ALIGNING HR & FINANCE FOR MORE EFFECTIVE GLOBAL OPERATIONS

The VP of sales walks into the head of HR’s office …

She has signed offer letters to hire two new salespeople in France. They start in 30 days. The company doesn’t have an entity in France.

Do they need an entity? If so, what are their options?

Will they be contractors or employees? What types of contracts are required?

What are the local requirements for employment? What about managing expatriates?

Having HR, legal and finance in sync is important when hiring

international employees.

Company structure is important for both long- and short-term goals. It dictates the required registrations, timeline for setup, speed of hire and the types of activities permitted to be carried out in-country.

Permanent Establishment (PE) Risk.

PE is created by business activity that generates revenue in a country and is open to interpretation by local authorities.

A determination of permanent establishment gives authorities the power to assess income or a

value-added tax.

If you’re worried about PE risk, get the checklist.

When moving into an overseas market, there are three common

entity types to consider.

Representative Office

One of the easiest ways to get set up overseas, it allows a company to establish a minimal presence, but employees cannot engage in sales or contractual matters.

Branch Office An extension of a parent company, serving a certain geographic area. It can engage in core activities, sales, etc. It’s not a separate legal entity; the foreign parent is subject to all liability.

Subsidiary

A separate legal entity for engaging in business overseas. Provides a layer of protection between the interests of the parent and the on-the-ground entity, but involves a long set up and registration time.

The golden rule is: Do not set up a foreign branch office off the parent entity. Utilise a holding company or other foreign wholly-owned entity.

Have you planned for Withholdings Taxes?

Withholdings tax (WHT) is levied by a fiscal authority on income sourced in its country. WHT applies to fund flows between related legal entities operating in different countries, and to dividends, interest and royalties, among other income sources.

The scope of when WHT applies is being expanded globally and is

no longer just limited to dividends, interest and royalties.

WHT liabilities can be reduced in a number of ways.

Double Taxation Agreements (DTAs), legislation and other mutual agreements are common.

Remember: WHT may not necessarily be an additional or absolute cost — it may just shift tax from one country to another.

67% of companies we asked did not have a comprehensive WHT strategy or were just managing in an ad-hoc fashion.

WHT is hard to manage and control, but not doing so can be costly.

Tax considerations for international setup

Where will the overseas company be situated? How will it be funded? What are its forecasted profits, what operations will it carry out, and what people will it employ?

Minimize WHT exposure by other forms of profit minimization or

extraction and understand the reliefs available — especially for DTAs.

Intermediate holding companies

Locate in a tax-favoured country which has a wide network of comprehensive DTAs, not a tax haven.

Intermediate holding companies

Make sure it fits in with your business and operational situation. Don’t just consider taxation. What about location, cost of set up, workforce suitability, etc.?

It is critical to set up an efficient tax structure from the outset, and to

never ignore the hidden tax costs.

Be knowledgeable, submit the required documentation and avoid noncompliance.

Remember: Compliance can add a significant amount to the

overall tax costs.

You can design an effective tax structure but it must be

aligned with commercial operations and objectives.

Don’t let the tax tail wag the commercial dog!

Company structure can indicate commitment to the market, which

can assist in the hiring and retention of employees.

It can dictate elements of your benefits plan and overall ongoing employment costs.

Each country has its own unique rules and regulations, and local

employment law will always apply, no matter what is in the contract.

US employment practices don’t translate well in other countries.

Failure to follow local best practices can lead to dissatisfied employees and affects the ability to retain and hire new employees.

Aligning HR and finance is key to any successful global operation.

But with so many things to consider, going it alone can be

overwhelming.

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Get global updates and other important information delivered to your email.

www.radiusworldwide.com

Or visit the webinar archive for more insight from the global growth experts.

Subscribe to the Blog

Visit the Archive

Expanding overseas?Don’t miss this!

BUDGETING AND PLANNING FOR OVERSEAS EXPANSION

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