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How to set up local entities for managing remote staff

Guenther Eisinger
July 26, 2020

Even small companies must consider their compliance footprint when setting up local entities. It is not just something for the giant multinationals. Legal compliance is the process by which a business adheres to the rules, policies and processes that regulate business practice in any particular jurisdiction. These can be complex, especially if you don’t have the inhouse power to navigate these choppy waters. 


There are many different considerations and options available for companies when they look to hire remote staff. Often it is easy to overlook issues that are not immediately apparent when a company chooses to go down this route. 

Below we will attempt to highlight some of the common oversights. These include being aware of labour and employment laws of each country, tax and social contributions, as well as other risks that may be relevant. 


We will divide these into categories of all the potential considerations, looking at different options, costs involved and set up time. We will also give some idea of the resources and other considerations that may need to be employed to get up and running. 


Considerations before setting up entities for hiring remote staff


Labour and employment issues

Hiring an employee without a corporate presence can be illegal or might not be feasible for many businesses. Some countries also put explicit and extensive limits on the hiring of workers. 


Tax and social contributions

Employers in many countries are subject to some form of income tax reporting, especially in Europe where employers are also subject to social contribution payments. Until you have a local corporate presence, complying with these obligations can be difficult and can even lead to penalties. 


Corporate permanent establishment risk

This is primarily a corporate tax issue but it is important to flag the risk if you are bringing on staff beyond your existing corporate structure. Hiring someone where you have no corporate presence can potentially expose you to corporate tax in those places. 


How to set up a local entity


There are some general steps you can take to set up in any jurisdiction. In order to protect the company as well as its directors and employees when setting up a local entity, you need to ensure that you have done the following. 

 

First, you need to implement effective compliance policies and then educate employees on them. You need to stay informed of the various regulations with which the company must comply. This is across all jurisdictions in which you operate. You also need to keep abreast of any changes that may affect you.

 

Lastly, you should try to identify issues that may turn into potential violations. In addition, you should ensure there are procedures in place to address the issues.

 

To do all of the above effectively, you should know the regulations. Remember that there’s no one-size-fits-all approach. It is incumbent on you to know what you have to do and when you have to do it. No one is going to remind you of key dates for form submission so keep on top of it all. 

This could cover a wide range of areas, such as data protection, cybersecurity, health and safety, as well as environmental responsibilities. 

 

You also need to know your reporting duties. These will differ depending on the sector, industry and country in which you operate. 


Take stock of policies at all times. Any you put in place to drive your legal compliance need to be adhered to and should be up to date. You should also check your records when asking what the steps are for compliance. Your success can hinge on the quality of records you keep. 

Remember, it’s not all just about legal compliance. This is crucial of course, but it’s just as important to consider the nonlegal requirements. These can include industry codes of practice and ethical guidelines. 


Costs and complexities of setting up local entities for managing remote staff

If you want to employ your team members directly, in most countries you will be required to set up a local legal presence, either a subsidiary or a branch. This can cost anything from £10 to £50k in upfront professional fees and initial share capital requirements. In addition, it can cost £5 to £20k a year in ongoing professional fees for filings and resident director costs.

It’s not just the costs. It’s also a matter of time. It can take anywhere from a few weeks to over six months to get set up. This needs to be factored into your plans. There are countries where it can be very expensive or difficult to set up an entity. Forbes magazine says of China: ‘China, for example, is an attractive expansion target for international businesses, but its bureaucracies are notoriously opaque.’


They add: ‘And winding down a business in China can actually take longer - and cost more - than setting up shop.’


Benefits and limitations of each type of international entity

 

There are other ways of doing it, of course, rather than just employing people directly in another jurisdiction. You can engage an international team member as a contractor, either directly or through a personal service company. On the face of it, this appears to be a convenient solution. However, it is often not legal in most jurisdictions and can land you in hot water. 


If you are embarking on a relationship that looks like employment, you are probably not compliant with tax or employment law. That’s why direct employment is often the best long-term solution. 


The Omnipresent way

 

Rather than setting up your own entity and the myriad of continuous legal, compliance and finance overhead that you have to maintain in order to hire a remote employee or a team of international workforce, we offer a different way to do this at Omnipresent. 

We specialise in providing local employment solutions to global businesses, giving you and your remote employee all of the rights and benefits of full time employment while minimising complexity and cost. 


Guenther Eisinger
Guenther holds three Master’s Degrees and a PhD. He served for the Austrian Special Forces, rising to Major leading combat units in Afghanistan and Africa. He then worked in international crisis management and started a company developing software to enable organisations to operate in complex environments worldwide.

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