Art. 49 TFEU: Freedom of Establishment

Introduction

Article 49 TFEU sets out the EU’s freedom of establishment. It bans restrictions on EU nationals and companies that wish to set up and run a business in another Member State. The right covers creating and managing undertakings, including agencies, branches and subsidiaries, under the same conditions as the host state’s own nationals.

The freedom applies to self‑employed individuals and to companies formed under a Member State’s law (Article 54 TFEU). It is about a stable, continuous economic presence, rather than a one‑off or temporary activity.

Two features limit or shape the rule. First, there is a narrow carve‑out for activities linked to the exercise of official authority (Article 51 TFEU). Second, where professions are regulated, Member States must assess and recognise comparable qualifications so that professionals can practise, often with proportionate “compensation measures” if there are gaps.

Article 49 sits alongside, but is distinct from, free movement of workers (Article 45 TFEU) and free movement of services (Articles 56–62 TFEU). Picking the correct regime is essential when advising clients or answering exam questions.

What You’ll Learn

• What “establishment” means and how it differs from the freedom to provide services
• Who can rely on Article 49 TFEU (natural persons and companies: Article 54)
• The principle of national treatment and how host‑state rules apply
• When and how Member States can justify restrictions (including the Gebhard test)
• The official authority exception (Article 51) and its narrow scope
• How recognition of professional qualifications works (Thieffry, Vlassopoulou, Fernández de Bobadilla; Directive 2005/36/EC)
• The distinction between self‑employed persons (Article 49) and workers (Article 45), with Nadin as a guide
• Practical steps for setting up a branch or practising a regulated profession in another Member State
• Key cases to cite in exams and practice

Core Concepts

Who is covered and what counts as “establishment”?

• Natural persons: EU nationals who are self‑employed and want to carry on an economic activity in another Member State on a lasting basis.
• Legal persons: Companies and firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the EU (Article 54 TFEU). They can create agencies, branches and subsidiaries across the EU.
• Establishment vs services: Establishment is a stable and continuous participation in the host state’s economic life. By contrast, the freedom to provide services concerns temporary activities without a lasting base.
• Case law marker: In Schnitzer (C‑215/01), the Court explained that a person is established where they pursue their activity on a stable and continuous basis and hold themselves out to local clients through an established professional base.

Practical signs of establishment include maintaining premises, employing staff, registering for local tax purposes, and marketing to local clients on an ongoing basis.

Equal treatment, non‑discrimination and the restriction test

• National treatment: Article 49 guarantees access to, and pursuit of, self‑employed activity under the same conditions as host‑state nationals. Direct and indirect discrimination on grounds of nationality are prohibited.
• Measures that hinder or make establishment less attractive can still fall within Article 49 even if they apply equally to nationals and non‑nationals. Such rules must be justified and proportionate.

The Court’s standard restriction test (Gebhard, C‑55/94) asks whether the measure:

1. Applies in a non‑discriminatory manner
2. Pursues an objective recognised by EU law (public policy, public security, or public health under Article 52; and “overriding reasons in the public interest” recognised by case law, such as consumer protection, prevention of fraud, safeguarding professional standards or financial stability)
3. Is suitable to achieve that objective
4. Does not go beyond what is necessary (no less restrictive alternative would achieve the aim)

Written, reasoned decisions and fair procedures are also expected where authorities refuse access to a profession or business activity.

Official authority exception (Article 51 TFEU)

• Article 51 excludes activities connected, even occasionally, with the exercise of official authority.
• The exception is construed strictly. In Reyners v Belgium (2/74), the Court held that the legal profession as a whole could not be excluded; only tasks that involve a direct and specific connection with the exercise of state power could be reserved.
• The “severability” principle applies: if specific tasks within a profession involve official authority, those tasks may be reserved, but the rest of the profession remains within Article 49.

Typical features of “official authority” include powers of coercion, certification with binding legal effect, or discretionary decision‑making on behalf of the state.

Recognition of professional qualifications

• Even without EU secondary legislation, Member States must compare foreign diplomas and experience with domestic requirements (Thieffry, 71/76; Vlassopoulou, 340/89).
• If equivalence is established, access to the profession should be granted. If there are shortfalls, proportionate compensation measures (such as an aptitude test or adaptation period) may be required.
• The principle applies even where a person returns to their home state after qualifying in another Member State (Fernández de Bobadilla, C‑234/97).
• Today, the Professional Qualifications Directive (2005/36/EC, as amended by 2013/55/EU) codifies many of these duties, including time limits, procedural safeguards and the European Professional Card for certain professions.

Key practice point: Authorities must provide clear reasons for any refusal and must consider both formal diplomas and relevant professional experience.

Article 49 vs Article 45 (workers)

• Article 45 TFEU covers employed persons in a relationship of subordination (working under the direction of an employer for remuneration).
• Article 49 covers self‑employed persons and businesses operating independently.
• In Nadin (C‑151/04 & C‑152/04), the Court confirmed that measures affecting independent economic activity fall under Article 49, not Article 45. Correct classification determines which Treaty test applies.

Key Examples or Case Studies

Reyners v Belgium (Case 2/74)

• Context: Belgian rules reserved admission to the Bar for Belgian nationals.
• Decision: Article 49 has direct effect. The “official authority” exception is narrow; the legal profession cannot be excluded as a whole.
• Takeaway: Only tasks inseparable from state power may be reserved.

