Expanding your business to a foreign country can be a challenging and relatively cost-intensive process. However, running a business in a foreign country without officially expanding or setting up an office is becoming a bit more commonplace, thanks to efficient outsourcing protocols and technologies.
Let’s say you have a business in your home country, but you want to hire remote resources from Country A and Country B for a long-term contract. You will be their full-time employer, and you may have to go through the non-resident employer registration process of the country so that there is no confusion regarding the taxation and associated benefits for your employee.
And that’s just one area where non-resident employer registration comes into play.
Challenges Associated With Non-Resident Employer Registration
The first thing you have to understand about non-resident employer registration is that it’s available or mandatory in relatively few countries, including UK, Canada, Ireland, Netherlands, Estonia, etc. The purpose of this registration is solely to grant you the ability to employ full-time resources from the host country. In most cases, they might not be able to represent your business or make binding decisions or execute trades on behalf of your business, though it might vary from country to county.
There are quite a few challenges associated with this type of registration.
- Navigating the taxation terrain of the host country. You might be required to register for corporate taxation, income tax (which you might have to hold for the employee), PAYE (for UK and Ireland), VAT, etc. Certain tax obligations might not get triggered unless your employees in a different country are earning above a threshold, or they may be liable for paying their own taxes because the income you provide them falls under freelancing, as per local laws. Understanding the specifics of the local taxation and deciphering it in the context of your employment contracts is important before you go through the process.
- It’s important that your employees are not subject to double taxation. It’s easy for residents of the host country but complicated for foreign workers. Their country may or may not have tax treaties with the host country. If they don’t, they might have to pay a portion of their taxes to the host country and a portion to their home country, and you as an employer need to figure out the right amount of tax to withhold.
- Most countries offer universal healthcare to their citizens, and a significant portion of their taxes goes into the national insurance programs. If you are already offering insurance through a private corporation, the situation might be different. If you are sending an employee to a host country, the insurance obligation might not kick in for several months or even a year. The scenario and the insurance component you might need to withhold from your employees’ wages will vary significantly based on your employee’s own status in the host country.
- The currency conversion might make tax reporting a bit complicated, especially if you are running the payroll in your home currency. If you withheld the requisite income tax amount from your employees’ wages in your currency and the value of the host currency shifts significantly between your withholding and payment obligation, you might be required to make up for the difference.
- Social security benefits might differ significantly between the home country of your business and the host country. You need to set up a payment structure that maximizes the social security benefit for the employee and minimizes your financial obligation. It’s a difficult balance to strike without thoroughly understanding the local rules.
Whether you are conducting business on foreign soil or simply going for a non-resident employer registration, it’s imperative that you have all the necessary information at hand. But you can benefit even more from understanding the trends and norms in the country you are trying to hire from.
Let us support you with your non-resident registration. Meet an expert today.