28th Regime Explained: How the EU Plans to Simplify Start-Up Creation and Cross-Border Scaling

With the current discussion about a so-called "28th regime," the European Union is pursuing the goal of further reducing existing legal fragmentation in the internal market, especially for companies operating in the digital economy. The starting point is the growing recognition that, despite extensive harmonization in digital law, divergent national implementations and interpretations of EU legal requirements continue to pose significant practical hurdles for cross-border business models. Against this backdrop, the 28th regime is being discussed as an optional EU-wide legal framework that would apply as an alternative to national legal systems. The initiative is part of a broader trend in EU digital law towards greater reliance on directly applicable regulations and uniform conditions of application. Against this backdrop, this article examines the legal context of the 28th regime, the design approaches currently under discussion, and the practical expectations and implications for businesses.

I. Background: Fragmentation of the legal framework

Despite extensive harmonization efforts, the European single market for businesses continues to be characterized by considerable fragmentation of the legal framework. Although a regulatory framework exists under EU law in many areas, it is often overlaid by national implementations, supplementary regulations, and differing enforcement practices. For companies, this means that cross-border activities are not subject to a uniform legal regime, but regularly require the parallel application of several national legal systems.

These problems are particularly evident in the scaling of digital business models. Companies wishing to offer their services across the EU are confronted with diverging requirements in areas such as company, labor, tax, insolvency, and administrative law. Even where EU law requirements exist, differing national interpretations and enforcement mechanisms create legal uncertainties that make reliable planning difficult. The result is increased transaction costs, delays in market entry, and a considerable expenditure of resources for legal and administrative compliance.

These structures are particularly burdensome for start-ups and young growth companies. Unlike established corporations, they often lack the human and financial resources to serve several national legal regimes in parallel on a permanent basis. Studies show that a significant portion of available resources is spent on regulatory tasks, which directly inhibits innovation and growth processes. In addition, key scaling factors such as access to capital, labor mobility, and participation in public and institutional markets are further hampered by legal fragmentation.

From a digital law perspective, a structural tension becomes apparent: while digital business models are inherently cross-border in nature, the underlying legal framework remains nationally organized in key areas. This discrepancy not only affects the competitiveness of individual companies, but also has an indirect impact on the innovation and locational attractiveness of the European Union as a whole.

II. Proposals for the 28th Regime

Against the backdrop of continuing legal fragmentation, the 28th Regime is being discussed as an optional EU-wide legal framework that would provide companies with a uniform legal basis for their activities in the internal market. Unlike traditional harmonization instruments, the concept does not aim to harmonize national legal systems, but rather to create an additional, directly applicable EU regime that would exist alongside existing national systems. Companies could voluntarily opt into this regime without displacing national legal systems.

In terms of content, the proposals to date focus on those areas of law where fragmentation is particularly costly and risky for digitally active and growth-oriented companies. The initial focus is on company law, in particular the introduction of a uniform EU-wide company form. This is intended to enable fully digital incorporation, uniform governance structures, and simplified capital and reporting requirements, thereby facilitating cross-border expansion. For companies with a digital business model, this would significantly reduce the administrative burden of setting up and maintaining multiple national companies.

Closely linked to this is the area of insolvency and restructuring law. Despite existing minimum standards under EU law, there are still considerable differences in the eligibility requirements, duration of proceedings, and legal consequences of national insolvency proceedings. A coherent EU-wide framework is therefore proposed, which would create reliable "second chance" mechanisms, particularly for innovative companies, thereby facilitating investment and financing decisions. For capital-intensive digital business models, predictable insolvency law is a key location factor.

Further considerations relate to labor law, particularly with regard to cross-border employment models. Digital companies often work with distributed teams, hybrid forms of work, and cross-border talent mobility. Standardized labor law modules are therefore proposed, for example for employment contracts, remote work models, or employee participation, which would be recognized throughout the EU under the 28th regime. The aim is not to completely standardize labor law, but to reduce legal inconsistencies for internationally based teams.

