Global expansion: Your essential business incorporation checklist

Incorporating a business offshore can be exciting and intimidating. A solid business plan is crucial for navigating the journey toward global expansion.

Expanding into international markets is an important step. It offers many potential rewards but can disrupt regular business operations. Hence, it's paramount for business owners and key decision-makers to comprehend the implications and potential hazards involved thoroughly.

Your expansion plan includes identifying target markets, understanding registration and tax rules, and calculating costs. It's also crucial to consider how to gain and keep market share in these new areas for long-term success.

What is business incorporation?

Business incorporation is the legal process of forming a corporate entity or a company.

When a business incorporates, it is considered a separate legal entity from its owners. This means it has rights, privileges, and liabilities distinct from those of the individuals who created it.

Incorporation provides several advantages:

Limited liability: As an incorporated business is a separate legal entity, the owners (shareholders) have limited liability for the company's debts. This means that if the company goes bankrupt or is sued, the owner's personal assets are protected, and they are only liable for the amount they have invested in the company.

Perpetual existence: Incorporated businesses have an indefinite lifespan and continue to exist even if the owner(s) die or decide to sell their interest.

Easier access to capital: Incorporated businesses often have an easier time raising capital through stock sales.

Credibility: Incorporation can add credibility to a business, showing that the company is committed to its long-term success.

The business incorporation process varies by country and can involve several steps, including choosing a unique business name, drafting articles of incorporation, paying filing fees, and fulfilling any other specific requirements of the jurisdiction where the business is being incorporated.

The process has started; now what?

Let's delve into various critical considerations when incorporating a business internationally.

Tax obligations and compliance requirements

Taxation and compliance are key to your business incorporation strategy, especially if you want to succeed. Understanding corporate tax rates, VAT rates, and other tax details in advance is crucial to knowing your liabilities from the start. This is important for all businesses, from startups to multinationals, as it helps align financial planning with local tax rules.

Tax laws are complex, especially in non-English-speaking countries, and issues like double taxation can occur, where your income is taxed both at home and abroad. Hiring a local tax expert can help you navigate these challenges and ensure compliance.

In some cases, tax laws may require your company’s management and operations to be based in the new country to receive certain tax benefits or meet compliance standards. Are you willing to consider this for the long-term success of your business?

If not, another option is to appoint a local director to operate in the target country. This approach helps your business meet local compliance requirements without relocating your entire team.

Business registration regulations

Business registration rules can differ significantly from one location to another.

It's highly recommended to conduct detailed research or collaborate with a local expert to comprehend the regulations before incorporating your business.

For instance, if you're establishing a business in a sector partially closed to foreign investment in Indonesia, one of your partners must be an Indonesian citizen.

Conversely, Denmark doesn't stipulate a Danish resident to be part of your board of directors or management team.

Understanding of a country's business incorporation regulations can help you avoid potential legal penalties and delays in launching your venture.

Numerous companies delegate this task to a corporate advisory firm to streamline the process.

Source: sdecoret/Shutterstock

The economic state of your targeted country

While a new environment can offer abundant rewards, it's equally risky. Emerging economies may provide opportunities for first-mover advantages and impressive GDP growth rates, but income disparity and political instability can offset these.

Long-term shifts in societal and cultural beliefs also warrant consideration. You may be promoting a product or career path that may lose its appeal with the demographic over time.

Socio-economic fluctuations can disrupt even the most meticulously planned business strategies. Safeguard your interests by conducting an in-depth analysis of your target country's economic landscape and evaluating the potential challenges.

Investopedia recommends using a country’s Genuine Progress Indicator (GPI) to gauge its potential.

The GPI considers variables such as income distribution, personal consumption, dependence on foreign assets, and education rates to measure a nation's economic and social wellbeing.

Cultural differences and potential language barriers

For business entities considering incorporating in an entirely unfamiliar country, an array of belief systems, behaviours, and nuances could impact their success. The importance of cultural awareness in your international expansion plans should not be underestimated.

Even seemingly insignificant details, such as greetings, can carry great weight.

Consulting a local expert in your targeted country could prove beneficial. At the very least, make it your duty to research local customs and practices to anticipate how business may be conducted.

Furthermore, language barriers also warrant attention. History is rife, with examples of communication being lost in translation. A notable instance involves a Pepsi advertising campaign in Taiwan.

The company's slogan, "Come alive with the Pepsi generation," was regrettably translated as "Pepsi brings your ancestors back from the grave."

