Please note: The following is a draft, pending final editting. Is is published hastingly, due to the importance of the issue.
For decades, European startups have faced a peculiar paradox. The continent boasts extraordinary engineering talent, world-leading climate tech, thriving deep tech ecosystems, and distributed hubs from Berlin to Lisbon. Yet when it comes to scaling, European founders vote with their feet—93% would rather incorporate in the United States than build in their own backyard.
The statistics are brutal. All six companies worth over $2 trillion founded in the last 50 years are American. Europe has zero. American startups from the same period are worth 70 times more than their European counterparts. This isn't about innovation capacity. It's about infrastructure.
Europe's startup ecosystem is fragmented across 27 different legal systems. An engineer from Poland and a founder from Belgium can't simply create a company together without navigating Belgian corporate law, Polish tax rules, different stock option frameworks, and investor documentation that terrifies capital into immobility. Less than 18% of early-stage European venture investments cross borders, while American capital flows coast-to-coast without friction. In a time when global competition happens at continental and intercontinental scale, Europe is still organising itself as 27 competing nation-states.
This is the problem the 28th Regime exists to solve.
What Is the 28th Regime?
Imagine a virtual 28th member state —an optional legal framework that sits alongside the existing 27 national systems, offering one harmonised rulebook for companies that choose to adopt it. This is the core concept that has united an unlikely coalition: Mario Draghi, Ursula von der Leyen, Enrico Letta, and over 18,000 founders and investors behind the EU-INC proposal.
The most concrete instantiation is EU-INC, a community-driven proposal backed by founders, venture capital firms, and startup associations. Its components are specific and operational:
- EU-INC: A standardised pan-European legal entity for startups, with a single incorporation process.
- EU-REGISTRY: A centralised digital registry replacing 27 separate national registries. Digital incorporation in under 48 hours, for under €100, entirely in English, with no notaries or paperwork.
- EU-FAST: Harmonised investment documentation so investors use one standard term sheet across all 27 countries, rather than 27 different versions that create uncertainty and legal friction.
- EU-ESOP: A unified European stock options framework eliminating what the European startup ecosystem calls "dry tax"—the nightmare scenario where employees owe taxes on stock options before the shares have any value, before they can even sell them.
- EU-DASHBOARD: A standardised management system where founders can handle governance, reporting, and entity administration through a single digital interface.
The promise is straightforward: incorporation once, recognition everywhere, standardised investment terms, and employee incentive structures that actually work across borders. A founder in Krakow hiring talent in Lisbon doesn't navigate 27 legal regimes; they operate under one.
The Political Backing & Community Movement
What's notable is that this isn't a traditional top-down EU proposal emerging from bureaucratic consensus-building. It's a founder-driven movement that has achieved unusual political traction.
In the Draghi Report on European competitiveness, Mario Draghi explicitly called for "innovative start-ups to adopt a new EU-wide legal statute with harmonised legislation concerning corporate law, insolvency, and key aspects of labour law and taxation." Ursula von der Leyen proposed "a so-called 28th regime to allow companies to benefit from a simpler, harmonised set of rules." Enrico Letta framed it as "a transformative step towards a more unified Single Market."
Behind the scenes, 18,000+ European founders have signed the EU-INC petition. Signatories include founders of Mistral AI, Wise, and partners from Index Ventures—representing billions in value creation. The institutional backing spans the European Startup Network, Index Ventures, Prototype Capital, and over 20 business associations.
This coalition exists for a reason: the current status quo is economically irrational. When capital and talent face friction at borders within a supposed single market, innovation migrates to places without friction.
The Critical Tension: Regulation vs. Directive
Here's where the analysis gets uncomfortable, because this is where the 28th Regime could either succeed dramatically or become another symbolic EU initiative that exists on paper.
The question is deceptively simple: Will the 28th Regime be implemented as a Regulation or a Directive?
- A Regulation is immediately binding and identical across all 27 member states. When the Commission proposes it, it applies everywhere the same way. Fast, certain, standardised.
- A Directive requires member states to transpose it into national law over approximately two years. Each country interprets it through its own legal framework. Often, member states "gold-plate" it—adding extra requirements that go beyond the Directive's minimum standards. The result: 27 different implementations of the supposedly unified rule.
