The tax and legal environment for private equity in Europe has improved according to the trade association EVCA’s annual benchmarking study.
It registered a small overall improvement in the tax and legal environment for private equity and venture capital and entrepreneurship across Europe, with an average composite score this year of 1.84, compared to 1.97 in 2004.
There is still a wide divergence between top- and bottom-ranked countries: this year Ireland is at the top, with 1.27, and Romania, included for the first time, is at the bottom, with 2.35. But the gap between the best-ranking and the European average has slightly narrowed.
The study showed most of the countries have adopted an appropriate domestic fund structure to attract capital from domestic as well as international investors.
The tax and legal environment has also improved for pension funds and insurance companies investing in entrepreneurial projects. But very few countries provide incentives to invest in private equity and venture capital.
Likewise, tax and performance-related incentives to retain talent, within both investee companies and investment funds, are still not sufficient, EVCA said.
Moreover, company incentivisation and fiscal R&D incentives achieve the lowest score of all, at 2.36 and 2.13, respectively.
Ireland, France and the United Kingdom rank as the countries with the most favourable environment for the development of the private equity and venture capital industry, with composite scores of 1.27, 1.36 and 1.46, respectively.
In all previous surveys, the United Kingdom and Ireland have consistently been ranked within the top three countries, whereas France has moved into this band for the first time.
Together with France, Belgium and Spain have moved to above-average composite scores since the first survey in 2003, indicating a relative willingness to reform.
There is a wide divergence between the countries which have performed below the European average, with very different criteria for poor performance. Norway, Sweden and Germany have been ranked below average since the first survey in 2003.
New EU countries and accession countries tendto be below the European average, but they are making good progress.