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Offshore business incorporation is simultaneously exciting and intimidating. The international expansion journey is a significant step that can be incredibly rewarding but it also bears the potential to disrupt business activities. Therefore, business leaders and core decision makers must do their due diligence to fully understand the impact and potential risks involved.
Identifying target markets, looking into registration and tax regulations, and calculating costs are just some of the things that go into laying down the foundation of your expansion process.
This article looks at several important factors to consider with international incorporation.
#1 Tax and compliance requirements
Taxation and compliance are important as part of your business incorporation planning. Find out about the corporate tax rate, VAT rate and more in advance. This ensures you are perfectly aware of what you will be liable for upon incorporation.
Taxation laws can be complex (especially if it occurs in a non-English speaking country). Hiring a local tax expert to help you navigate the processes involved can save you plenty of restless nights.
Some taxation laws will require the management and operations of your company to based in the new country. Is this something that you are interested in doing? If this is not the case, you may have to hire or appoint a local director to operate within the new country that you’re eyeing.
#2 Business registration regulations
Business registration regulations can vary considerably.
Thoroughly research or work with a local expert to understand regulations before establishing your company. For example, in Indonesia, one of your partners must be an Indonesian citizen if you’re setting up a business in a sector that is partially closed to foreign investment. By comparison, Denmark does not require you to have a Danish resident on your board of directors or your management team.
Familiarising yourself with a country’s business incorporation regulations can help avoid accruing any legal penalties and delays to getting started.
Many companies opt to outsource this task to a corporate advisory practice to streamline the process.
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#3 Economic state of your targeted country
While there may be plenty of rewards to reap in a new environment, there is also a lot of risk involved. Emerging economies present opportunities for first-mover advantages and high GDP growth rates but these can be weighed down by income inequality and political unrest.
It’s also worth considering long-term changes in social and cultural beliefs. You may be selling a product or career path that might not resonate with the demographic in the years to come.
Socio-economic changes can disrupt even the most well laid-out business plans. Protect yourself by doing a deep dive into your targeted country’s economic climate and assess what you may be up against.
Investopedia suggests looking at a country’s Genuine Progress Indicator (GPI) to evaluate its potential. A GPI uses variables such as income distribution, personal consumption, dependance on foreign assets and education rates to measure a nation’s economic and social wellbeing.
#4 Cultural differences and potential language barriers
For businesses incorporating in a country that is completely foreign to them, there is a host of belief systems, behaviors, and nuances that can affect business success. Don't overlook the importance of cultural awareness in your international growth plans.
Something as trivial as a greeting can bear a lot of significance. Consulting a local expert in your targeted country can be advantageous. At the very least, do your part to research local customs and practices to prepare for how business may be conducted.
Additionally, language barriers should also be taken into consideration. There are plenty of examples of communication getting lost in translation. One of the most memorable blunders comes from an advertising campaign in Taiwan for Pepsi. The company’s slogan “Come alive with the Pepsi generation” was unfortunately translated to “Pepsi brings your ancestors back from the grave”.
Whilst certain mishaps can be humorous, they can also spell out disaster if it involves the confusion of important information and procedure.
#5 Availability of skills and employment
The final consideration of your international business expansion checklist should be your access to skilled labour. This can vary greatly between countries so it is crucial that you research the availability of required talent in your chosen country.
Skill shortages in certain sectors may require you to bring foreign expertise or invest in complex training programs. You should also be aware of local content restrictions that may require you to hire a certain amount of domestic workers.
Experts recommend speaking to local recruitment consultants to evaluate the local talent pool. This can also help you familiarize yourself with the local salary expectations, benefit requirements, employment legislation and more.
Reasons for incorporating your business abroad
Expand brand recognition
One of the main reasons companies look beyond their borders is the potential to tap into new markets and expand their presence. This is especially true if the product of service you offer is completely unique in your targeted country.
