How best to land and expand? A common question.
July 14th, 2020
Is there a straightforward answer?
Irrespective of where in the world you want to open that next office, adherence to a tried and tested roadmap to guide you through the underlying requirements will be essential. This generic map is subsequently anchored by local laws, tailoring your solution to ensure ongoing compliance.
Sadly, for many investor-backed corporates, there is a prevailing sense of reluctance to plan beforehand when dropping teams into countries. Instead choosing to leave that compliance to a later stage. This can prove to be both dangerous and costly. When the business is successful and heading for an exit, it is often too late to correct past errors, leading to draconian warranties and indemnities impacting upon the deal price. Ironically, the overseas elements may be only a minor part of the whole operation and yet make up a disproportionate part of your liabilities.
To avoid such issues, utilise the same underlying approach each time you step into a new territory. Briars operates an 18-step plan for our clients limiting risks and accelerating return on investment. As a simple overview of one key element of that plan:
What is your greatest asset? Your people.
How then do you hit the ground running?
For many, the first choice may be either Employer of Record/Employee Leasing [EOR/PEO/GEO] or Contracting but do these solutions work?
The short answer is – sometimes!
The factual answer is – country-dependent!
When looking at placing people on the ground be clear as to whether you will trigger a Permanent Establishment [PE]. If you will, then your first step should be to create a branch or subsidiary to house your personnel, irrespective of active trading or transfer pricing.
If you do not trigger a PE, then consider the alternatives.
- Non-Resident Employer Registration – straightforward, low risk option enabling you to recruit the local country personnel.
- EOR/PEO/GEO – the individual is hired by another entity and then effectively seconded to you. You in turn maintain a business-to-business contract with the secondment corporation. Despite claims to the contrary, this only works in certain jurisdictions. Where it does work, this can continue until a PE is achieved at which point, the personnel should be transferred to your new local country subsidiary.
- Consultancy Contracts – a business-to-business agreement between the individual and your corporation. This may be effective, if compliant with local legislation. Many countries have, and are continuing to, tighten their regulations to recategorize consultants as employees, leaving corporates facing additional taxes and fines arising from incorrect reporting.
Ultimately before deciding on the detail of how to hire, take a step back and understand the end game. In an ideal world, how do you envisage your final corporate structure? Which entities will be trading? Do you require separate Divisions/SPVs? Will you hive out your IP? Which entity ultimately will be up front on an exit/IPO?
When you have a clear image of your corporate skeleton, then you have the framework on which to build your land & expand roadmap. Without this, you are in danger of creating problems not only in terms of reporting complexities but also overall operational costs.
How can Briars help?
Briars has spent many of the last 28 years supporting our investor-backed clients to expand, secure in the knowledge that their compliance is fit for purpose. If you have any questions about your future growth or currently have problems in an overseas location then please feel free to reach out to us at firstname.lastname@example.org. We would be delighted to talk with you.