While some translation blunders may provoke laughter, they can also spell disaster if they lead to confusion around crucial information and procedures.

Availability of skills and employment

The last entry on your international business expansion checklist should be access to skilled labour. This can significantly differ between countries, making it essential to research the availability of required talent in your chosen location.

Skill scarcities in certain sectors might necessitate the import of foreign expertise or investment in comprehensive training programmes.

Additionally, be mindful of local content restrictions that may compel you to employ a specified quota of domestic workers.

Experts advise engaging with local recruitment consultants to appraise the local talent pool. This can also help you become acquainted with local salary expectations, benefits requirements, employment legislation and more before you hire employees.

Reasons for incorporating your business abroad

Expand brand recognition

One of the primary motives for companies to venture beyond their borders is the prospect of accessing new markets and expanding their footprint. This is particularly relevant if the product or service you offer is entirely unique in your target country.

Promoting your unique selling proposition (USP) amid local competition can be a challenging and expensive task.

Therefore, incorporating your business in a foreign location can present a fresh avenue for engaging with new audiences.

More affordable production and manufacturing costs

Access to technology and technical talent

Another driving force behind international expansion is the opportunity to access a broader pool of technical talent. For many businesses, having a global footprint means they can reach individuals with diverse skills, encompassing educational backgrounds, technical competencies, language abilities and more.

Many firms also venture into developed economies to capitalise on these nations' technological expertise and advancements. The degree of absorption of these capabilities often hinges on the technological gap between the firm and the target country's existing infrastructure.

In the long term, technology spillover can present numerous economic growth and productivity opportunities, especially for businesses hailing from developing economies.

Economic growth through free trade

Free trade stimulates innovation. It enables businesses to adjust to a global marketplace's escalating expectations and demands. This persistent push for evolution keeps businesses competitive, fostering growth.

Over time, this results in more dynamic businesses that contribute to a growing economy, capable of creating opportunities and providing higher-quality products and services at lower costs.

International incorporation gives companies access to new technologies and industry insights. These can be fed back into the business, improving operations and boosting long-term revenue.

Government incentives

Many governments worldwide offer incentives to foreign companies intending to invest in their region. From lower tax rates to specific business grants, the ability to capitalise on these unique investment opportunities presents an enticing prospect for businesses.

Singapore exemplifies a country providing such incentives.

Although the country has strict rules for foreign businesses, it also offers many initiatives for companies that support its goal of becoming a digital innovation hub.

Food for thought: Have an exit strategy

While contemplating an exit strategy might seem premature when preparing for international business incorporation, it is, in fact, vital. This gives you and your employees a sense of reassurance and security while embarking on a venture inherently laden with risks.

Having an exit strategy early on can assist businesses in monitoring their progression and making strategic daily decisions.

It shields businesses from making impulsive, last-minute decisions and offers a flexible blueprint that can be remodelled in light of changing circumstances and unforeseen events.

If closure of a foreign incorporated business becomes a necessity as part of an exit plan, here are some of the procedures to be considered:

• Closure of business bank accounts set up in the foreign country
• Notify employees and perform final payroll procedures
• Terminate your commercial lease in the foreign country
• File final income tax returns
• Close out all regulatory documents
• Fulfill all outstanding orders
• Cancel your VAT registration and other tax registrations for your company

Expand your business into global markets with an Employer of Record

Source:SWKStock/Shutterstock

Business incorporation in new markets can often be daunting for companies, especially those unsure about establishing a physical entity. However, collaborating with an Employer of Record (EOR) can offer a more manageable solution.

An EOR allows businesses to incorporate themselves within new markets, accessing the necessary talent with minimal hassle. In addition, they handle all legal compliance, HR duties, talent induction procedures and more.

This allows businesses to economise on time and resources, reducing the inherent risks of establishing an incorporated business overseas. It empowers them to gauge the viability of their goods and services across various markets.

A reliable EOR can help companies hire and set up teams in new markets within one to two months, quickly generating revenue and reaching new customers.

This convenience facilitates business incorporation, allowing businesses to remain agile and receptive to market risks and opportunities.

Find customised support with Airswift solutions

For enterprises contemplating international expansion, aligning with Airswift carries the advantage of our presence in over 60 countries worldwide.

We can help with business incorporation, advise on immigration, ensure tax compliance, and more. We carefully assess each situation and maintain transparency throughout the process.

Contact us today to learn more about our Employer of Record solutions. We look forward to helping you achieve your business goals