Not too long ago, going global expansion was limited to the wealthiest of companies, essentially enterprise-level concerns who were either exporting to countries in large quantities and wanted to incorporate overseas or were expanding operations into a new international market.
However, with the expansion of international communication networks and remote workers scattered in countries worldwide, global operations is no longer just a corporate concern. While there are some basic things US businesses should consider when going global, there are a few others vital to international success.
Taxes in the United States can be complicated, but it gets more complicated when your business goes global. Each country has its own tax laws that apply to the income your company earns in that country.
Tax deductions are different, and the most commonly overlooked tax deductions in one country may not be the same as those in another.
There are of course a number of options. You can use software to track your income and expenses in another country, but you should consult a local tax professional about how to file, and what tax laws affect your company.
There may also be implications in the United States. You must report your income from all sources, even if it is earned in another country. However, you will probably be eligible for a Foreign Earned Income Exclusion, although your tax professional can let you know for sure.
Paying your employees can be one of the toughest areas to navigate when you take your business global. There are a number of specific considerations for paying US based employees overseas, depending on your company model, and more than one of them may apply.
- – Register In Country. This, of course, involves registering with the local government, acquiring a taxpayer ID, and putting overseas employees on an in-country payroll. Once a company is beyond simply testing the market and establishing a permanent presence, this is often the best approach.
- – Individual Contractors. The riskiest ‘floating employee’ strategy. A company can classify overseas employees as individual contractors and pay them according to U.S. contractor guidelines This strategy avoids in-country tax and compliance requirements temporarily. At the same time, the business risks tax compliance issues in both countries.
- – Seconding: Partnering with a business in the host country, and “seconding” the employee to that company. This allows the employee to remain an employee of the US company but is only possible if that company has existing international subsidiaries or affiliates.
- – Leasing: The employee is loaned to and paid by a company not associated with the US company. This approach often requires the employee to temporarily end or suspend their employment with the US company. Many countries have agencies that specialize in helping companies by borrowing employees from them and handling their payroll, much like domestic temporary agencies.
- – Shadow Payroll: A company creates a division of their business in the host country that does something completely different than the US company. Then when a US worker goes to the host country, the division fills out the applicable paperwork and pays wages according to that country’s laws.
- – Host Country Workarounds: Some countries have their own workarounds, like allowing a foreign business to hire local workers as independent contractors who bear their own tax burden, allowing employers to make payroll only registrations in country, or offering legal payroll options to the employee rather than the company.
Handling international payroll can be extremely tricky, and failure to comply with another country’s payroll laws can result in some hefty fines and penalties. There are global payroll services that can help a business manage these issues if they are beyond the scope of the accounting and HR departments.
Company Culture and Remote Workers
Apart from the complex payroll and taxation issues associated with globalization is the issue of company culture. Can and should your company culture remain consistent even across international lines?
Many companies have developed remote office management strategies as this type of workforce has become more common.
- – Hiring: Company Culture starts with who you hire. Remote workers must be self-motivated and trustworthy and must communicate well in written form, especially when it comes to social interaction.
- – Managing: Companies must develop a clear communication strategy yet leave workers room to be themselves. Managers should regularly check on workers, set reasonable expectations, and discourage them from overworking.
- – Encouraging: Managers should meet face to face when possible through video chat and special events, including team building exercises. Companies should also develop common goals for remote teams, and empower employees to make decisions and accomplish them.
- – Reward: Your culture should include rewards and incentives that provide tangible benefits to the employees. These tangible benefits may vary by country, but unique things should be offered rather than just monetary incentives.
Maintaining company culture can be difficult in a more traditional office, let alone a remote office scattered in one or more countries. Sometimes it makes more sense to let divisions within each country develop their own sub-culture as long as it does not conflict with the overall company mission.
Location, Location, Location
While last on this list, this is far from the least of concerns when a company is considering going global, it’s simply that the other topics all tie into this one, along with some other additional concerns.
Market: Is there a market for your goods or services in the country you are targeting? While this may sound obvious, don’t overlook that you may need to modify something as simple as the name of your business or one of your products because it does not translate well or is even culturally offensive.
Currency Exchange: What is the rate of currency exchange currently and historically? Is it volatile or stable? Using a simple currency converter will give you a rough idea of what to expect. Will your products be able to compete price-wise, and will you be able to absorb fluctuations into your profit margin?
Taxes: What is the tax climate like? Are the taxes good or bad, and how does the country tax foreign companies differently than domestic ones? What is the impact on your US tax picture, and how might that change over the next few years? As stated above, compliance is different for each country, and each situation should be assessed with the help of a local tax professional.
Personnel: Beyond payroll, what personnel will you be working with? Does the population of the country or the area where you would like to locate within that country have the skills needed to work for your business? Are there training programs that can be leveraged or implemented to correct this issue if there is a skills gap? What will it cost to invest in those programs?
As the internet and worldwide communications get easier and the global economy becomes a reality, more companies will expand their operations into other countries or even just hire remote workers from around the globe. Keeping in mind Taxes, Payroll, Company Culture, and Location almost any company can grow from being a domestic success to a global one.