Costs of Incorporating a Company to Employ International Workers

If a business decides to establish a legal, local entity then it must also consider all of the associated costs of incorporating a company in the host country. These costs will include the set up and filing requirements as well as ongoing administration expense. If your business is expanding into a new market, the overall costs of incorporation should be weighed against other employment and payroll options for workers.

Go to the profile of Tim Burgess
Aug 20, 2016
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When a multinational begins to do business in a new country, one of the necessities is to establish some method of employing workers. This is true for both locals and expats on assignment, since most countries have specific rules to be in compliance with employment and payroll laws, which include the need to incorporate a local company.

If a business decides to establish a legal, local entity then it must also consider all of the associated costs of incorporating a company in the host country. These costs will include the set up and filing requirements as well as ongoing administration expense. If your business is expanding into a new market, the overall costs of incorporation should be weighed against other employment and payroll options for workers.

9 Factors to Consider That Can Affect the Costs of Incorporation

1. Registration Requirements of Incorporating a Company

Depending on the country, there will be formal registration requirements with fixed fees, for items such as the Articles of Incorporation, investor agreements and securing use of the business name. There may also be registration fees at the regional, state or municipal level which add to the overall setup cost.

2. Corporate Officers and Directors

Many corporate structures require the listing of corporate officers and Board of Directors, and may have a rule that at least one officer or director is a citizen of the host country. In some cases, where the corporate officers are not physically in the country, it may be necessary to pay an attorney or other professional to act as the local representative for corporate matters.

3. Annual Administration Requirements

In addition to the setup costs, many governments will impose annual fees to maintain legal operations. There are also costs for conducting regular Board meetings, filing income and operational statements, as well as basic office expenses.

4. Ongoing Compliance Procedures for Incorporating a Company

Legal compliance remains the number one challenge for businesses entering a new country. There will be ongoing procedures that have to be met under host country laws. The priority for most governments is to ensure that any business operating within its borders can be identified as a valid entity.

This may mean regular checks by labor or tax authorities, audits and requests for information about business operations and the immigration status of employees.

5. Documents Required for Incorporating a Company: Accounting, Bookkeeping, Tax Filing

The documentation for incorporation and ongoing compliance can be extensive, with the need to maintain accurate financial reports, income statements, corporate records and tax returns. For many businesses, the burden of these requirements and costs of incorporating a company are best left to a third party such as a GEO, to act as the local employer of record.

6. Legal Requirements of Incorporating a Company

The legal requirements of incorporating can include:

  • Obtaining tax identification numbers, registering the business name identifying the primary investors, shareholders, officers and directors of the company
  • Drafting the articles, bylaws and shareholder agreements of the company, that comply with host country legal standards and are in the native language
  • Engaging a resident professional to act as the legal representative of the company
  • Submitting annual reports and ongoing corporate governance documents to government agencies

7. Payroll Administration

Running payroll is one of the costs of incorporation that can be outsourced to a local payroll provider. If a business chooses to run payroll on its own, it will still need to hire local accounting and legal professionals to ensure compliance. For this reason, many businesses will turn to a GEO to handle the employment and payroll tasks, saving both time and expense to quickly enter the new market.

8. Banking, Insurance and Infrastructure

When establishing a corporate entity, other costs will include the basic elements of doing business such as establishing bank accounts, renting office space, setting up communication and operational infrastructure and complying with insurance requirements.

9. Hidden Costs

Capitalization Requirements: Some countries will have capitalization requirements to be deposited in a local bank, which can add a significant expense to the incorporation process.

Security: There may be a need to provide extra security measures for both workers and business data, depending on the country and type of business activity.

Additional Requirements of Incorporating a Company: Country-specific Case Studies

1. Incorporating a company in Canada

Canada requires foreign companies to register in every province where they do business, adding cost and administrative complexity.


2. Incorporating a company in Japan

In order to setup a subsidiary in Japan there are several formal requirements and associated costs. For instance, a business must certify the company and director seals as well as the articles of incorporation. Depending on the type of visas held by employees, there may be a requirement to have a physical office address, adding the expense of leasing and furnishing space.


3. Incorporating a company in Mexico

Mexico allows 100% direct foreign investment, and the limited liability company is the most common form used. In addition to typical registration costs, Mexico also imposes capitalization requirements for all shareholder/owners of the company.


4. Incorporating a company in UAE

Although the UAE is an attractive business destination, there is a unique ownership rule that can be a significant cost to incorporation. Corporations must have a local sponsor that has at least 51% ownership interest in the company. There are agents that can fill this role, but it does carry expense.

5. Incorporating a company in China

Establishing a Wholly Foreign Owned Entity (WFOE) in China is an attractive option due to the fact no local owners or sponsors are required. However, businesses in certain industries will have to meet capital requirements of around US$140,000.

Summary

The costs of incorporation in a foreign country vary widely, but can represent an investment that exceeds budget expectations. Unless there is a business commitment to the country, it may be more cost-effective to seek third party solutions such as a GEO service. When a multinational uses a GEO to employ workers they avoid the entire process of incorporation, since the GEO becomes the local employer of record with a previously established legal entity.

The advantage for a business is quick deployment into a new market, often within a matter of weeks, compared to the time for legal incorporation in some countries which can take months to complete. The GEO service, such as Shield GEO is an agile and flexible solution that can allow a company to easily place workers in multiple international locations, and alleviate many of the costs of incorporation.


About Shield GEO

Shield GEO provides Employer of Record solutions in more than 90 countries around the world, ensuring legal compliance and rapid deployment of staff into any market for our corporate clients. We make international employment simple. To find out more about us, please get in touch.

Go to the profile of Tim Burgess

Tim Burgess

Director, Shield GEO Services Ltd

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