Finally, tax law is discussed as a central, albeit politically sensitive, component. Although complete tax harmonization is not planned, uniform compliance and reporting requirements, particularly in the area of corporate taxation and value-added tax, could bring about significant simplifications. A common EU-wide framework for tax reporting and documentation requirements would provide noticeable relief, especially for young companies with limited resources.

What all the substantive proposals have in common is that they are to be designed in a modular fashion. The 28th Regime is not conceived as a comprehensive "EU company law," but as a system that can be expanded step by step, initially focusing on areas that are particularly prone to conflict and economically relevant. From a digital law perspective in particular, the added value lies in the possibility of bundling key business functions – formation, financing, employment, and restructuring – under a coherent EU-wide framework, thereby reducing the structural gap between cross-border business models and nationally oriented legal systems.

III. Practical implications for companies

The practical implications of a 28th regime vary considerably depending on the business model, organizational structure, and expansion strategy of the companies concerned. The new legal framework is particularly relevant for companies whose activities are cross-border from the outset and which are dependent on rapid scaling within the internal market. These include, in particular, providers of digital services, software-based products, platform solutions, and data-driven business models.

1. Companies with a cross-border market orientation

For companies that offer services uniformly in several Member States, the key practical benefit of the 28th regime is the ability to bundle central business functions under a coherent EU-wide legal framework. Instead of parallel corporate structures and national compliance setups, a uniform regime could simplify internal organization and reduce the number of legally relevant interfaces. This applies in particular to formation processes, organizational structures, reporting requirements, and issues of intra-group control.

Especially in early growth phases, this would help to limit legal scaling costs and allow management capacities to focus more on operational and strategic issues.

2. Providers of regulated digital services

The 28th regime is particularly important for companies operating in regulated markets, such as financial services, healthcare applications, digital identity solutions, or data-intensive platform services. In these constellations, the effort often lies not only in complying with substantive legal requirements, but also in coordinating different national organizational, liability, and reporting requirements.

An optional EU-wide regime could at least standardize the corporate and organizational law basis and thus reduce the complexity of regulatory integration. Although sectoral licensing and supervisory requirements would remain in place, corporate structure and internal governance could be standardized across the EU, which promises practical efficiency gains, particularly when expanding into other member states.

3. Employment models and internal organization

The 28th regime also has practical relevance for companies with decentralized or cross-border employment structures. Uniform or standardized labor law modules could facilitate the drafting of employment contracts, remuneration and participation models, and remote work arrangements. This would simplify internal coordination between human resources, legal, and compliance functions in particular and reduce legal fragmentation in the employment of skilled workers in different member states.

Although mandatory national labor law would still have to be observed, a coherent EU-wide framework for key labor law issues could significantly reduce the complexity of cross-border human resources strategies.

IV. Conclusion and outlook

The 28th Regime marks a renewed attempt by the European Union to address structural deficits in the single market that have been evident for years, particularly among cross-border and growth-oriented companies. The European Commission has now explicitly included the project in its internal market strategy and announced in its work program for 2026 that it will present a corresponding legislative proposal, which will initially focus on innovative companies.

In terms of content, a more concrete proposal can therefore be expected in the foreseeable future, the scope, legal form, and modularity of which will be decisive for its practical added value. It remains to be seen whether it will be possible to create a truly uniform, directly applicable legal framework or whether the 28th regime will once again be relativized by national connecting factors. Acceptance in practice will depend on whether the regime goes beyond symbolic simplifications and enables tangible relief in terms of start-up, scaling, and ongoing compliance.

Companies should monitor the development of the 28th regime at an early stage and assess it strategically. In particular, companies with a clear internal market focus, cross-border organizational structures, or expansion plans should examine in which areas legal fragmentation currently causes particular costs or risks. Such an assessment can form the basis for evaluating the potential advantages of an optional EU-wide regime at an early stage and, if necessary, preparing for a change or parallel use. 

This article was created in collaboration with our student employee Emily Bernklau.