The Services Directive

European Union law gives businesses established in one European Union country the freedom to provide services in or provide services to another European Union country. Numerous directives and laws which have been introduced by the European Union over the last 40 years in order to harmonise laws and standards in relation to many different types of goods and services.  The objective is to fully facilitate the freedom to trade and provide services.

The Services Directive 2006 is a general law which is designed to streamline, fast track and give full effect to the right to provide freedom of services.  Its purpose is to help service providers to benefit from the freedom to provide services across borders from one European Union country to the other or to establish themselves in the other Member States.

The Services Directive seeks to give full effect to the EU Treaty freedom of establishment and the freedom to provide services throughout in the EU. It applies in tandem with the extensive case law of the European Courts on the general freedom to provide services across the EU, provided for in the EU Treaties.

The Services Directive applies both where a service provider proposes to provide services cross-border from his own Member State and where he seeks to establish a business in another Member State.


The directive defines services as any self-employed economic activity normally carried out for remuneration. A broad range of services is covered. It includes services provided to businesses and consumers such as legal and fiscal advice, real estate agency, construction services, architects, transport and distribution, trade fairs, car rental and travel agencies. It includes consumer services such as tourism, tour guides, leisure services, sports centres and amusement parks.

The list of illustrative services provided includes business services such as

  • management consultancy
  • certification and testing,
  • facilities management,
  • office management,
  • advertising
  • recruitment services
  • household support services
  • the services of commercial agents.

The directive may apply where there is a cross-border element involved in the supply of the service. It is arguably also applicable to the internal provision of services.

Enhances Rights of Service Providers

The Services Directive assists prospective service providers in challenging requirements which affect access to the exercise of the service activity in another EU state. A requirement in this context is any obligation, prohibition, condition or limit provided for in the laws, regulations or administrative provisions or practice of an EU state. It may be in consequence of case law administrative practice, the rules of professional or trade bodies, organisations and associations.

The Directive potentially invalidates any requirement which impacts adversely upon access to the provision of a service by a supplier or on access a service by a user across EU state borders. A requirement includes any obligation condition, prohibition or limit in law, regulation or administrative practice. It includes the rules of professional and trade bodies and associations.

Sectoral Limits on Scope

The Directive does not apply to certain sectors, most of which are subject to other specific EU legislation. They include “services of general interest” (which has a specific defined meaning; see other articles) financial services, electronic and network services, transport, temporary work agencies, private security agencies, healthcare services and audio-visual services. It does not apply to gambling services.

There are general derogations in relation to services of general economic interest in the utility sector and in relation to matters covered by other directives such as the Posted Workers Directive, the Professional Qualifications Directive, the Lawyers Directive and the Citizens Rights Directive. Financial services are excluded because they are dealt with by specific existing European legislation.  Electronic communications, audiovisual services and many transport services are dealt with by other EU  legislation.  Gambling activity, social services and governmental activities are excluded as they involve significant State policy choices.

Case-by-case derogations may apply in exceptional circumstances. They allow states to take measures in relation to the safety of a service in respect of providers established in another state. This may be done only after the exhaustion of the mutual assistance procedure.

The requirement must relate to the safety of the service. There must be no EU harmonisation in the field concerned. The measures must provide for a higher level of protection for the recipient of the service than in the home state and if the home state has not taken any measure or has taken insufficient measures prepared with those in Article 35.2 The measures must themselves be proportionate.

General Limits

The Services Directive does not apply in respect of taxation. It does not affect labour law or social security legislation. It is not to affect the exercise of fundamental rights recognised by the law of the member state or EU law, including, in particular, the right to enter into collective agreements and take industrial action.

The basic and general rules of the legal system are outside the scope of the Directive. Rules which apply to all persons, irrespective of EU residence or which apply to nationals and EU nationals are presumptively lawful. If they specifically affect a service activity, they may be required to be justified under the directive.

It does not apply to rules on the use of land, planning permissions, building standards, road traffic and other rules and standards which do not specifically regulate or affect the service activity which must be respected by providers in the course of carrying out their economic activity in the same way as by individuals acting in a private capacity.

Services Cross-Border and Establishing

The Services Directive applies where a service provider proposes to provide services cross-border from his own Member State or seeks to establish a business in another Member State. The Directive requires the EU Members States to give effect to these rights.

The Directive applies to rules and procedures which the service provider needs to comply with either to establish i.e. set up in the Member State or to provide services across borders into a Member State.

Any conditions imposed on incoming service providers must be strictly justified. They must be non-discriminatory with regard to the nationality of the Member State, in which a company is incorporated.  They must be necessary for reasons of public policy, public security, public health and protection of the environment and they must be proportionate to obtain the objective concerned.

Member States are required to examine the procedures and formalities applicable to the provision of services and consider whether these are sufficiently simple.   Where these are not sufficiently simple, they must be simplified.

Prohibited Conditions

The Services Directive sets out requirements which the Member States cannot prescribe and are therefore prohibited. These include:

  • requirements based on nationality or residence of the service provider, staff members or board members;
  • prohibitions on having an establishment in more than one state;
  • restrictions on freedom to have its permanent establishment in a particular Member State;
  • the application of an economic test making authorisation subject to economic need or market demand;
  • the obligations to provide a financial guarantee or take out insurance from a particular provider
  • an obligation to pre-register for a given time before exercising an activity.

The following are effectively prescribed:-

  • an obligation to have an establishment in the territory where the service is provided;
  • a requirement to set up infrastructure in the host state;
  • the application of specific contractual arrangements between the service provider and the recipient which prevent or restrict the provision of services by the self-employed;
  • an obligation to possess specific identity document issued by the competent authority;
  • requirements affecting the use of equipment e.g. requirements to use of specific brands;
  • restriction on recipients which restrict useful services.

Exemptions and Limitations

There are a number of service areas to which the above does not apply so that a Member State can impose additional requirements.   These include:

  • general economic services such as post, electricity, gas, water;
  • services that are covered by existing directives;
  • protection of personal data,  social security schemes, administrative formalities regarding the free movement of persons,
  • shipment of waste;
  • legal protection of semiconductors;
  • statutory audit of accounts;
  • judicial recovery of debts;
  • visa requirements for third-country nationals,
  • actions involving notaries;
  • registration of vehicles leased in the other Member States; and
  • obligations determined by private international law.

Recipients have rights to receive services from abroad. Member States are prohibited from placing restrictions on the use of a service provided by a provider established in another Member State.  They must ensure residents obtain information in relation to access to and exercise of services means of redress in case of dispute and contact details of the organisation which can help.

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