International Expansion Adds Hidden Costs, Penalty Risks

The most comprehensive resource available for payroll professionals. This service provides payroll news, white papers, custom research answers, webinars on the hottest payroll topics, survey and research reports, in addition to access to Bloomberg BNA’s Payroll Library™.

By Molly Ward

The top priority for payroll and human resources professionals when considering a move overseas is determining different employment frameworks and costs, an expert in international expansion said Sept. 21.

“Through hidden costs that you don’t expect and penalties for doing things wrong, the process is always more cumbersome than expected,” said Michael Butler, a Radius Worldwide sales representative who provides support to clients with overseas operations.

Governments seeking tax revenue are starting to follow the money directly to U.S. parent companies, Butler said.

Establishing an office overseas is one of the easiest ways to set up an outpost because it allows the company to have a minimal presence. In this type of model, however, employees may not engage in sales or contractual matters, he said.

Employers also may choose to set up a branch office, or an extension of a parent company, that would serve a certain area, Butler said. Under this arrangement, employees may engage in core activities and sales operations, but the branch office would not be a separate legal entity and the foreign parent company would be subject to liability, he said.

Another option is to establish a separate legal entity for engaging in business overseas. This arrangement, known as a subsidiary, provides a layer of protection between the interests of the parent company and the on-the-ground entity, Butler said.

There are many costs associated with international expatriate assignments, including social taxes and administrative expenses, Butler said. In France, for example, employer contributions for social security are 44 percent, compared with a typical employer contribution of 10 percent in many other countries, he said.

Additionally, some countries cost more for companies to enter. In Mexico, employees are entitled to 10 percent of a company’s gross profit. Workers’ compensation is mandatory in Australia, the U.K. and Germany, and Argentina requires employers to contribute toward a national life insurance plan, Butler said.

By Molly Ward

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.