How to manage compliance and finance when you expand overseas
Do you have ambitions to expand your businesses overseas? I speak to many businesses in this situation and they all have one thing in common, namely they are all worried about how they will handle the increased compliance. They don’t know about the complexities of recruiting and paying staff, and they are worried about the cost and difficulty of dealing with overseas taxes.
I wrote this article for International Trade Magazine originally and I hope you too find it helpful. I’ll guide you step-by-step on how to deal with compliance and finance overseas. I’ll also give you some practical advice on how to manage all the international HR, accounting, tax, legal and HR rules and regulations so you can focus on growing your business in new markets.
Step 1 Agents and distributors
What if I rely on agents and distributors overseas?
If you are selling overseas entirely through agents or distributors, you generally do not have to worry about setting up a legal entity overseas. You also typically do not have to file overseas accounts or tax returns.
Why is this?
If a third party is conducting all your business for you in a country, it is the agent or distributor, not your business, who has to file their own accounts and pay their own taxes.
Step 2 Setting up your own operation overseas
The limitations of relying on agents and distributors
The problem with using third parties is that they are an expensive option, both financially and strategically. In finance terms they take a large share of the value your sales create. From a strategic perspective, an agent or distributor owns your customer relationships. This prevents your organization building up its own presence in an overseas market. Your market position is vulnerable if your relationship with your agent or distributor changes for any reason.
This is why many businesses eventually decide to set up their own sales operation overseas once they have enough scale to support an in-house sales team.
The implications for HR, Legal, Finance and Tax
It is a general rule of thumb that, whenever a company employs staff in a new country, they face a whole new set of local compliance requirements. The new compliance requirements include the following items:
- registration as an employer
- local country payroll
- drafting local employment contract and complying with HR legislation
- creating a new legal entity
- corporation tax return
- registered office
- filing statutory accounts
This list can look very daunting. However there are cost-effective options for resourcing these tasks which are affordable and manageable for SME’s.
Step 3 In-house vs Outsource?
One of the first decisions you’ll need to make is whether to undertake these tasks in-house or whether to outsource. Your initial preference may be to do these in-house, particularly if your domestic back office operations are all in-house. However in-house is likely to be the more expensive option unless you have a large overseas operation.
Pro’s and con’s of in-house
You are unlikely to find a single person who is up-to-date on all the latest overseas accounting, tax, HR and payroll regulations. So the chances are you will need to hire more than one specialist to perform these tasks in-house. You’ll also have to pay a premium for qualified staff. One other factor to consider is whether you have enough career development opportunities to develop and retain an overseas recruit. It can be a good option overseas to hire a part-time resource if you can find them, as this is more affordable for you and the risk of staff turnover is lower.
Benefits of outsourcing
My strong advice is to outsource any tasks which your existing in-house staff are not capable of doing. There are many expert local advisors who can do this for you more cheaply than you can do it yourself. In my experience these outsourcers are not only cheaper than an in-house option, but they also provide a better compliance service. This is because they provide access to multiple experts in different fields, and because they have structured training programmes to stay up-to-date on local regulations. They are also good communicators who will tell you everything you need to know
Step 4 Selecting an outsourcer
There are a large number of options for outsourcing finance and compliance work overseas. I’ll outline these below with their pro’s and con’s, to help you pick the best option for your business:
Major accounting firms
These firms will give you guaranteed access to high quality local experts. They are easy to find and to contract with. The downside is that they will be expensive, particularly if you require any ad hoc work. Also the major firms are made up of fairly independent local partnerships, so their processes and personnel can vary considerably from one country and city to another.
Professional Employer Organisations (PEO’s)
These firms are an alternative approach. They will legally hire your staff member for you, and they will carry out all the local compliance for your new hire. This can relieve you of many administrative burdens and it is a flexible way of getting started in a country. However a PEO is expensive if your operation grows above a small number of employees, because you pay a mark-up on the employment cost. Also the PEO will not take on your corporate tax risk and it does not change your requirement to pay taxes. The taxman looks at ultimately who benefits from the employee’s activity. So if you need an entity, then don’t rely on a PEO as medium term cover.
Some firms offer an intermediary service, which means that they find finance and compliance partners for you in each country. This makes life simple for you, as you do not need to find a local partner yourself. Also many queries go via an intermediary, so you do not have to speak directly to the local partner. The downside, yet again, is cost. Each intermediary layer incurs additional adviser time that you will pay for. Also it makes it difficult to get answers quickly and accurately, as replies to questions have to go back and forth from the intermediary to the overseas partner.
We have designed an innovative approach which it easier than ever for you to setup overseas with high quality suppliers at competitive costs. We:
- manage all your compliance and finance setup so you have to intermediate with lots of overseas suppliers.
- get you directly serviced by overseas local partners for your ongoing accounting, tax and payroll work. This reduces costs for you by cutting out the intermediary and by using independent firms with lower overheads.
- even have a partnership with a global payroll supplier, so you can get global payroll, accounting and tax all in one place.
- oversee your ongoing operation to make sure you are getting a great service. We’re there to help whenever you need us for new requirements or backup.
If you want to know more about how we can help you, contact us at email@example.com for a free initial discussion. One of our experts will listen to your individual business needs and we’ll provide objective advice.
What Not to Do When Setting Up a Business in the USA
In an era of increasing globalization, more and more UK businesses are looking for lucrative expansion opportunities…continue to read