Continuing Your Expansion into the Far EastContinuing the discussion from the two previous articles, we looked at the legalities of operations in various countries and the fact that they may be limited. Also an overall tax planning exercise needs to be undertaken to ensure that the corporate structure is the most tax efficient for your business.
Having chosen a country in which to operate we then need to look at the licencing requirements for that jurisdiction and how to structure the corporate organisation. This will depend on whether we evaluate the best vehicle to be a representative office, branch or subsidiary of your parent company.
Representative offices generally are not allowed to make contracts on behalf on the parent company. Therefore, their role is marketing and promotion only. Sales are agreed directly between the customer and the parent company. A branch may be authorised to make contracts on behalf of the head office and these may be controlled by limitations set by the head office. Therefore a branch will be able to hold stock and make authorised sales directly to the customer. However, a branch is an arm of the parent and for legal and taxation purposes the parent is deemed to be established in the country of operation. This is known as a permanent establishment.
A subsidiary is a separate legal entity established in the country of operation and may be partly owned by the parent company. Many countries have regulations which stipulate that a local company, the subsidiary, must be more than 50% owned by local shareholders. This looks daunting on the face of things but is workable by various means depending on which country you will operate in. This would be the subject of a separate discussion I would have with you.
Other countries are much more open and allow 100% foreign owned companies so your subsidiary would be easy to establish in one of these.
Next the registration needs to be undertaken. Many things are taken for granted when you think about doing things here in the UK. For example a registered address. In the UK you simply put your business address or your home address. But now you do not have either and so these small details need to be considered. In some countries only a bonafide office address may be used and so you need to find a service which will offer this or a real office or other business premises and obtain permission from the property owner to use this as your business address. These small hurdles can be temporary showstoppers if you are unprepared for them.
In many countries there needs to be a resident director and/or company secretary. As you are not resident there yet these people need to be found. The main objective here is to stop foreigners setting up businesses and then, should the business fail, walking away from them never to be seen again.
Registrations with the local department of commerce, tax office, local authority and various other authorities need to be completed. If you or a manager from the UK will operate the company locally a work permit and resident’s permit will also need to be established for that person.
All these relatively small aspects of establishing your business require painstaking attention to detail but if you have the right connections these details can be dealt with easily.
If you would like an exploratory chat about this please contact me. Andrew Wood, Kaywood Ltd.