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Hiring Foreign Nationals Without Setting Up a Subsidiary

By June 26, 2016 January 8th, 2018 No Comments
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Expanding into a new market is scary, which is why your company may consider hiring foreign nationals as a part of your global expansion strategy. A foreign national can work in host countries through a visa and work permit, which you can learn more about in our previous post. Getting a work permit to hire a foreign national in your target country is possible in one of two ways; have a foreign subsidiary company or using an International PEO.

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Hiring Foreign Nationals with a Legal Entity

Companies sometimes test their target country’s market by working with independent contractors who are either foreign nationals or in-country residents.  Most companies do this without creating a foreign subsidiary. This process is not free from risks, especially if you’re using a domestic employment agreement. Independent contractor status is volatile in global markets.

Across the world, contractor agreements regularly end up in court and international businesses end up with big-ticket bills due to their “safe” consultants. Before hiring a consultant you need to create an ironclad agreement that protects yourself from employment disputes.  The reason is that contractors can claim to overseas labor courts that they are operating as employees, not independent consultants. If the courts side with the contractor, which they usually do, you’re left paying back taxes, fines, withholding benefits, and more. Read more about the risk vs. reward with international contractors.

One way to alleviate the stress associated with hiring independent contractors is by using Foreign Subsidiary as a Service (FSaaS).  FSaaS™ is an employer of record model that is compliant for a fraction of the time and money it takes to develop a foreign corporation. FSaaS gives you more protection and helps you stay compliance while you’re testing out the market. Another plus, if you decide the country doesn’t fit your model, you can leave which is not possible with a company.

Importance of a Compliant International Market Test

Plan on performing a market test before investing time and money into a foreign subsidiary creation.  Cultural differences, saturated markets, and language barriers are just a few critical success points.

The best way to test out your desired market is by putting a human presence in your target country.  You need to have someone there who can identify opportunities and see challenges.  It’s best to stay compliant through FSaaS or an International Professional Employer Organization (PEO).  The goal is to avoid costly legal issues, damage your reputation, which derails your international strategy.

Hiring Foreign Nationals with an International PEO

An International PEO allows employers to leverage a third party’s existing corporate entity and an employer of record model. An International PEO gives companies quick access to compliant employment relationships.  Velocity Global offers it in over 185 countries and removes the need for establishing a foreign subsidiary. This service is usually responsible for issuing payroll checks and submitting local payroll taxes as well as other HR functions.