Hitting new revenue goals in a new sales market feels like a great success. But with this success, come the business milestones to comply with local compliance standards, such as VAT, Registration as Employer, opening a bank account, or even setting up a local entity.
We see too many situations in which a local entity has been advised too easily, by a company formation agent. And too many times we notice that entrepreneurs did not even realize that they could have avoided setting up a local entity altogether.
Companies like Deel.com claim that they provide the alternative of setting up a local entity by offering payroll services. But of course, any company can register in most countries as Employer of Record, saving thousands of euros compared to Deel.com or Remote.com. Similarly, you can easily apply for a VAT number and submit VAT returns yourself (or with the help of your current accountant) without having to deal with an accountant abroad. Especially if you perform only certain specific transactions related to sales, staff, or intra-group transactions.
House of Companies provides bespoke Advice Reports and a comprehensive Business Portal to allow entrepreneurs to get to the bottom of information and fully understand the most suitable manner to enter a new market.
Understanding the Concept of Eliminating the Need for a Local Entity to Comply with Local Compliance Standards
The first (wrong!) assumption, is that any overseas activities requires the establishment of a local entity to comply with tax and legal regulations.
This is often not the case.
A key aspect of this approach involves understanding the tax and legal requirements of each target market. This involves researching the country's corporate tax laws, VAT regulations, employment laws, and other relevant regulations. Armed with our Business Portal, and independent Playbooks on how to deal with local compliance requirements, businesses can meet these requirements without establishing a local entity.
Your business, for example based in India, can apply for a VAT number in the Netherlands without setting up a local company.
Your business, for example based in the US, can become an employer in Germany without registering a local entity!
And so on!
Benefits of Eliminating the Need for a Local Entity
Eliminating the need for a local entity has several benefits. Firstly, it saves businesses the time and cost associated with setting up and managing a local entity. This can be particularly beneficial for small to medium-sized businesses with limited resources.
Secondly, it allows businesses to maintain greater control over their operations. Without a local entity, businesses can manage all aspects of their operations from their home base, reducing the risk of miscommunication or mismanagement.
Lastly, eliminating the need for a local entity allows businesses to scale more quickly. By leveraging digital tools and platforms, businesses can enter new markets rapidly, without the need to establish a physical presence. This can give businesses an edge in today's fast-paced business environment, where speed and agility are key to success.
Benefits of Branching Out Your Business
By tapping into new markets, businesses can access a larger customer base, diversify their revenue streams, and gain a competitive edge.
International expansion also allows businesses to take advantage of lower operating costs in certain countries. For example, labor and manufacturing costs may be lower in some countries, allowing businesses to reduce their overheads and increase their profit margins.
Lastly, international expansion can enhance a business's reputation. By operating in multiple countries, businesses can position themselves as global players, enhancing their credibility and appeal to customers, partners, and investors.
If you are not certain yet, if you should enter a new market, convention will tell you to do market research first. What better way to research a market, by becoming part of that market, at minimum expense? Get a local company number, a local bank account, and run a local marketing campaign, before you can truly decide if clients don't want your business, or don't want to deal with your OVERSEAS business.
Downsides of Working Without a Local Entity
While there are many benefits to operating without a local entity, there are also downsides that businesses need to be aware of.
Operating without a local entity may limit a business's ability to access certain resources or opportunities. For example, some countries (or even businesses, such as Amazon, or local Banks) may require a local entity to access certain government incentives or support programs.
Furthermore, it's more difficult to restrict the new and local liabilities, to the market you have entered, if you operate from your 'head office'. In other words, any liabilities might affect your head office, from a legal point of view.
Cost-Price Comparison of the Branch vs. Legal Entity vs. Deel.com to Employ a Staff Member in a New Country
However, why are they so popular?
They claim that they are the true innovative solution that is your sole escape from setting up a local entity, but is that true? No!
The branch registration is much cheaper then a service like Deel.com to employ a staff member.
Deel.com does not reduce the costs, it increases the costs. By registering a branch overseas, an entrepreneur can perform the corporate hurdle (or milestone) of employing his first employee himself, using the Business Portal of HouseofCompanies.io. This way he fully understands the process, before outsourcing to a service provider, or lawyer, once his company become too complex to perform all activities himself. Deel.com is misleading in stating that they are the alternative to setting up a local company. Deel.com is NOT the conventional or most efficient alternative to setting up a local company. A local branch registration, or even simpler, a registration of an overseas company as a local employer, is much easier and cheaper.
Comparison of the Options:
Deel.com offers a streamlined solution for global hiring by handling payroll and compliance, enabling businesses to hire globally without the need for a local entity.
Cost: Approximately 12,000 EUR per year per employee.
By registering a branch overseas, an entrepreneur can overcome the corporate hurdle of employing their first employee using the Business Portal of HouseofCompanies.io.
Cost: Only 295 EUR per year.
Local Entity Setup:
Setting up a local entity typically costs about 3,000 EUR per year.
Evaluation of the Options:
Deel.com: While it simplifies the process and allows for global hiring without a local entity, it comes with a higher cost of approximately 12,000 EUR per year per employee.
Branch Registration: This option offers a cost-effective way to employ the first employee and understand the process before considering outsourcing or engaging a service provider.
Local Entity Setup: Although it involves higher costs compared to branch registration, it provides a more conventional and efficient alternative to setting up a local company.
While Deel.com offers convenience, it comes at a higher cost, and businesses should carefully evaluate their hiring needs and long-term plans before making a decision. Branch registration and local entity setup present viable cost-effective alternatives, each with its own set of advantages and considerations.
