recovering – thanks to a large slice of good luck: a sharp drop in oil prices and a weakening Euro have combined to boost Eurozone growth and stave off entrenched stagnation.

In fact, one or two largely unsung EU economies are doing rather well, and are well placed to help stimulate the whole of the EU back into prosperity.

Take Poland (pictured above), for example. Over the past 25 years, the Polish economy, in real GDP terms, has doubled in size. On GDP per capita, Poland has moved from 32% to 60% of the Western European average. Poland was the only EU country to avoid recession during the global financial crisis and is today the eighth-largest EU economy. Its impressive history of growth for more than two decades has left the country, long a marginal European economy, poised to become a regional growth engine.

EU countries – where they stand

The IMF forecasts that the 19 European countries using the Euro currency will collectively expand by 1.5% in 2015 and 1.6% in 2016, up from a January 2015 forecast of 1.2% growth this year and 1.4% next. Last year the Eurozone grew by just 0.9%.

The European Commission has also upgraded its growth forecasts. The commission predicts the Eurozone economy will grow by 1.3% in 2015 and 1.9% in 2016.

Anticipating bailout agreement and conformity, the European Commission has even only marginally downgraded its projections for Greece. It predicts Greece will grow by 2.5% in 2015 and return to 3.6% growth in 2016.

European Commission officials acknowledge that the EU economy remains troubled, pointing to weak investment and stubbornly high unemployment across Europe. But they highlight that unemployment is projected to drop to 11.2% in the Eurozone this year (albeit barely lower than during its peak of the global financial crisis when it hit 12%).

Pierre Moscovici, the EU’s economic chief, says the sharp fall in oil prices and a weaker Euro are providing a welcomed benefit. He adds: 

 “Europe’s economic outlook is a little brighter today than when we presented our last forecast. But there is still much hard work ahead to deliver the jobs that remain elusive for millions of Europeans.”

The European Commission’s growth forecasts (see chart below) for the end of 2015 (compared with its previous forecast for late 2014) highlight Germany’s sustained growth; France (the Eurozone’s second largest economy after Germany) recovering; Spain recovering strongly; Italy remaining stagnant; the Eurozone overall resisting decline – and the EU bolstered by the UK, a non-Euro country, driving comparatively strong growth.

table

Poland – birth of a growth engine

Twenty-five years ago, events in Poland started changes that swept through Central and Eastern Europe, sparking massive economic and political transformations.

As the Polish economy emerged from decades of state control, industries were privatised and market-based competition was introduced, followed by painful reforms.

Within a few years, Polish GDP and living standards began to rise significantly, as the country started on a growth path that continues today.

Accession to the EU in 2004 confirmed the success of Poland’s effort and indicated a development path that was leading toward positioning Poland among Europe’s most advanced economies.

Over the past 25 years, the Polish economy has doubled in terms of real GDP, and enhanced GDP per capita by upward of 30% compared with the Western European average. Having avoided recession and pegged its place as the eighth-largest EU economy, Poland is poised to become a regional growth engine.

The McKinsey Institute forecasts that Poland can accelerate development to become the fastest-growing EU economy for the next decade. Under its growth model, Polish GDP would top 4% annually over the next decade and per capita GDP achieve 85% of the projected EU-15 average by 2025.

Such development would leave the country on a par not only with Cyprus and Portugal, but also similar to Spain and even Italy (the Eurozone’s third biggest economy). Poland would become a globally competitive advanced economy and a significant exporter of goods and services.

 “While this more ambitious scenario does not require Poland to abandon its existing growth model…, it does require a powerful collective effort by both the private and public sectors,” says McKinsey.

 “Since the country is already a developed economy, this accelerated growth will only be achieved through a major multi-sector transformation programme in conjunction with further improvements to infrastructure, simplification of regulations, and investment in education and innovation.

 “We believe the country has the means and resources to begin this new economic phase, transforming by 2025 from a regionally focused middle-income economy to an advanced European economy competing successfully on the global market.”

UHY has member firms throughout Europe. In Poland the network is represented by Biuro Audytorskie Sadren Sp. z o.o. and by ECA Group.

