Freedom to provide services / Freedom of establishment

The freedom of establishment, set out in Article 49 (ex Article 43 TEC) of the Treaty and the freedom to provide cross border services, set out in Article 56 (ex Article 49 TEC), are two of the “fundamental freedoms” which are central to the effective functioning of the EU Internal Market.

The principle of freedom of establishment enables an economic operator (whether a person or a company) to carry on an economic activity in a stable and continuous way in one or more Member States. The principle of the freedom to provide services enables an economic operator providing services in one Member State to offer services on a temporary basis in another Member State, without having to be established.

These provisions have direct effect. This means, in practice, that Member States must modify national laws that restrict freedom of establishment, or the freedom to provide services, and are therefore incompatible with these principles. Member States may only maintain such restrictions in specific circumstances where these are justified by overriding reasons of general interest, for instance on grounds of public policy, public security or public health; and where they are proportionate.

Under the Treaties the Commission is responsible for ensuring that Community law, including Articles 49 and 56, is correctly applied. As the guardian of the Treaty, the Commission has the option of commencing infringement proceedings against a Member State which they believe to be incompatible with Community law.

The recently adopted Services Directive aims to create a legal framework for ensuring that both service providers and recipients benefit more easily from the fundamental freedoms guaranteed in Articles 49 and 56 of the Treaty. The directive complements existing Community instruments and its provisions are, to a large extent, based upon the case law of the European Court of Justice (see below)