7 Things to Consider When Registering a Company Abroad
Registering a company abroad can often be a lot easier than you might think, but there are numerous factors to consider and a significant amount of research required, writes Andrew Lambe of Company Bureau Formations Limited.
There may be a number of reasons why you are considering expanding your company abroad – taking advantage of lower tax rates, a shortage of skilled labour in your home country, or a desire to target new and larger markets.
If you are planning to register your company abroad, these tips can help you on your journey.
1. Finance of Operations, Resources and Budgeting
The financing of your expansion is an important consideration, and a budget needs to be put in place. A strategy to minimise cash burn until the new operation makes money is also critical. Venture capital may be required. If this is the case, it is well worth speaking to your AIB relationship manager as well as your Local Enterprise Board and Enterprise Ireland who can provide funding to Irish companies looking to expand abroad.
2. Taxation, Compliance and Reporting Requirements
A major factor to consider when choosing a jurisdiction is the taxation and reporting requirements of the country. You should always research the corporate tax rate, excise duties and VAT rates, and other considerations in advance to get a clear understanding of the amount of tax your company will be liable to pay. Is there a double taxation agreement (DTA) in place with the country in question? Are any future dividend payments subject to withholding taxes? Local tax advice is a critical element of any decision.
Depending on taxation law in the jurisdiction, the management and control of the company may need to take place within the country. If this happens to be the case and you do not plan on having a physical presence in the country straight away, appointing a local resident director to be board may be worth considering. Deciding to set up a holding company or subsidiary has tax implications also, and any potential transfer pricing issues need to be looked at.
3. Incorporation Process
The company formation process varies in every country around the world. It is often in your best interest to outsource this to an international company formation or corporate advisory practice who can ensure the process is streamlined and help you avoid any costly mistakes. An experienced professional will be familiar with local laws and requirements in your chosen country. The procedure, cost and timeframe differs hugely across different counties – even within the EU. For example, a company can be registered in the UK within one day. However, incorporating a company in Germany takes around six-eight weeks. Also, some countries such as Germany, Italy and Poland have high share capital requirements e.g. a German GmbH must have a paid up share capital of €12,500. In all EU jurisdictions you can choose to incorporate as a branch, wholly-owned subsidiary or as a stand-alone limited company. It may be worth exploring a local joint venture or to acquire an existing business in the country in question.
4. Overcoming Language Barriers
Overcoming the language barrier of your target country is potentially the most difficult challenge faced when setting up overseas. From conversing with your customers and suppliers to signing legal documents, being unable to communicate can drastically slow you down. Hiring a full time translator can be considerably expensive. Instead, consider employing a bilingual individual on a weekly or monthly basis to assist you with communications when necessary. This can significantly cut costs. There are also plenty of free online tools such as Google Translate and Linguee, which are ideal for translating non-critical documents and emails.
5. Market Research and Local Knowledge
If you are expanding into a new market, analysing the local spending habits of your chosen country is something you should look at. Do not rely on preconceptions when studying the market. Instead find out what benefits your market looks for in a product/service. Identify local competitors and perform a SWOT analysis on them.
Through in-depth market research, you may discover that the market you first thought was suitable for your business may be over-saturated. Conversely, other jurisdictions that you may not have originally considered could turn out to be a more suitable option. Specialist research companies can provide further assistance and insights.
6. Currency Risk
Companies that operate internationally are vulnerable to currency risk and fluctuation. Dealing with this is all about managing risk as currency fluctuation is generally unpredictable.
It’s a good idea to set up multi-currency accounts if you wish to minimise your exposure to currency fluctuations. This will allow your business to make and receive foreign currency payments without the need to convert the funds into Euro.
7. Employment Issues, Expertise and Availability of Skilled Labour
Not all countries offer the same level of access to skilled labour, so it is important to research the availability of in your chosen country. It’s a good idea to speak to a local recruitment consultant in advance of any decision. You need to have a good understanding of salary expectations, employer social security contributions and employment legislation. You may need to move a senior executive over to the country in question in order to get things moving, and you may need to find out the impact this has on the executive’s personal tax situation as well as visa requirements. The Foreign Earnings Deduction (FED) may be of benefit in some cases.
Although there are challenges involved in expanding a company into new markets, a strong support network in Ireland can smooth the process and help set your company up for strong growth in the years ahead.
Written by: Andrew Lambe, Commercial Director of Company Bureau Formations Limited – Ireland’s leading company formation, company secretarial and corporate service provider.
- Find out more about how to incorporate a company overseas
- Find out how AIB can help your business to expand into new markets
- Choosing the Right Overseas Business Partners
- 5 Intellectual Property Facts You Should Know Before Exporting
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