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How to Expand Your Business Globally: A Guide to Eliminating the Need for a Local Entity



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


Deel.com, Remote.com and many other providers are out there, happy to payroll your first staff member in a new market.

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.

Branch Registration:

  • 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.

Conclusion:

  • 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.