As one analyst framed it bluntly: "If you go for a regulation, after negotiations it becomes active immediately and is standardised across the continent. If you go for a directive, there are two more years of national transposition, and member states can add requirements through gold-plating, which is the exact opposite of what we want."
The problem? Both the European Commission and the European Parliament are currently leaning toward proposing this as a Directive, not a Regulation. If this prevails, the entire premise collapses. You'd have 27 versions of the 28th Regime—defeating the whole point of having a single harmonised framework.
As the EU-INC petition states bluntly: the political will exists, "but the EU–INC is just one of many ideas circulating in Brussels. Even in the Draghi Report, it's barely a page of more than 300. Politicians aren't founders or investors. We need to unite and clearly show this is not one solution out of hundreds but the #1 solution."
The Competing Proposals: Multiple Visions, Same Goal
The tension doesn't stop at Regulation vs. Directive. There are substantive disagreements about what the 28th Regime should actually be.
The European Parliament's Vision: The S.EU (Unified European Company)
In December 2025, the European Parliament's Legal Affairs Committee approved its own recommendations for the 28th Regime framework, calling it the Unified European Company (S.EU). The vote was 18 in favor, 4 against, 1 abstention.While philosophically aligned with EU-INC, the S.EU proposal diverges in scope:The S.EU should not be limited to "innovative companies" only. MEPs argue that limiting the framework to companies meeting undefined "innovation" criteria would recreate bureaucratic gatekeeping—exactly what the framework is meant to eliminate. Instead, the S.EU should be available to all SMEs, including startups, scaleups, and young companies of any sector.The S.EU envisions the same 48-hour digital registration, €1 minimum capital requirement, and English-language dispute resolution as EU-INC. But with broader applicability.This reflects a genuine tension: Should this framework be innovation-focused or universally accessible?
The Letta Report's Vision: A European Code of Business Law
Former Italian Prime Minister Enrico Letta's vision goes broader. Rather than just a 28th Regime, Letta proposed a comprehensive European Code of Business Law that would codify existing business law across the EU while introducing the 28th Regime as one component.Letta's framing: "An initial step involves the systematic codification of the existing legal framework. However, merely codifying existing laws will not suffice to realise a truly integrated European market. It is essential to complement the codification process with innovative elements and new European tools."
The Letta approach emphasises that corporate law alone isn't sufficient. The framework needs to address employment law and taxation, not just incorporate startups. This is more ambitious than EU-INC's narrower focus, but also more complex politically.
The Scope Dilemma: Innovation as a Definition
Here's a practical tension that reveals the challenges ahead:
- EU-INC and the Draghi Report suggest the regime should target "innovative companies" based on criteria like R&D expenditure, intellectual property ownership, and workforce qualifications. This targets the highest-impact companies while keeping the scope manageable.
- Business Europe, the continent's largest business association, warned the Commission that "innovative companies" is not an established legal definition and could introduce new bureaucratic hurdles—precisely what the regime is meant to eliminate. If a company has to prove it's "innovative" to use the simpler framework, you've just created a gatekeeping mechanism.
- The European Parliament's S.EU proposal takes a different stance: drop the innovation criterion entirely and make the framework available to all SMEs. This solves the definitional problem but expands scope and potentially dilutes political support (some policymakers only want to support "innovative" startups, not all SMEs).
This is a genuine substantive tension, not mere bureaucratic disagreement.
What Remains Unchanged: Taxes and Labor Law
One critical point requires clarity: the 28th Regime doesn't harmonize taxation or labor law across the EU. Member states aren't surrendering control over those domains, and political reality makes EU-wide tax harmonisation essentially impossible in the near term.So the framework delivers standardisation on: incorporation, investment documentation, stock options, governance, and reporting. But a startup with its seat in Belgium still pays Belgian corporate tax. A Polish employee still follows Polish labor law. A German subsidiary still complies with German employment regulations.
This is actually a pragmatic design—it achieves the highest-impact harmonisation without requiring member states to surrender fiscal sovereignty. But it means the 28th Regime solves approximately 70% of the problem, not 100%. Some friction remains, but the critical friction points (incorporation, investment, talent incentives) are addressed.
