Once you have decided that international expansion is right for your business, the first step is to research which country is right for you.
Numerous factors influence this decision, such as your industry sector, the market size, ease of access, business culture, language, availability of local talent, employment, tax laws and availability of incentives or reliefs.
You will then need to establish the legal, tax, commercial and associated issues of importance in your chosen country, seeking local advice wherever possible. Before you can take advantage of any commercial opportunities, you will need the regulatory and compliance requirements wrapped up, which means having a clear idea of the set-up timeline and allowing for any cultural nuances you may encounter.
An important consideration when first setting up in a new territory is the tax implications. These include a variety of different forms of tax ranging from capital investment, corporate activity and contractor or employee presence. Such are the regulations in most countries with established markets, it is highly likely that from an early stage, most companies will find themselves coming under the jurisdiction of the local tax authorities. A wholly-owned subsidiary of a US parent company is generally a straightforward option and can avoid the need to disclose the parent company’s accounts. If you have an existing entity overseas, a branch is another possible option.
To achieve a compliant and tax efficient structure, having the correct intercompany arrangements between the parent company and the entity in this new country is key. This is particularly relevant where the most common form of expansion is adopted i.e. the parent company looks to increase sales by entering a new market and have its new subsidiary provide sales and marketing services to the parent company. This is commonly known as a “cost plus basis” with the subsidiary charging the parent for the service costs it incurs and including an element of mark up.
So that management can focus on growing the business in a new market, it is important to seek local advice. An accountancy firm will be required to manage tax registrations and ongoing compliance. Payroll services will also be needed to ensure local employees are paid correctly and in line with the payroll regulations for the new country. Also, there is likely to be a need for some form of local accounting function for monthly and annual reporting and compliance. Most companies will need a local bank account to operate the business and pay employees. Some authorities will require you to have a local bank account before a new entity can be set up, so it is important to start this process early.
Good local legal advice is also an important aspect to consider. Often, developing in a new market will require agreements covering sales, purchasing and other services to be in a format which is familiar to local customers and suppliers and compliant with the relevant new territory regulations.
Apart from the US where Employment at Will prevails, other countries have extensive employment regulations and employment contracts are a legal requirement. If plans to develop a new foreign market includes sending domestic employees to live and work in that market, it is important to secure the right visa. Getting this right can take time so it is important to plan ahead.
When it comes to benefits and incentives, every country will be different. Some will be compulsory, others will be highly tax efficient and a useful tool for attracting the right talent.
The speed at which your new venture makes progress will vary from one country to another. There’s no need to purchase brand new office space at the start, just keep things fluid and as flexible as you can. Review the strategy on a regular basis and as you learn more about your new market, make appropriate adjustments to your plans. It may take time to see an increase in revenue but by planning well for the initial set-up phase and for future growth, you are setting yourself up for the best chance of success.
F&L’s global network of international associates in over 38 countries are here to help ease the burden of setting up in a new country.
For more information on entering a new market as a US company or any aspect of global expansion, contact David Jenkins below.
Partner / Head of GEA Network
+44 (0)20 7430 5881