Biuro Audytorskie Sadren Sp. z o.o.
Contact: Wieslaw Lesniewski
Email: w.lesniewski@sadren.com.pl

ECA Group
Contact: Roman Seredyński
Email: roman.seredynski@ecagroup.pl

______________

Press contact

Dominique Maeremans, business development/marketing manager    
Tel: +44 20 7767 2621
E-mail: d.maeremans@uhy.com                 

The challenges of internationalisation

There are many sound commercial reasons for small to medium sized enterprises to expand beyond their home market. European Commission director general for internal market, industry, entrepreneurship and SMEs, Istvan Nemeth, says that being internationally active links with higher turnover and employment growth, and there is a relationship between internationalisation and innovation.

To find out how companies successfully manage elements of internationalisation such as human resources, business culture, finance and logistics, we asked specialists for their views.

PEOPLE MATTER

Hiring local talent who can create the right brand and culture is important, as is understanding cultural diversity, says Kate Chapman, group HR director at recruitment firm PageGroup. “It is vital when exporting talent that they have a good understanding of the cultural nuances they will encounter.”

Kate says that for people moving abroad on an international assignment, it is not always about the money. “Expats may take advantage of lower tax rates but people relish the opportunity to experience life in a different culture,” she says. “Once many of our people move abroad they rarely go back to their host country, making multiple moves with us throughout their careers.”

CULTURAL NUANCES

Knowledge that prepares a business for new territory must be part of the decision to enter that market. But cultural research tends to be too general, stereotypical and out of date and may encourage a formulaic response to highly nuanced situations that can narrow the focus of leaders to that of following a process rather than ‘heads up’ flexibility and awareness.

That is the view of Malcolm Nicholson, coaching director at Aspecture and the UK representative for the Centre for International Business Coaching. He says businesses expanding internationally should be helping leaders to understand and develop their ability to juggle conflicting forces. “We are learning to work with more memberships of groups and feel part of them. Helping leaders integrate into new multicultural social and work environments is essential, at both personal performance and business levels.”

An inevitable by-product of having people in close proximity is some form of conflict, he says. “This is generally handled according to the law of the land, the culture of the

organisation and the manager’s discretion. Add regional culture to the mix and accepted norms vary significantly.”

MAKING MONEY COUNT

Finding a bank that offers services in multiple countries or regions can be a challenge for companies with revenues in the millions rather than billions, explains Bob Lyddon, general secretary of the International Banking Association. “There is a trend for banks to focus on doing business just in their ‘home’ market, which has thinned out the competition in international banking. Anti- money laundering and ‘know your customer’ requirements mean domestic banks are starting to shun foreign customers because of the difficulty of fulfilling requirements around identifying ultimate beneficial owners.”

If the applicant is a non-resident, someone at the bank has to examine papers issued in a foreign jurisdiction and attest that they prove the existence of the applicant and the bona fides of directors, signatories and owners. “The same applies where the applicant is a resident but with foreign ownership,” says Bob. “The result, if not a rejection, is an onerous process. It is much easier when the customer’s own bank has strong relationships with foreign banks, with agreed standards for responsiveness, timing and paperwork.”

Bob says the most important requirement for aspiring international business is access to people who can explain clearly the market practices in foreign jurisdictions and the most appropriate local payment and collection services.

KEEPING IT MOVING

According to Mark Parsons, chief customer officer UK & Ireland for DHL supply chain, three trends characterise the challenges and opportunities in emerging markets: regionalised supply chains, shortening product life cycles and shifting demographics.

Rapidly changing consumer behaviour, coupled with the variables of infrastructure, culture, regulatory and political regimes and economic development, make unpredictability the norm. Factor in limited talent pools, fragmented distribution systems and security concerns and the unknown variables grow.

“As one global networking products supplier put it, we are in markets now where we are not going to get the density and leverage to build economies of scale for five to ten years,” says Mark. “This is a problem for a lot of US and European companies that are used to having projects with a two-year payback.”

