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Corporate Compliance Insights
Home Compliance

Achieving Compliance When Expanding Into Foreign Countries: To Avoid Surprises, Build a Strong Process Framework with Local Expertise

by Bill Marcinkiewicz
February 19, 2014
in Compliance
illuminated Earth showing global network

Your company is growing steadily with solid projections for the coming years, but to increase growth rates and gain greater market share, you have to realize that you will need to expand globally. After assessing and choosing the best target countries for your products and services, you then need to consider the process of setting up your business entities in each country and your approach to local regulatory compliance.

The setup process typically starts with determining the most appropriate entity structure for your operation, considering options such as subsidiary, branch, representative office or wholly foreign-owned enterprise (WFOE). It is important that you align the type of entity you choose with how you expect to do business in each location.  The rules and interpretations vary from country to country, but the key question will be whether your operation creates a taxable presence in-country. How you hire (including local employees or expatriates), the type of office spaces you inhabit and the business activities you pursue will all influence the question of taxation and therefore dictate the most appropriate entity type.  In certain parts of the world – China and Japan, for example – the entity types available can be more limited than in other countries because of stricter rules and regulatory requirements.

Once all the appropriate forms are approved and your entity is established, you will need to set up your payroll and accounting systems, hire and register employees and complete your post-entity registrations. You’ll find that each country has its own set of unique requirements and compliance regulations and that these complexities can affect many aspects of your operations. This level of regulatory complexity is further compounded by the reality that compliance laws change on a regular basis. Structuring and maintaining a strategy for staying in local compliance can help avoid fines, penalties and reputational damage resulting from audits and examinations conducted by the regulatory bodies responsible for administration of in-country compliance requirements.

And you thought all you had to do was focus on your in-country business plan!

Rely on a Global Compliance Framework as Your Guide

As you create a plan to achieve compliance within a particular country, develop your tactics and assemble the necessary expertise in four major areas:

Accounting/Financial

Research local bookkeeping requirements: Must bookkeeping be maintained in-country? In which format will you need to retain source documents and for how long? This area also covers the preparation and filing of annual statements in local GAAP, as well as audit requirements.

Taxes

This area includes the preparation, review and filing of corporate income tax returns, including the amount of tax payments due. In some countries, you may need to submit payment prior to your return. You may be subject to indirect taxes such as value-added taxes (VAT), goods-and-services taxes (GST) and consumption taxes. Proper tracking mechanisms are important if indirect tax reclamation is likely.

Legal & Administrative

This includes filing and maintaining your registered office address and corporate secretarial services for submitting financial statements. You also may need to appoint a nominee director (a number of countries require a local resident) or legal representative.

Payroll

This covers monthly tax payments, annual payroll forms, fringe benefits, social security, workers’ comp and insurance returns.

Adhering to the Four Key Compliance Principles

If your firm fails or falls out of compliance, you could face fines or other business penalties. The fines could also grow over time if you don’t respond, and non-compliance could negatively impact your brand on a global basis—especially if your business is shut down in-country. To address the compliance challenge, we generally recommend adhering to four principles that keep you on track:

  • Collaborate with experts who have experience within the specific country but also understand the perspective of a global company.
  • Develop a process for how to meet each requirement and its deadlines.
  • Coordinate efforts across all functional teams—HR, finance, legal and tax.
  • Understand and adapt to changes in rules and regulations—know what is new and what it means to your business.

Once you complete all of your compliance requirements, you then need to determine what you need to do to stay compliant with the various rules and regulations of each country. This includes knowing which forms to provide, where to submit them and when they are due. This could be monthly, quarterly, annually or even a combination of all three. Some countries require unique templates for their forms, which may be online or required in paper form.

The Compliance Payoff: Reduced Operating Risk

Even in a country with relatively straightforward regulations, such as the UK, compliance presents challenges if you don’t rely on a good framework and approach that follows the key principles. You may also find yourself grappling with specific native language and currency requirements. Russia and Israel both require the local language for all compliance documents, and almost every country requires businesses to file financial numbers using the local currency.

By partnering with resources who not only understand the country culture, but also all the local compliance nuances, your business is sure to reap the benefits. This includes increased efficiency in establishing and maintaining compliance so the business can focus on providing its products and services.

Most of all, you reduce your overall operating risk to help ensure a more profitable global expansion and help achieve your company’s growth goals.


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Bill Marcinkiewicz

About the Author Bill Marcinkiewicz began his career at Ernst & Young in Boston as a CPA and auditor. He worked for almost 20 years at Fidelity Investments in a number of management and senior managements roles. Bill is currently VP of Customer Services at High Street Partners, Inc. where he leads several operational areas including the Compliance services team.  Bill has a Bachelor of Science degree in Business Administration from Boston College.  

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