The Timeline & What Must Happen Next
The European Commission is expected to publish its formal proposal for the 28th Regime framework by early 2026. This is the critical moment.What needs to happen, according to the EU-INC movement:
- Critical Urgency: Public commitment from politicians to immediate action. The next Commission cycle would be too late—the political window is now.Top Priority Status: Von der Leyen must place EU-INC at the absolute top of her agenda, preventing competing directorate-generals from diluting or delaying a proposal.
- Regulation, Not Directive: The final instrument must be a Regulation that applies identically across the EU, not a Directive that creates 27 national variations.
- National Support: Founder and investor mobilisation at national level is critical. This isn't a project that happens without constituency pressure.
- Get the Scope Right: Resolve the innovation vs. universal accessibility question before implementation, not during.
The political math is actually favourable—unlike many EU initiatives, this has backing from the Commission President, the left (social democrats like Letta), the entrepreneurial right (Draghi), the startup ecosystem, major venture funds, and broad institutional support. The scepticism comes from parts of the labour left and some member states wary of regulatory control erosion.
With focused effort, this could happen in 2-5 years. Without it, 20-50 years.
Why This Matters Beyond Startups
The 28th Regime isn't just about helping founders avoid bureaucratic headaches (though that matters). It's about economic competitiveness at continental scale.European innovation is real. The continent leads in climate tech investment, houses thriving deep tech ecosystems, and produces extraordinary engineering talent. But that talent and innovation operate in fragmented 27-country silos while American and Chinese competitors operate at continental and global scale.If enough startups adopt the 28th Regime framework, over time it could become the default standard, gradually making the messy patchwork of national company laws obsolete. A virtual architecture that creates genuine single-market economics without requiring formal political harmonization.
That's how infrastructure work, after all. First it's optional. Then it's convenient. Eventually it's unavoidable.
Sources & URLs
Official Sources:
- EU Commission Initiative: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/14674-28th-regime-a-single-harmonized-set-of-rules-for-innovative-companies-throughout-the-EU_en
- EU-INC FAQ: https://www.eu-inc.org/faq
- EU-INC Petition: https://www.eu-inc.org/petition
- EU Made Simple Video: https://www.youtube.com/watch?v=hXZWH7nwz78
European Parliament:
- Legal Affairs Committee S.EU Recommendations: https://www.europarl.europa.eu/news/de/press-room/20251209IPR32107 / https://europeansting.com/2025/12/12/meps-recommendations-for-a-new-eu-framework-for-innovative-companies/
- European Parliament Scope Study: https://www.europarl.europa.eu/RegData/etudes/IDAN/2025/776311/IUST_IDA(2025)776311_EN.pdf
Strategic Reports:
- Letta Report Analysis: https://www.gide.com/en/news-insights/the-letta-report-the-case-for-a-european-code-of-business-law/
- European Code of Business Law: https://www.codeeuropeendesaffaires.eu/2024/04/22/european-code-of-business-law-enrico-letta-report/
- Draghi Report Reference: https://commission.europa.eu/topics/competitiveness/draghi-report_en
Business & Policy Analysis:
- The Recursive (Regulation vs. Directive Tension): https://therecursive.com/eu-inc-28th-regime-legislation-deadline-european-parliament-startup-scaling/
- Gide Legal Analysis: https://www.gide.com/en/news-insights/latest-developments-regarding-the-28th-regime/
- Bruegel Policy Brief: https://www.bruegel.org/policy-brief/regime-0-europe-wide-incorporation-startups-kickstart-innovative-growth
- Business Europe Submission: https://www.businesseurope.eu/wp-content/uploads/2025/10/2025-09-26-BusinessEurope-reply-on-the-28th-Regime-consultation.pdf
- IIEA Article: https://www.iiea.com/blog/a-28th-regime-for-27-member-states-a-new-corporate-legal-framework-for-innovative-companies
- Digital Europe Position: https://cdn.digitaleurope.org/uploads/2025/10/DIGITALEUROPE-Position-on-28th-Regime.pdf
- Pinsent Masons Analysis: https://www.pinsentmasons.com/out-law/news/businesses-shape-eu-regime
- ITIF Comments: https://itif.org/publications/2025/10/03/comments-to-the-european-commission-regarding-the-european-innovation-act/
- European Law Institute Response: https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/ELI_Response_to_the_EC_Public_Consultation_on_28th_regime_by_Stefan_Grundmann_October_2025.pdf
Posts