Thieffry (Case 71/76)

• Context: French authorities refused admission to the Paris Bar to a Belgian national with a Belgian law degree recognised as equivalent by a French university.
• Decision: Refusal breached Article 49. Recognition of equivalent qualifications can be required even without a directive.
• Takeaway: Authorities must assess equivalence fairly and cannot impose unjustified barriers.

Vlassopoulou (Case 340/89) and Fernández de Bobadilla (Case C‑234/97)

• Context: Applications to practise a regulated profession based on qualifications from another Member State.
• Decision: Host states must compare diplomas and experience with domestic standards; where there are gaps, proportionate compensation measures may be imposed. The principle also applies when returning to one’s own Member State after qualifying abroad.
• Takeaway: Comparative assessment and proportionate compensatory steps are central to lawful recognition.

Schnitzer (Case C‑215/01)

• Context: Whether certain cross‑border activities constituted establishment or services.
• Decision: Establishment requires stable and continuous participation in the host state’s economic life, typically through a professional base.
• Takeaway: A lasting presence points to Article 49; temporary activities fall under services.

Gebhard (Case C‑55/94)

• Context: Professional rules affecting cross‑border practice by a lawyer established in another Member State.
• Decision: Set out the four‑part test for restrictions on establishment (non‑discriminatory, suitable, necessary, and justified by recognised objectives).
• Takeaway: Even non‑discriminatory rules can breach Article 49 if disproportionate.

Nadin (Joined Cases C‑151/04 & C‑152/04)

• Context: Belgian rules on company vehicle use linked to whether drivers were employees or self‑employed.
• Decision: The situation fell under Article 49, not Article 45. The classification of the activity matters.
• Takeaway: Identify whether the person acts under subordination (workers) or independently (establishment).

Centros (Case C‑212/97)

• Context: Denmark refused to register a branch of a UK‑incorporated company formed to trade in Denmark.
• Decision: Refusal breached Article 49. Using a company from another Member State to set up a branch cannot be blocked merely because local minimum capital rules would otherwise apply.
• Takeaway: Companies may choose where to incorporate and then establish branches elsewhere, subject to proportionate regulation.

Practical Applications

• Deciding between branch and subsidiary

  • Branch: No separate legal personality; easier to register; parent company remains liable.
  • Subsidiary: Separate legal person; local company law applies; more set‑up steps but clearer liability separation.
  • Check company registers, directors’ requirements, and reporting obligations in the host state.

• Assessing if your plan is “establishment”

  • Indicators: Premises, staff, local marketing, regular clients, local tax/VAT registration.
  • If your operations are limited in time and you have no base, the services regime may be more suitable.

• Entering a regulated profession

  • Gather diplomas, transcripts, course syllabi, and evidence of professional experience.
  • Request recognition under Directive 2005/36/EC or, if the Directive does not apply, rely directly on Article 49 case law (Thieffry, Vlassopoulou).
  • Expect an equivalence assessment. Be ready for proportionate measures (aptitude test or adaptation period) if there are content gaps.
  • Keep records of deadlines; appeal or seek review if authorities fail to give reasons or apply disproportionate conditions.

• Checking the official authority carve‑out

  • Identify if any part of the activity involves discretionary decision‑making, certification with binding legal effect, or coercive powers.
  • Consider whether these tasks are separable so that the remainder of the profession remains open.

• Building a justification file (for public bodies and regulators)

  • Evidence the public interest objective (e.g. consumer protection, fraud prevention).
  • Show why the measure is suitable and why less restrictive alternatives would not work.
  • Keep procedures transparent: publish criteria, reasons, and appeal routes.

• Compliance and operations

  • Register with the local trade or company register as required.
  • Address tax, social security, and, where relevant, posted workers rules.
  • Meet sector‑specific requirements (fit and proper tests, insurance, AML/CTF controls, language where justified, professional indemnity).
  • Ensure marketing, signage and business names meet local standards without discrimination.

• Exam and advice structure

  • Identify the Treaty freedom (Article 49 vs Article 45 or services).
  • Is there discrimination or a restriction on a stable, continuous economic activity?
  • If yes, is there a recognised justification? Apply the Gebhard test.
  • Conclude: permit, permit with conditions (proportionate), or refuse with proper reasons.

Summary Checklist

• Article 49 TFEU bans restrictions on setting up and running a self‑employed activity in another Member State.
• Covers natural persons and companies (Article 54 TFEU), including agencies, branches and subsidiaries.
• Establishment requires a stable and continuous presence; temporary activity is usually services.
• Host states must offer national treatment and avoid disguised discrimination.
• Even neutral rules can be restrictions; apply the Gebhard test to assess justification and proportionality.
• The official authority exception (Article 51) is narrow and severable; Reyners confirms lawyers cannot be excluded as a whole.
• Recognition of qualifications is mandatory where knowledge is equivalent; proportionate measures may address gaps (Thieffry, Vlassopoulou, Fernández de Bobadilla; Directive 2005/36/EC).
• Distinguish self‑employed (Article 49) from workers (Article 45); Nadin is a useful guide.
• For companies, consider branch vs subsidiary and comply with local registration and reporting.
• Always obtain a reasoned decision; challenge unjustified or disproportionate refusals.

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