His colleague, head of DHL resilience team, Tobias Larsson, says corporate supply chain organisations are often siloed, operate on a regional basis and are disconnected among regions and even sites. “They lack visibility and control beyond their part of the operation. That may work day to day, but in crisis, it can be a problem.”

RISKY VENTURES

Companies with international ambitions must also take account of factors like currency volatility. Borrowing in local currency and managing working capital effectively can help reduce the impact of currency fluctuations. However, the increased currency risk when operating in emerging markets brings with it the need for clear, complete information about any risk being created.

Political instability is a consideration in many parts of the world. Poor governance, extreme levels of corruption and civil unrest are among the challenges facing international business operations in emerging markets, says Charlotte Ingham, principal political risk analyst at global risk analytics company Verisk Maplecroft.

Corruption not only undermines overall governance levels, but also serves as a key source of popular dissatisfaction. With nearly 70% of countries rated as ‘extreme’ or ‘high risk’ in Verisk Maplecroft’s corruption risk index and 41% similarly rated in the civil unrest index, widespread discontent is likely to remain a significant feature of the global political risk environment in the short term.

Exporters are also advised to protect themselves against late and non- payment. Because overseas customers will take longer to receive their goods than customers in a domestic market longer payment terms are inevitable. Exporters concerned about cashflow should consider asking suppliers for longer terms. For those worried about an overseas customer refusing to pay, credit insurance may be an option. Clearly defined contractual obligations are essential – exporters have to consider factors such as the currency of the contract and obligations in respect of transportation of goods. Contracts should use internationally recognised terms as laid down by the International Chamber of Commerce.

The rewards of internationalisation can be high but as with all new business, carry risk and opportunity. The only way to mitigate risk is to build process and awareness into every stage.

Global Magazine – Issue 1

______________

Press contact

Dominique Maeremans, business development/marketing manager    
Tel: +44 20 7767 2621
E-mail: d.maeremans@uhy.com 

Issue 2016

Featured

This edition includes eight case studies featuring a range of international clients across a variety of market sectors: automotive, chemicals, food packaging, human resources, mining, retail, training and consultancy.

Where start-ups succeed

Every thriving start-up ecosystem is unique, but they all find new and better ways of bringing the right people together.

If dark clouds have been gathering ominously over the global economy of late, one chink of sunlight continues to break through the gloom. According to a recent research study by UHY, many countries are experiencing a boom in new business creation.

That’s even true of China, where economic slowdown has spread panic through boardrooms from Beijing to Berlin. In fact, it’s especially true of China, UHY’s research confirms. The world’s most populous country is outpacing the world in new business formations. Nearly 1,610,000 new companies were established in China in 2014, almost double the number created in 2010. [Data correct to end of 2014].

Second in the league table of start-up success was the UK, which registered a 51% increase in business births in 2014 compared to 2010, while other winners included India, Australia, Italy and Germany. Brazil created 22% more businesses in 2014 than 2010, but started from the highest base of any nation in the UHY survey. Over one and a half million new companies were established in Brazil in 2010.

Some of this activity is the direct result of central intervention, with governments acting to kickstart economies left reeling by the financial crisis. Lower tax rates and reduced SME bureaucracy are the most obvious manifestations of government efforts. According to UHY International chairman Bernard Fay, these efforts must continue.

“The next few years are not going to be without their own challenges, and governments globally need to find ways to help these new start-ups grow into successful businesses and even the next generation of multinationals,” he says. “In many European countries there is still a long way to go in cutting down on bureaucracy.”

Reducing business bureaucracy is one way to encourage new start-ups, but there are others. Every start-up ecosystem is shaped by its peculiar local circumstances, and experts believe the best initiatives for encouraging business creation are homegrown and pragmatic. Nevertheless, successful start-up hubs, from Paris and London to Tel Aviv and Toronto, tend to share similar core components.

Peace and prosperity

At the most basic level, start-ups need peace, political stability and a culture that promotes entrepreneurship as a worthy life choice. All three are present in Indonesia, where entrepreneurs – as the Global Entrepreneurship Monitor (GEM) reports – exhibit ‘a low fear of failure’ which results in high levels of ‘early-stage entrepreneurial activity’.

