Expanding into foreign markets comes with a host of compliance regulations. Each of these will be specific to the country or market you’re expanding into and can be affected by local law, international regulations or trade agreements between countries.
One way of ensuring you work within these regulations is by partnering with an expert in Professional Employment Organization (PEO) compliance. Let’s explore all the considerations you must make when thinking about expanding your business.
In overseas countries, short-term office space on a flexible lease is widely available. However, when renting long-term it can be more complicated. Rules will vary on tenants country to country, so developing an awareness of tenancy agreements and the related responsibilities is important.
You need to distinguish between employees and contractors to avoid any nasty PEO compliance pitfalls.
In most cases, if a person is under your management (and also has office space or an email address attributed to your business) they are classed as an employee. You should provide them with a local employment contract. This also means you have payroll obligations to practice and the employee is also protected by the legislation of their country of residence.
This is why it’s important to differentiate between an employee and an independent contractor.
Creating a regional presence can increase your efficiency, talent sharing and revenue streams. Acting as a foreign company means to be subjected to import restrictions, but if you establish a subsidiary you can make transactions as a domestic entity. However, this does come with rules.
If your organization is selling in a foreign market, allowing access to your website or running a permanent establishment, you'll be liable to the laws and regulations of the host country.
Many businesses assume this is the case and fall foul of the implications. Any business within a host country will lead to requiring registration, compliance and tax. Failure to comply with these regulations can result in serious legal ramifications.
With a new territory, your sales contracts will need to be localized. This means localization in terms of both legal requirements and language. If you neglect to do this, it means any complaints can be filed and considered on terms that your business has not dictated.
Tax rates and obligations will be different depending on which country you are expanding into. One constant that doesn’t seem to change is that the local tax authority will try to maximize contributions.
In most cases, payroll taxes or social security contributions will need to be deducted at source. Similarly, sales tax or VAT will also need to be added with each transaction.
For more information on tax compliance globally, you can consult the TMF Group’s Global Business Complexity Index 2019, which ranks the complexity of accounting and tax compliance across the globe.
On the other hand, you can consider getting tax advice from a Global PEO to help you structure your tax compliance strategies. Through working with a Global PEO, you may find ways to legally minimize tax obligations.
IP - things like design rights, trademarks and patents need to be registered within the markets you are operating in or expanding into. For example, if you’re looking to expand into three or more European countries, you can apply for EU-wide protection. If you’re looking for IP protection in individual countries, you can also file within that sole market.
There are many data protection laws in place globally. For example, in Europe, all EU and EEA member states are covered by GDPR. If you’re an American company selling products, services or controlling data in any of these countries, GDPR will apply to you.
With data protection, there usually comes important rules and standards to follow which cover its use, collection and retention. With GDPR, consent or disclosure needs to be gained from data owners for its use. This means it should not be transferred out of the EU or EEA boundaries without the correct documentation.
Businesses looking to expand into foreign territory need to research the local data protection practices and regulations, as breaches in data law can come with serious consequences.
Adapting to a new marketplace depends on the background knowledge and understanding of many factors, such as financial, regulatory and even cultural. This kind of knowledge is bespoke and massively influences both the speed and success a company can demonstrate within a new territory.
Global PEO partners offer this kind of knowledge. For example, you may want to expand into a country within the EEA but don’t know which one is the most advantageous. You also may not know the costs of creating a subsidiary within a foreign market - costs such as real estate, tax and employee onboarding. Even things like cultural traditions and language will influence your overall efficacy.
Globalization is easier now than it ever has been. Due to developments in real-time connectivity and other business technologies, markets are quicker to open up. Compliance and regulations, through automation and digitization, are also becoming more transparent.
This is where a Global PEO provides the correct knowledge and support so that you can capitalize on all of these rapid developments. They’ll help you remain compliant within any complex market.
If you’re interested in finding out more about Global PEOs, read our helpful resource.
From tax compliance to remote onboarding, language management and HR, a Global PEO is the first step in creating success within a new territory. Our resource covers 15 reasons why and how a Global PEO will support you through your expansion process and well into the future.
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