SUNNYVALE, Calif. (PRWEB) August 4, 2008
In Vyoma's experience, one of the first questions a U.S. company faces in going abroad is how to pay their employees and what kind of entity they should register. Every jurisdiction varies but there are certain features in common for most. The basic choices are to register as a representation office, a branch or full legal entity (i.e. corporation). What kind of things should you consider in deciding which to do?
Representation offices are usually the easiest to register. It is not an independent legal entity and you do not establish a permanent establishment when registering. Its advantages are that the registration is usually quicker than either a branch or corporation, most jurisdictions do not levy corporation tax on a representations office and if you decide to close down in the local country; it is usually comparatively quick and cost effective to close a representation office. Its disadvantages are that no core functions such as sales can be carried out; VAT registration is not allowed which means that any VAT incurred in the local jurisdiction cannot be recovered. Probably the biggest downside is that the representation office can put your intellectual property at risk. As an example in China, a representation office cannot sue a Chinese company (i.e. intellectual property violations) but it can be sued. However, certain jurisdictions do not have the concept of a representation office (i.e. Argentina).
Branches require much more information to be collected and are generally no more or less complex to register than a full corporation. However, its advantages are that money can be sent in and taken out, without the requirement to pay a dividend which, in most jurisdictions, will attract a withholding tax; it can carry out all the functions that a corporation can including sales and usually are eligible for the same tax breaks and grants as a corporation. A branch can register for VAT and make appropriate reclaims. A branch is also easier to close down in the event things go wrong than a corporation. The disadvantages are that a branch is not an independent legal entity so the parent company takes on all the local liabilities including employment liabilities, it is subject to corporation tax and in certain jurisdictions (i.e. UK) there is a requirement to file the accounts of the parent company with a Registrar, a Companies House or its equivalent; this means that the accounts of the parent company are open to inspection. A very few jurisdiction do not have the concept of a branch such as PRC; Brazil will allow a branch but it requires a Presidential decree!
Corporations are a full legal entity and are generally the most time consuming to set up. Their advantages are that they have limited liability, thus protecting the parent company, can carry out a full range of functions including sales, and will receive all local tax breaks and grants. It can register for VAT and reclaim VAT on expenses incurred. The disadvantages are that they are generally more expensive to run, tie up money, temporarily at least in the form share capital, are subject to corporation tax, must submit annual accounts in a specified format to a regulator, are often subject to an independent audit. In addition, they require company officers who will have personal liabilities in the local jurisdiction. In many jurisdictions they are extremely expensive and time consuming to close down. Many jurisdictions offer a large number of alternative vehicles from which the most appropriate one must be chosen (i.e. France has an EURL, SARL, SAS, SA...).
If you want more information on the challenges and opportunities your company can have while expanding internationally, please visit our website at http://www.nair-co.com or call 239.948.9820 (EDT-South) / 781.239.8135 (EDT-North) / 408.515.6887 (PDT) for more information.