Getting your USP to stand out amidst local competition can be an arduous and costly endeavour. Hence, setting up a new base in a foreign locale can open up a fresh channel for reaching new audiences.
More affordable production and manufacturing costs
By having easier access to more cost-efficient production and manufacturing services, companies can minimize their overall expenditure. It also provides them with more flexibility when deciding where to allocate their resources.
Access to technology and technical talent
Another motivator behind going global is being able to get access to a wider pool of technical talent. For many companies, having an international footprint also means that they can reach individuals with a diverse set of skills ranging from educational backgrounds, technical skills, language capabilities and more.
Many firms also opt to enter developed economies to leverage on the technological expertise and advancement that is present in these countries. The degree of absorption of these capabilities often depends on the technological gap between the firm and the existing infrastructure of the country. In the long run. the technology spillover can offer plenty of opportunities for economic growth and productivity. Especially for businesses that originate from developing economies.
Economic growth through free trade
Free trade encourages innovation. It allows businesses to adapt to the growing expectations and demands of a global marketplace. This drive to constantly evolve encourages businesses to remain competitive and promotes growth.
Over time, this leads to more dynamic businesses that contribute to a growing economy capable of creating opportunities and access higher-quality products and services at lower costs. International incorporation also paves the way for companies to access new technologies and industry knowledge that can be funneled back into their internal ecosystem. Improving operations and revenue streams in the long run.
Government incentives
Many governments across the globe offer incentives to foreign companies who intend to invest in their region. From reduced tax rates to special business grants, being able to take advantage of these special investment opportunities is a tantalising opportunity for businesses.
Singapore is a prime example of a nation that is offering such incentives. Despite strict rules that govern the entrance of foreign businesses, the nation also provides plenty of initiatives for foreign companies that fulfill its quest to establish Singapore as a digital innovation hub.
Food for thought : Have an exit strategy
While this may be the last thing you want to be thinking about as you’re gearing up for international incorporation, an exit strategy is important. It provides you and your employees with a sense of safety and security amidst the pursuit of what is inherently, a risky venture.
Having an exit strategy laid out as early as possible can help businesses chart their progress and make day-to-day strategic decisions. It protects businesses from making reactionary, last-minute calls and offers a flexible template that can be remodeled in the face of different circumstances and unexpected events.
For businesses that need to close a foreign incorporation as part of their exit plan, these are some of the processes that should be attended to:
- Closure of business bank accounts set up in the foreign country
- Notify employees and perform final payroll procedures
- Terminate your commercial lease in the foreign country
- File final income tax returns
- Close out all regulatory documents
- Fulfill all outstanding orders
- Cancel your VAT registration and other tax registrations for your company
Break into new markets with Global Employment Outsourcing
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For companies that want to enter new markets but are hesitant about going through the process of setting up a physical entity, working with an Employer of Record (EOR) can be a far more convenient alternative.
An EOR allows companies to penetrate new markets and find the talent the need with little to no fuss. Plus, they will be responsible for handling all the legal compliance issues, HR tasks, talent onboarding procedures and more. This helps businesses save on both time and money whilst minimising the risks involved in setting up a new company overseas. Proving them with the freedom to test the waters with their products and services in a variety of different markets.
A reputable employer of record will be able to help companies hire and mobilise teams in new markets in as little as a months’ to two months’ time so that they can start generating revenue and servicing their new target markets. This allows businesses to be flexible and responsive to both risks and opportunities in the market.
Find customised support with Airswift solutions
For companies looking to expand internationally, one of the perks of partnering with Airswift is that we operate in more than 60 countries worldwide. Whether we’re helping our clients set up a business in Taiwan or if we’re providing advice on immigration regulation in Singapore and tax compliance laws in the UK, we make it a point to offer custom solutions to all of our clients.
Each scenario is carefully evaluated, and we keep you in the loop at every step of the way. So if you’re keen on learning more about our global employment outsourcing solutions, be sure to contact us and we look forward to hearing from you.
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