When you’re expanding into a new country, there are unique business entity, bank account, and statutory compliance requirements to consider. Before you start up operations, you need to decide whether registering a new business in-country or hiring an Employer of Record (EOR) is right for your organization. Here are some things to consider around both options.
Using an Employer of Record (EOR)
The purpose of an EOR is to act as the employer for tax purposes in each country. They take responsibility for the tasks and liabilities that an employer in that country typically does. They process and fund payroll, manage tax filings, background checks, employment contracts, unemployment, and terminations. Many time-consuming payroll and HR aspects are managed by the EOR, and they are also liable for payroll, tax laws, and employment issues.
Some of the challenges of using an EOR include:
– Less control of your global operations: Outsourcing hiring, payroll, and HR functions can lead to a less satisfying employee experience since the EOR manages the entire hiring and onboarding process.
– Disjointed company culture: Company guidelines, culture, and standards may not be the same as the EOR in each country, which can also lead to a different employee experience depending on location.
– Cost of Services: Using an EOR can be significantly more expensive than creating your own business entity in a new country.
Registering a Business Entity
As companies expand into new markets, registering a new business entity is a common option. There are many entity types to choose from including a branch office, which acts as an extension of your company and adheres to the tax laws of the home country. It is a very easy and flexible way to enter a new market but does have greater legal liability for the parent company. Depending on the country, a branch office option will require a manager onsite who is a legal citizen or permanent resident of that country to manage the registration of the company.
A subsidiary is another entity option that many companies choose. One of the advantages of a subsidiary is that it operates as a separate legal entity apart from the parent company. This provides the parent company with more liability protection in each country. Using a subsidiary can also be advantageous when expanding into new countries in the same region by offering more name recognition and an established business. However, keep in mind there are unique regulatory and political challenges in each country to consider when creating a stand-alone legal entity like a subsidiary.
The benefit of business entity registration is that it ensures you maintain control over your operations as well as the culture across the organization. It also gives you access to new countries and markets with more scalable, cost-effective operations in the long run. But of course, there are challenges to registering an entity, such as managing the in-country labor and tax regulations, ensuring compliance with statutory benefits and HR policies in each country, and hiring and paying employees.
As your organization evaluates the best options for your global expansion, it’s important to consider the pros and cons of an EOR versus registering a business entity in a new country. If you have an aggressive growth plan into multiple countries, an EOR might be right for your company. If you are looking for more cost-effective and scalable solutions, registering in-country could be the right choice.
If you need help with your global expansion plans, our global consulting team can help. We can set up business entities, help set up bank accounts, and get payroll running in 100+ countries. Click here to learn more