If companies are to grow, entrepreneurs need access to finance and in some economies new funding avenues are rejuvenating start-up ecosystems. Peer-to-peer lending, crowdfunding and angel investing are filling the gap left by more risk averse institutions like banks and venture capital firms. The Association for Financial Markets in Europe calculates that 30% of finance available to European companies is now non-bank funding.

Meanwhile, GEM reports that physical infrastructure is considered the most valued component of a start-up hub by the start-up companies themselves. Good transport links and high speed internet is often essential to new business in a globalised world, wherever a start-up happens to blink into life. At the same time, many new businesses need access to an educated workforce and a set of core professional services.

But while the presence of these factors is clearly advantageous, experts warn that different start-up ecosystems have different priorities, and that no ‘one size fits all’ global model exists. Slavica Singer, professor of economics at the J.J. Strossmayer University of Osijek in Croatia and co-author of the GEM Global Report, argues that what ecosystems need most of all, regardless of the speed of local broadband services, is the flexibility to change and the wisdom to do so sensibly.

“Healthy start-up environments share the ability to change quickly, but without rushing into trendy solutions without sufficient thought,” she says.

“Solutions must be contextualised, and checked for harmonisation with other components of the entrepreneurial ecosystem. For example, enriching financial markets with entrepreneurial financial instruments (such as angel investing) won’t contribute to a healthy entrepreneurial ecosystem if you don’t first teach entrepreneurs how to use them properly.”

Local initiatives, global significance

Professor Singer believes that every healthy entrepreneurial ecosystem is in some way unique and the best examples of start-up friendly initiatives are local ones. She pinpoints the BA Emprende programme in Buenos Aires, Argentina, which offers short-term training for entrepreneurs and access to new avenues for finance, helping to overcome any traditional limitations to Argentinian entrepreneurship.

“We are lucky in Buenos Aires,” says Roberto Macho, managing partner, UHY Macho & Asociados, Buenos Aires. “Not only do we have accelerator initiatives such as BA Emprende but it’s relatively inexpensive to start up a business, we have a highly educated workforce and our community is naturally entrepreneurial, collaborative and resilient.”

Across the border in Brazil, the city of São Paulo has become a high-spending customer for its own SMEs, giving small businesses preferential treatment when bidding for public sector contracts. In fact, São Paulo is a good example of a city trying to best exploit natural advantages, says Marcello Reis, business development manager, UHY Moreira-Auditores, UHY’s Brazilian member firm.

“São Paulo is absolutely massive – roughly 21 million people,” he says. “With so many people, it opens the door for many smaller companies to cater to a local market. Moreover, due to a very restricted capital market, in the past ten years many angel seeds and crowdfunding companies have been created to boost local start-ups.”

Those factors, plus the city’s large and diverse immigrant population, mean São Paulo is now among the best 20 in the world (according to Compass, which publishes the Global Start-up Ecosystem Ranking study) for starting a business.

In Berlin, entrepreneurs from outside the city once struggled to gain a foothold in its populous, relatively expensive central districts. The city now offers a ‘Business Welcome’ package that includes cheap office space and a number of hours of free legal and financial advice.

Money and mentoring

That advice is key, according to Compass. It argues that ‘knowledgeable and start-up-adapted service providers such as lawyers, accountants and other specialised consultants,’ are crucial to a thriving start-up ecosystem.

To that end, UHY member firm, UHY Advisors, Michigan, US uses local knowledge to connect start-up and early stage companies to new sources of finance. The firm sponsors the ‘Great Lakes Angels’, an angel investment group, is an active board member and hosts its pitching nights.

“It fills a gap between friends and family funding,” says Bradford Southern, UHY Advisor’s principal for valuation and transaction services. “Typically these early-stage companies have exhausted these monies but are not yet ready for venture capital. That’s the angel investment segment and that’s what we focus on with the Great Lakes Angels.”

