分支机构还是子公司？ 通过名义雇主 (EOR) 弥合差距
If your company is in the early stages of global expansion , it is important to consider how foreign workforce taxation issues will be addressed when deciding how and when to execute your growth strategy. Operating directly in a new market as a foreign company or a subsidiary of a foreign company will face different tax issues and compliance costs. The above difficulties can be solved through Employer of Name (EOR).
Permanent establishments and taxable establishments
A permanent establishment (PE) is a key tax concept involved in the early stages of global expansion. A permanent establishment is involved when a company constitutes a taxable establishment outside its home country. If a company employs labor in a new market, it needs to determine whether it constitutes a permanent establishment, regardless of the number of employees.
If a company does business directly with customers in a new market, without involving any subsidiaries of the company, it is ideal to avoid a permanent establishment in that market, saving them tax and compliance costs abroad. The determination of whether a permanent establishment is constituted mainly depends on whether the company’s business activities in the new market are related to the tax treaties (if any) between the different countries.
US tax treaties determine whether a company’s business activities in one country would constitute a permanent establishment in another country. When a company in a country directly carries out business activities abroad, that is, activities related to the expansion of its business, and has a fixed place of business and workforce, it does constitute a local permanent establishment. Taxes are transferred from the foreign parent company to the subsidiary if the subsidiary has a permanent place of business in the new market and employs labor there.
Some companies need to hire employees before they have substantial operations or established a permanent place of business; a subsidiary at this stage of growth may incur additional or unnecessary costs to the parent company. However, delaying doing business through a subsidiary until it can bring greater benefits to a larger business may result in additional tax burdens and compliance costs for the offshore parent company.
Why You Should Consider Going Through a Nominal Employer
If only people need to be hired in a new market, other options are available without going through a branch or subsidiary. An employer of record (EOR) can directly hire employees on behalf of the company in the country where it has registered a legal entity. In effect, the employer of record legally hires the employee on behalf of the recruiting firm, rather than directly by the recruiting firm. Therefore, the employer of record is responsible for running the local business and administering wages and employment issues for local employees. After ensuring that the business maintains compliance and continuous operation, the company can focus on the most critical core business growth activities.
The following case study shows how a UK company has grown and benefited from a nominal employer. The company uses nominal employers to help them manage the costs and benefits of operating in the U.S. while employing a U.S. workforce to grow its business as it expands into the U.S.
The British company began selling directly to US customers and saw a growing demand for its products from these customers. Their U.S. employee-centric growth strategy focuses on the following factors:
- When does business growth in the US need the support of employees?
- How do they recruit, compensate staff in the U.S. regulatory environment which is so different from the U.K.? How to provide benefits to employees?
- Will the need for US-based employees affect the UK company’s tax issues?
Phase 1: Initially, the company mainly promotes business growth in the US market through e-commerce sales and does not need to hire US employees. According to the tax agreement between the United States and the United Kingdom , the British company directly shipped products to American customers, and did not constitute a permanent establishment (PE) in the United States to solve the federal income tax payment problem.
Phase 2: As the acceptance of their products in the US market continues to increase, they feel the need to provide training to their US customers. The independent contractors employed by the British company in the United States cannot constitute a permanent establishment under the relevant agreement, and this method cannot meet its business needs in the United States. Alternatively, the UK company directly employs US employees to form a permanent establishment, which requires the UK company to report and pay federal income tax in the US. They don’t want UK companies involved in US tax issues. And they feel that their U.S. operations are not large enough to cover the costs of setting up and managing a subsidiary. Therefore, a Nominal Employer is an ideal alternative solution they should consider when expanding in the US.
Phase 3: The UK company engages an Employer of Name (EOR) to recruit, hire and manage young talent on their behalf and can support their entire global growth strategy in the US and other markets. Resolving the UK company’s US PE through the employer of record also defers the need to establish a US subsidiary during this growth phase, saving unnecessary compliance and administrative costs.
Stage 4: As the US company continues to grow, the UK company needs to establish a physical office and warehouse in the US, run by US employees, which constitutes a permanent establishment. Furthermore, the costs of the program may quickly outweigh the benefits as the number of nominal employers increases. After considering taxes, cost-effectiveness and growth, they finally decided to set up a US subsidiary and hire directly from the local staff, so that they could further improve their profits.
Successful expansion is inseparable from the efforts of the team
Every company will have different considerations and priorities when it comes to expansion and growth strategies. Expansion planning requires the participation of the entire consultant team to maximize successful expansion into new markets, as many operational issues and solutions will involve tax considerations and issues.