However, the cost of each approach can vary depending on various factors, such as the country in question, the size of the team, and the complexity of the local regulations. Therefore, businesses should conduct a thorough cost-price comparison before deciding on the best approach.
Cost-Price Comparison of the Representative Office vs. Legal Entity to Apply for a VAT Number
When expanding internationally, applying for a VAT number is a crucial step. The process's cost and complexity depend on whether the business establishes a representative office, a legal entity, or uses a service provider.
Establishing a Local Entity
Establishing a local entity is the most costly option, amounting to 3,000 EUR per year.
This approach can be time-consuming and expensive due to local tax laws and regulations.
Using a Service Provider
Utilizing a service provider, such as HouseofCompanies.io can streamline the process and potentially reduce costs (295 EUR per year)
Service providers have expertise in international tax laws and can handle the VAT registration process on behalf of the business.
Businesses should thoroughly compare the costs of each approach, considering factors such as the country in question and the complexity of local tax laws before making a decision.
Cost-Price Comparison of the Branch Office vs. Legal Entity to Obtain a Local Company Number to Act as E-commerce Market Place Seller (Amazon, etc.)
Obtaining a local company number is a key requirement for businesses looking to sell on e-commerce marketplaces like Amazon. The cost and complexity of this process can vary depending on whether the business establishes a branch office, a legal entity, or uses a service provider.
Establishing a branch office or legal entity can be complex and costly, as it involves complying with local business regulations and dealing with administrative tasks. Conversely, using a service provider can simplify the process and potentially reduce costs. Service providers have expertise in local business regulations and can handle the process of obtaining a local company number on behalf of the business.
Once again, the cost of each approach can vary depending on various factors, such as the country in question and the complexity of the local business regulations. Therefore, businesses should conduct a thorough cost-price comparison before deciding on the best approach.
Exploring Company Registration Options for New Markets
In line with the format of the previous chapters, it is essential to understand the advantages of registering a company as a branch in a new market. This option presents a more cost-effective and simpler alternative, with an annual fee of only 295 EUR, as opposed to setting up a local entity, which incurs an annual cost of 3,000 EUR plus additional notary or lawyer fees amounting to 1,000 EUR for the entity setup. Notably, major MarketPlaces like Amazon or Bol.com do not mandate the establishment of a local entity, accepting branch registrations as a viable option.
Cost and Complexity Considerations
Branch Registration vs. Local Entity Setup:
Branch Registration: 295 EUR per year
Local Entity Setup: 3,000 EUR per year, plus 1,000 EUR for notary or lawyer fees
MarketPlaces like Amazon or Bol.com do not necessitate a local entity, making branch registration a feasible choice.
Minimized Downsides of Branch Registration:
Liabilities associated with a branch registration are minimal, akin to those incurred when opening a Market Place Sellers account directly using the current and main business.
For a Market Place Seller, the branch registration is ideal! Especially since we also provide a guaranteed local bank account.
Why do Company Formation Agents Promote the Local Entities so Eagerly? (A Financial Motivation, Maybe?)
Establishing a local entity can be a complex and costly process, and businesses often turn to formation agents for help.
These agents, who specialize in navigating the intricacies of local regulations and financial reporting requirements, earn fees for their services. This financial incentive provides them with a motivation to actively promote the establishment of local entities.
The relationship between the entrepreneur, who is seeking to establish a local company, and the formation agent is crucial. The more closely tied the entrepreneur is to the agent, the higher the rates charged by the agent (simply becuase the entrepeneur is an 'alien' and trusts his formation agent).
When a local company is established, it triggers the activation of local regulations and financial reporting requirements. This, in turn, generates significant business opportunities for the company formation agent and their team of accountants. Wheras, when the formation agent would have suggested the bootstrapped SME, to register a local branch instead, his client would not be dependent on him. Instead, his current accountant could prepare the financial statements, and with help of our Business Portal, easily submit the corporate tax return, without involving an expensive local agent or accountant.
This doesn't mean that formation agents are acting in bad faith. In many cases, establishing a local entity may indeed be the best solution, depending on the circumstances. However, businesses should be aware of potential financial motivations and always seek independent advice before making a decision.
Why Don't We See a Lot of Innovation to Share Valuable Content and Self-Service Tools to (Non-resident) Entrepreneurs, (A Financial Motivation, Maybe?)
The lack of innovation in the field of international business expansion is a puzzling phenomenon. Despite the digital revolution, there seems to be a shortage of valuable content and self-service tools for non-resident entrepreneurs looking to expand globally. Why might this be the case? Again, one possible explanation is financial motivation.
Service providers, including formation agents and legal advisors, earn fees for their services. If businesses could access the information and tools they need to expand internationally on their own, these service providers could potentially lose out on revenue. Therefore, there may be a lack of financial incentive to innovate and provide these resources.
However, the digital age is slowly changing this. HouseofCompanies.io is changing this.
Conclusion: Claim Your Autonomy and Independence and Do it Yourself, Wherever You Can!
Expanding your business globally without a local entity is achievable and offers many benefits. However, it requires careful planning, research, and a thorough understanding of international regulations.
By leveraging digital tools, understanding international laws, and taking a DIY approach where possible, you can maintain control over your operations, reduce costs, and scale quickly. Along the way, you'll gain valuable entrepreneurial skills and a deeper understanding of your business's processes and the global business landscape.
So why not take the leap and expand your business globally, yourself!? With the right approach and resources (which you found at Houseofcompanies.io), you can tackle each business milestone which stands in the way of increasing your global turnover!