UHY Advisors hosts quarterly company pitching nights where several early-stage companies present the unique attributes of their company, the investment opportunity and their funding needs from accredited angel investors in the audience. These meetings double as networking events for UHY Advisors to mingle with up-and-coming business owners, third party advisors and high-net-worth individuals. In addition, the firm offers educational seminars aimed at potential accredited investors. Taken together, this activity has made UHY Advisors a key player in its local start-up ecosystem.

Similarly, two years ago a team of partners in the UHY LLP, Albany office, in New York State, formed a joint venture to invest in the Eastern New York Angels (ENYA), helping to give the region’s start-ups access to both early-stage finance and professional mentoring.

Again, this local initiative addresses a local issue. The New York Capital District area is home to a large population of science and technology students who typically graduate and move to large cities like New York and Boston to garner support for their fledgling companies. “By providing the funding and mentorship locally, we are looking to keep those businesses local, in the hope that someday they blossom into successful companies,” says F. Michael Zovistoski, a partner in UHY LLP, Albany.

Incubate and accelerate

These local initiatives address local priorities, and they are being joined in modern start-up hubs by increasing numbers of business incubators and accelerators, which have similar aims. These institutions offer fledgling businesses a mix of cheap office space, practical education, networking opportunities and mentoring. Many mould their offer to local circumstance, focusing (for example) on high-tech industry, finance, retail or fashion.

Incubators have become something of a phenomenon everywhere, from the US and Europe to China, Brazil and India, highlighting a universal requirement for advice, mentoring and cheap facilities, right from the outset.

“In the UK our business creation hotspots show how influential clusters of expertise can attract more businesses to set up in various developing areas. Identifying the industries and sectors that a particular area should target for growth is clearly bearing fruit. Nationally all of the top five postcodes for business generation are in London – specifically Silicon Roundabout, City Road, Borough & Bankside, North Finchley & Woodside Park and Covent Garden & Leicester Square – but Warrington, Nottingham, Leeds and Hove also appear in the top 20 hotspots,” says Colin Jones, head of London audit, UHY Hacker Young, London, UK.

In Hove, the Sussex Innovation Centre, part of the University of Sussex in the UK, aims to guide new businesses through their difficult first few years, and has an enviable record. Around 85% of members are profitable at three years from start-up, compared to a national UK average of just 15%.

“One of the most valuable things our members get from us are the introductions and connections to a network of people who can help their business as it develops,” says Mike Herd, executive director of Sussex Innovation.

They include the local entrepreneurial community, an in-house support team, and a wider network of corporates and public bodies, investors, professional service providers, academics and specialists. “Because we’ve built up great relationships with these people, they know we’re not wasting their time and that we will always make relevant introductions that give them an opportunity to add real value to a business,” says Mike.

Incubators are now a significant ingredient in many healthy entrepreneurial environments, but they should not be seen as a magic bullet, experts warn. Despite the success of Sussex Innovation and others, Professor Singer says that no component of an entrepreneurial ecosystem exists in isolation, and that the connections between components are more important than any individual element.

“All forms of supporting organisations can contribute to building a successful start-up ecosystem,” she says. “But both the media and policy makers should understand that a successful start-up ecosystem depends on the quality of relationships among its components.”

Ever more important

Facilitating these relationships is what a successful start-up ecosystem does. It brings relevant people together and lets them communicate in a way that best suits local circumstances.

Once established, a good start-up hub should be self-sustaining. From Silicon Valley to São Paulo, the chief draw for any new generation of entrepreneurs is the living, breathing, thriving example of the entrepreneurs who came before.

That example, and the new entrepreneurial activity it sparks, will only become more important. Despite UHY’s upbeat assessment of its start-up sector, China’s wider economy continues to lose momentum. In February 2016 its once unstoppable manufacturing sector shrank for the seventh consecutive month, dragging the global economy – and major industries like oil and metals – down with it. With that in mind, the central position of SMEs in the global economy, and the vibrant and vital entrepreneurial ecosystems which nurture them, will become ever more important.

For more on UHY’s study of new business formations, visit www.uhy.com/category/news

Notes for Editors

Press contacts:
Dominique Maeremans          
Tel: +44 20 7767 2621, or email: d.maeremans@uhy.com